Tax II Set 4 * Assessment Cases*Page 1 of 65

What Constitutes Assessment On May 21, 2003, petitioner, through then Commissioner Guillermo L. Parayno, Jr., referred to the Secretary of Justice for preliminary
THIRD DIVISIONG.R. No. 177279 October 13, 2010
COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs.HON. RAUL M. GONZALEZ, Secretary of Justice, L. M. CAMUS
ENGINEERING CORPORATION (represented by LUIS M. CAMUS and LINO D. MENDOZA), Respondents.
DECISION
VILLARAMA, JR., J.:
This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, assailing the Decision 1 dated
October 31, 2006 and Resolution2 dated March 6, 2007 of the Court of Appeals (CA) in CA-G.R. SP No. 93387 which affirmed the
Resolution3 dated December 13, 2005 of respondent Secretary of Justice in I.S. No. 2003-774 for violation of Sections 254 and 255 of
the National Internal Revenue Code of 1997 (NIRC).
The facts as culled from the records:
Pursuant to Letter of Authority (LA) No. 00009361 dated August 25, 2000 issued by then Commissioner of Internal Revenue (petitioner)
Dakila B. Fonacier, Revenue Officers Remedios C. Advincula, Jr., Simplicio V. Cabantac, Jr., Ricardo L. Suba, Jr. and Aurelio Agustin T.
Zamora supervised by Section Chief Sixto C. Dy, Jr. of the Tax Fraud Division (TFD), National Office, conducted a fraud investigation
for all internal revenue taxes to ascertain/determine the tax liabilities of respondent L. M. Camus Engineering Corporation (LMCEC) for
the taxable years 1997, 1998 and 1999. 4 The audit and investigation against LMCEC was precipitated by the information provided by an
"informer" that LMCEC had substantial underdeclared income for the said period. For failure to comply with the subpoena duces tecum
issued in connection with the tax fraud investigation, a criminal complaint was instituted by the Bureau of Internal Revenue (BIR) against
LMCEC on January 19, 2001 for violation of Section 266 of the NIRC (I.S. No. 00-956 of the Office of the City Prosecutor of Quezon
City).5
investigation its complaint against LMCEC, Luis M. Camus and Lino D. Mendoza, the latter two were sued in their capacities as
President and Comptroller, respectively. The case was docketed as I.S. No. 2003-774. In the Joint Affidavit executed by the revenue
officers who conducted the tax fraud investigation, it was alleged that despite the receipt of the final assessment notice and formal
demand letter on October 1, 2002, LMCEC failed and refused to pay the deficiency tax assessment in the total amount
of P630,164,631.61, inclusive of increments, which had become final and executory as a result of the said taxpayers failure to file a
protest thereon within the thirty (30)-day reglementary period. 12
Camus and Mendoza filed a Joint Counter-Affidavit contending that LMCEC cannot be held liable whatsoever for the alleged tax
deficiency which had become due and demandable. Considering that the complaint and its annexes all showed that the suit is a simple
civil action for collection and not a tax evasion case, the Department of Justice (DOJ) is not the proper forum for BIRs complaint. They
also assail as invalid the assessment notices which bear no serial numbers and should be shown to have been validly served by an
Affidavit of Constructive Service executed and sworn to by the revenue officers who served the same. As stated in LMCECs letter-
protest dated December 12, 2002 addressed to Revenue District Officer (RDO) Clavelina S. Nacar of RD No. 40, Cubao, Quezon City,
the company had already undergone a series of routine examinations for the years 1997, 1998 and 1999; under the NIRC, only one
examination of the books of accounts is allowed per taxable year.13
LMCEC further averred that it had availed of the Bureaus Tax Amnesty Programs (Economic Recovery Assistance Payment [ERAP]
Program and the Voluntary Assessment Program [VAP]) for 1998 and 1999; for 1997, its tax liability was terminated and closed under
Letter of Termination14 dated June 1, 1999 issued by petitioner and signed by the Chief of the Assessment Division. 15 LMCEC claimed it
made payments of income tax, VAT and expanded withholding tax (EWT), as follows:

Based on data obtained from an "informer" and various clients of LMCEC, 6 it was discovered that LMCEC filed fraudulent tax returns YEAR AMOUNT OF TAXES
with substantial underdeclarations of taxable income for the years 1997, 1998 and 1999. Petitioner thus assessed the company of total PAID
deficiency taxes amounting to P430,958,005.90 (income tax -P318,606,380.19 and value-added tax [VAT] - P112,351,625.71) covering
the said period. The Preliminary Assessment Notice (PAN) was received by LMCEC on February 22, 2001. 7 1997 Termination Letter Under Letter of Authority No. 174600 Dated EWT - P 6,000.00
November 4, 1998 VAT - 540,605.02
IT - 3,000.00
LMCECs alleged underdeclared income was summarized by petitioner as follows:
1998 ERAP Program pursuant WC - 38,404.55
to RR #2-99 VAT - 61,635.40
Year Income Income Undeclared Percentage of
Per ITR Per Investigation Income Underdeclaration 1999 VAP Program pursuant IT - 878,495.28
to RR #8-2001 VAT - 1,324,317.0016
96,638,540.00 283,412,140.84 186,733,600.84 193.30%
1997
LMCEC argued that petitioner is now estopped from further taking any action against it and its corporate officers concerning the taxable
years 1997 to 1999. With the grant of immunity from audit from the companys availment of ERAP and VAP, which have a feature of a
tax amnesty, the element of fraud is negated the moment the Bureau accepts the offer of compromise or payment of taxes by the taxpayer.
86,793,913.00 236,863,236.81 150,069,323.81 172.90% The act of the revenue officers in finding justification under Section 6(B) of the NIRC (Best Evidence Obtainable) is misplaced and
unavailing because they were not able to open the books of the company for the second time, after the routine examination, issuance of
1998
termination letter and the availment of ERAP and VAP. LMCEC thus maintained that unless there is a prior determination of fraud
supported by documents not yet incorporated in the docket of the case, petitioner cannot just issue LAs without first terminating those
previously issued. It emphasized the fact that the BIR officers who filed and signed the Affidavit-Complaint in this case were the same
88,287,792.00 251,507,903.13 163,220,111.13 184.90%8 ones who appeared as complainants in an earlier case filed against Camus for his alleged "failure to obey summons in violation of
Section 5 punishable under Section 266 of the NIRC of 1997" (I.S. No. 00-956 of the Office of the City Prosecutor of Quezon City).
1999 After preliminary investigation, said case was dismissed for lack of probable cause in a Resolution issued by the Investigating Prosecutor
on May 2, 2001.17

In view of the above findings, assessment notices together with a formal letter of demand dated August 7, 2002 were sent to LMCEC
through personal service on October 1, 2002. 9 Since the company and its representatives refused to receive the said notices and demand
letter, the revenue officers resorted to constructive service10 in accordance with Section 3, Revenue Regulations (RR) No. 12-9911.
LMCEC further asserted that it filed on April 20, 2001 a protest on the PAN issued by petitioner for having no basis in fact and law.
However, until now the said protest remains unresolved. As to the alleged informant who purportedly supplied the "confidential
information," LMCEC believes that such person is fictitious and his true identity and personality could not be produced. Hence, this case
is another form of harassment against the company as what had been found by the Office of the City Prosecutor of Quezon City in I.S.
No. 00-956. Said case and the present case both have something to do with the audit/examination of LMCEC for taxable years 1997,
1998 and 1999 pursuant to LA No. 00009361.18

In the Joint Reply-Affidavit executed by the Bureaus revenue officers, petitioner disagreed with the contention of LMCEC that the
complaint filed is not criminal in nature, pointing out that LMCEC and its officers Camus and Mendoza were being charged for the
criminal offenses defined and penalized under Sections 254 (Attempt to Evade or Defeat Tax) and 255 (Willful Failure to Pay Tax) of the
NIRC. This finds support in Section 205 of the same Code which provides for administrative (distraint, levy, fine, forfeiture, lien, etc.)
and judicial (criminal or civil action) remedies in order to enforce collection of taxes. Both remedies may be pursued either independently
or simultaneously. In this case, the BIR decided to simultaneously pursue both remedies and thus aside from this criminal action, the
Bureau also initiated administrative proceedings against LMCEC. 19
On the lack of control number in the assessment notice, petitioner explained that such is a mere office requirement in the Assessment
Service for the purpose of internal control and monitoring; hence, the unnumbered assessment notices should not be interpreted as
irregular or anomalous. Petitioner stressed that LMCEC already lost its right to file a protest letter after the lapse of the thirty (30)-day
reglementary period. LMCECs protest-letter dated December 12, 2002 to RDO Clavelina S. Nacar, RD No. 40, Cubao, Quezon City was
actually filed only on December 16, 2002, which was disregarded by the petitioner for being filed out of time. Even assuming for the
sake of argument that the assessment notices were invalid, petitioner contended that such could not affect the present criminal
action,20 citing the ruling in the landmark case of Ungab v. Cusi, Jr.21
As to the Letter of Termination signed by Ruth Vivian G. Gandia of the Assessment Division, Revenue Region No. 7, Quezon City,
petitioner pointed out that LMCEC failed to mention that the undated Certification issued by RDO Pablo C. Cabreros, Jr. of RD No. 40,
Cubao, Quezon City stated that the report of the 1997 Internal Revenue taxes of LMCEC had already been submitted for review and
approval of higher authorities. LMCEC also cannot claim as excuse from the reopening of its books of accounts the previous
investigations and examinations. Under Section 235 (a), an exception was provided in the rule on once a year audit examination in case
of "fraud, irregularity or mistakes, as determined by the Commissioner". Petitioner explained that the distinction between a Regular Audit
Examination and Tax Fraud Audit Examination lies in the fact that the former is conducted by the district offices of the Bureaus
Regional Offices, the authority emanating from the Regional Director, while the latter is conducted by the TFD of the National Office
only when instances of fraud had been determined by the petitioner.22
Petitioner further asserted that LMCECs claim that it was granted immunity from audit when it availed of the VAP and ERAP programs
is misleading. LMCEC failed to state that its availment of ERAP under RR No. 2-99 is not a grant of absolute immunity from audit and
investigation, aside from the fact that said program was only for income tax and did not cover VAT and withholding tax for the taxable
year 1998. As for LMCECS availment of VAP in 1999 under RR No. 8-2001 dated August 1, 2001 as amended by RR No. 10-2001
dated September 3, 2001, the company failed to state that it covers only income tax and VAT, and did not include withholding tax.
However, LMCEC is not actually entitled to the benefits of VAP under Section 1 (1.1 and 1.2) of RR No. 10-2001. As to the principle of
estoppel invoked by LMCEC, estoppel clearly does not lie against the BIR as this involved the exercise of an inherent power by the
government to collect taxes.23
Petitioner also pointed out that LMCECs assertion correlating this case with I.S. No. 00-956 is misleading because said case involves
another violation and offense (Sections 5 and 266 of the NIRC). Said case was filed by petitioner due to the failure of LMCEC to submit
or present its books of accounts and other accounting records for examination despite the issuance of subpoena duces tecum against
Camus in his capacity as President of LMCEC. While indeed a Resolution was issued by Asst. City Prosecutor Titus C. Borlas on May 2,
2001 dismissing the complaint, the same is still on appeal and pending resolution by the DOJ. The determination of probable cause in
said case is confined to the issue of whether there was already a violation of the NIRC by Camus in not complying with the subpoena
duces tecum issued by the BIR.24
Petitioner contended that precisely the reason for the issuance to the TFD of LA No. 00009361 by the Commissioner is because the latter
agreed with the findings of the investigating revenue officers that fraud exists in this case. In the conduct of their investigation, the
revenue officers observed the proper procedure under Revenue Memorandum Order (RMO) No. 49-2000 wherein it is required that
before the issuance of a Letter of Authority against a particular taxpayer, a preliminary investigation should first be conducted to
determine if a prima facie case for tax fraud exists. As to the allegedly unresolved protest filed on April 20, 2001 by LMCEC over the
PAN, this has been disregarded by the Bureau for being pro forma and having been filed beyond the 15-day reglementary period. A
subsequent letter dated April 20, 2001 was filed with the TFD and signed by a certain Juan Ventigan. However, this was disregarded and
considered a mere scrap of paper since the said signatory had not shown any prior authorization to represent LMCEC. Even assuming
said protest letter was validly filed on behalf of the company, the issuance of a Formal Demand Letter and Assessment Notice through
constructive service on October 1, 2002 is deemed an implied denial of the said protest. Lastly, the details regarding the "informer" being
confidential, such information is entitled to some degree of protection, including the identity of the informant against LMCEC. 25
Tax II Set 4 * Assessment Cases*Page 2 of 65
In their Joint Rejoinder-Affidavit,26 Camus and Mendoza reiterated their argument that the identity of the alleged informant is crucial to
determine if he/she is qualified under Section 282 of the NIRC. Moreover, there was no assessment that has already become final, the
validity of its issuance and service has been put in issue being anomalous, irregular and oppressive. It is contended that for criminal
prosecution to proceed before assessment, there must be a prima facie showing of a willful attempt to evade taxes. As to LMCECs
availment of the VAP and ERAP programs, the certificate of immunity from audit issued to it by the BIR is plain and simple, but
petitioner is now saying it has the right to renege with impunity from its undertaking. Though petitioner deems LMCEC not qualified to
avail of the benefits of VAP, it must be noted that if it is true that at the time the petitioner filed I.S. No. 00-956 sometime in January 2001
it had already in its custody that "Confidential Information No. 29-2000 dated July 7, 2000", these revenue officers could have rightly
filed the instant case and would not resort to filing said criminal complaint for refusal to comply with a subpoena duces tecum.
On September 22, 2003, the Chief State Prosecutor issued a Resolution 27 finding no sufficient evidence to establish probable cause
against respondents LMCEC, Camus and Mendoza. It was held that since the payments were made by LMCEC under ERAP and VAP
pursuant to the provisions of RR Nos. 2-99 and 8-2001 which were offered to taxpayers by the BIR itself, the latter is now in estoppel to
insist on the criminal prosecution of the respondent taxpayer. The voluntary payments made thereunder are in the nature of a tax amnesty.
The unnumbered assessment notices were found highly irregular and thus their validity is suspect; if the amounts indicated therein were
collected, it is uncertain how these will be accounted for and if it would go to the coffers of the government or elsewhere. On the required
prior determination of fraud, the Chief State Prosecutor declared that the Office of the City Prosecutor in I.S. No. 00-956 has already
squarely ruled that (1) there was no prior determination of fraud, (2) there was indiscriminate issuance of LAs, and (3) the complaint was
more of harassment. In view of such findings, any ensuing LA is thus defective and allowing the collection on the assailed assessment
notices would already be in the context of a "fishing expedition" or "witch-hunting." Consequently, there is nothing to speak of regarding
the finality of assessment notices in the aggregate amount ofP630,164,631.61.
Petitioner filed a motion for reconsideration which was denied by the Chief State Prosecutor.28
Petitioner appealed to respondent Secretary of Justice but the latter denied its petition for review under Resolution dated December 13,
2005.29
The Secretary of Justice found that petitioners claim that there is yet no finality as to LMCECs payment of its 1997 taxes since the audit
report was still pending review by higher authorities, is unsubstantiated and misplaced. It was noted that the Termination Letter issued by
the Commissioner on June 1, 1999 is explicit that the matter is considered closed. As for taxable year 1998, respondent Secretary stated
that the record shows that LMCEC paid VAT and withholding tax in the amount of P61,635.40 and P38,404.55, respectively. This
eventually gave rise to the issuance of a certificate of immunity from audit for 1998 by the Office of the Commissioner of Internal
Revenue. For taxable year 1999, respondent Secretary found that pursuant to earlier LA No. 38633 dated July 4, 2000, LMCECs 1999
tax liabilities were still pending investigation for which reason LMCEC assailed the subsequent issuance of LA No. 00009361 dated
August 25, 2000 calling for a similar investigation of its alleged 1999 tax deficiencies when no final determination has yet been arrived
on the earlier LA No. 38633.30
On the allegation of fraud, respondent Secretary ruled that petitioner failed to establish the existence of the following circumstances
indicating fraud in the settlement of LMCECs tax liabilities: (1) there must be intentional and substantial understatement of tax liability
by the taxpayer; (2) there must be intentional and substantial overstatement of deductions or exemptions; and (3) recurrence of the
foregoing circumstances. First, petitioner miserably failed to explain why the assessment notices were unnumbered; second, the claim
that the tax fraud investigation was precipitated by an alleged "informant" has not been corroborated nor was it clearly established, hence
there is no other conclusion but that the Bureau engaged in a "fishing expedition"; and furthermore, petitioners course of action is
contrary to Section 235 of the NIRC allowing only once in a given taxable year such examination and inspection of the taxpayers books
of accounts and other accounting records. There was no convincing proof presented by petitioner to show that the case of LMCEC falls
under the exceptions provided in Section 235. Respondent Secretary duly considered the issuance of Certificate of Immunity from Audit
and Letter of Termination dated June 1, 1999 issued to LMCEC. 31
Anent the earlier case filed against the same taxpayer (I.S. No. 00-956), the Secretary of Justice found petitioner to have engaged in
forum shopping in view of the fact that while there is still pending an appeal from the Resolution of the City Prosecutor of Quezon City
in said case, petitioner hurriedly filed the instant case, which not only involved the same parties but also similar substantial issues (the
joint complaint-affidavit also alleged the issuance of LA No. 00009361 dated August 25, 2000). Clearly, the evidence of litis pendentia is
present. Finally, respondent Secretary noted that if indeed LMCEC committed fraud in the settlement of its tax liabilities, then at the
outset, it should have been discovered by the agents of petitioner, and consequently petitioner should not have issued the Letter of

Termination and the Certificate of Immunity From Audit. Petitioner thus should have been more circumspect in the issuance of said
documents.32
Its motion for reconsideration having been denied, petitioner challenged the ruling of respondent Secretary via a certiorari petition in the
CA.
On October 31, 2006, the CA rendered the assailed decision 33 denying the petition and concurred with the findings and conclusions of
respondent Secretary. Petitioners motion for reconsideration was likewise denied by the appellate court. 34 It appears that entry of
judgment was issued by the CA stating that its October 31, 2006 Decision attained finality on March 25, 2007. 35 However, the said entry
of judgment was set aside upon manifestation by the petitioner that it has filed a petition for review before this Court subsequent to its
receipt of the Resolution dated March 6, 2007 denying petitioners motion for reconsideration on March 20, 2007. 36
The petition is anchored on the following grounds:
I.
The Honorable Court of Appeals erroneously sustained the findings of the Secretary of Justice who gravely abused his discretion by
dismissing the complaint based on grounds which are not even elements of the offenses charged.
II.
The Honorable Court of Appeals erroneously sustained the findings of the Secretary of Justice who gravely abused his discretion by
dismissing petitioners evidence, contrary to law.
III.
The Honorable Court of Appeals erroneously sustained the findings of the Secretary of Justice who gravely abused his discretion by
inquiring into the validity of a Final Assessment Notice which has become final, executory and demandable pursuant to Section 228 of
the Tax Code of 1997 for failure of private respondent to file a protest against the same. 37
The core issue to be resolved is whether LMCEC and its corporate officers may be prosecuted for violation of Sections 254 (Attempt to
Evade or Defeat Tax) and 255 (Willful Failure to Supply Correct and Accurate Information and Pay Tax).
Petitioner filed the criminal complaint against the private respondents for violation of the following provisions of the NIRC, as amended:
SEC. 254. Attempt to Evade or Defeat Tax. Any person who willfully attempts in any manner to evade or defeat any tax imposed under
this Code or the payment thereof shall, in addition to other penalties provided by law, upon conviction thereof, be punished by a fine of
not less than Thirty thousand pesos (P30,000) but not more than One hundred thousand pesos (P100,000) and suffer imprisonment of not
less than two (2) years but not more than four (4) years: Provided, That the conviction or acquittal obtained under this Section shall not
be a bar to the filing of a civil suit for the collection of taxes.
SEC. 255. Failure to File Return, Supply Correct and Accurate Information, Pay Tax, Withhold and Remit Tax and Refund Excess Taxes
Withheld on Compensation. Any person required under this Code or by rules and regulations promulgated thereunder to pay any tax,
make a return, keep any record, or supply any correct and accurate information, who willfully fails to pay such tax, make such return,
keep such record, or supply such correct and accurate information, or withhold or remit taxes withheld, or refund excess taxes withheld
on compensations at the time or times required by law or rules and regulations shall, in addition to other penalties provided by law, upon
conviction thereof, be punished by a fine of not less than Ten thousand pesos (P10,000) and suffer imprisonment of not less than one (1)
year but not more than ten (10) years.x x x x (Emphasis supplied.)
Respondent Secretary concurred with the Chief State Prosecutors conclusion that there is insufficient evidence to establish probable
cause to charge private respondents under the above provisions, based on the following findings: (1) the tax deficiencies of LMCEC for
taxable years 1997, 1998 and 1999 have all been settled or terminated, as in fact LMCEC was issued a Certificate of Immunity and Letter
of Termination, and availed of the ERAP and VAP programs; (2) there was no prior determination of the existence of fraud; (3) the
assessment notices are unnumbered, hence irregular and suspect; (4) the books of accounts and other accounting records may be subject
to audit examination only once in a given taxable year and there is no proof that the case falls under the exceptions provided in Section
235 of the NIRC; and (5) petitioner committed forum shopping when it filed the instant case even as the earlier criminal complaint (I.S.
No. 00-956) dismissed by the City Prosecutor of Quezon City was still pending appeal.
Petitioner argues that with the finality of the assessment due to failure of the private respondents to challenge the same in accordance
with Section 228 of the NIRC, respondent Secretary has no jurisdiction and authority to inquire into its validity. Respondent taxpayer is
Tax II Set 4 * Assessment Cases*Page 3 of 65
thereby allowed to do indirectly what it cannot do directly to raise a collateral attack on the assessment when even a direct challenge of
the same is legally barred. The rationale for dismissing the complaint on the ground of lack of control number in the assessment notice
likewise betrays a lack of awareness of tax laws and jurisprudence, such circumstance not being an element of the offense. Worse, the
final, conclusive and undisputable evidence detailing a crime under our taxation laws is swept under the rug so easily on mere conspiracy
theories imputed on persons who are not even the subject of the complaint.
We grant the petition.
There is no dispute that prior to the filing of the complaint with the DOJ, the report on the tax fraud investigation conducted on LMCEC
disclosed that it made substantial underdeclarations in its income tax returns for 1997, 1998 and 1999. Pursuant to RR No. 12-99, 38 a PAN
was sent to and received by LMCEC on February 22, 2001 wherein it was notified of the proposed assessment of deficiency taxes
amounting to P430,958,005.90 (income tax -P318,606,380.19 and VAT - P112,351,625.71) covering taxable years 1997, 1998 and
1999.39 In response to said PAN, LMCEC sent a letter-protest to the TFD, which denied the same on April 12, 2001 for lack of legal and
factual basis and also for having been filed beyond the 15-day reglementary period. 40
As mentioned in the PAN, the revenue officers were not given the opportunity to examine LMCECs books of accounts and other
accounting records because its officers failed to comply with the subpoena duces tecum earlier issued, to verify its alleged
underdeclarations of income reported by the Bureaus informant under Section 282 of the NIRC. Hence, a criminal complaint was filed
by the Bureau against private respondents for violation of Section 266 which provides:
SEC. 266. Failure to Obey Summons. Any person who, being duly summoned to appear to testify, or to appear and produce books of
accounts, records, memoranda, or other papers, or to furnish information as required under the pertinent provisions of this Code, neglects
to appear or to produce such books of accounts, records, memoranda, or other papers, or to furnish such information, shall, upon
conviction, be punished by a fine of not less than Five thousand pesos (P5,000) but not more than Ten thousand pesos (P10,000) and
suffer imprisonment of not less than one (1) year but not more than two (2) years.
It is clear that I.S. No. 00-956 involves a separate offense and hence litis pendentia is not present considering that the outcome of I.S. No.
00-956 is not determinative of the issue as to whether probable cause exists to charge the private respondents with the crimes of attempt
to evade or defeat tax and willful failure to supply correct and accurate information and pay tax defined and penalized under Sections 254
and 255, respectively. For the crime of tax evasion in particular, compliance by the taxpayer with such subpoena, if any had been issued,
is irrelevant. As we held in Ungab v. Cusi, Jr.,41 "[t]he crime is complete when the [taxpayer] has x x x knowingly and willfully filed [a]
fraudulent [return] with intent to evade and defeat x x x the tax." Thus, respondent Secretary erred in holding that petitioner committed
forum shopping when it filed the present criminal complaint during the pendency of its appeal from the City Prosecutors dismissal of
I.S. No. 00-956 involving the act of disobedience to the summons in the course of the preliminary investigation on LMCECs correct tax
liabilities for taxable years 1997, 1998 and 1999.
In the Details of Discrepancies attached as Annex B of the PAN, 42 private respondents were already notified that inasmuch as the revenue
officers were not given the opportunity to examine LMCECs books of accounts, accounting records and other documents, said revenue
officers gathered information from third parties. Such procedure is authorized under Section 5 of the NIRC, which provides:
SEC. 5. Power of the Commissioner to Obtain Information, and to Summon, Examine, and Take Testimony of Persons. In ascertaining
the correctness of any return, or in making a return when none has been made, or in determining the liability of any person for any
internal revenue tax, or in collecting any such liability, or in evaluating tax compliance, the Commissioner is authorized:
(A) To examine any book, paper, record or other data which may be relevant or material to such inquiry;
(B) To obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit
or investigation, or from any office or officer of the national and local governments, government agencies and
instrumentalities, including the Bangko Sentral ng Pilipinas and government-owned or -controlled corporations, any
information such as, but not limited to, costs and volume of production, receipts or sales and gross incomes of taxpayers, and
the names, addresses, and financial statements of corporations, mutual fund companies, insurance companies, regional
operating headquarters of multinational companies, joint accounts, associations, joint ventures or consortia and registered
partnerships, and their members;

(C) To summon the person liable for tax or required to file a return, or any officer or employee of such person, or any person
having possession, custody, or care of the books of accounts and other accounting records containing entries relating to the
business of the person liable for tax, or any other person, to appear before the Commissioner or his duly authorized
representative at a time and place specified in the summons and to produce such books, papers, records, or other data, and to
give testimony;
(D) To take such testimony of the person concerned, under oath, as may be relevant or material to such inquiry; x x xx x x x
(Emphasis supplied.)
Private respondents assertions regarding the qualifications of the "informer" of the Bureau deserve scant consideration. We have held
that the lack of consent of the taxpayer under investigation does not imply that the BIR obtained the information from third parties
illegally or that the information received is false or malicious. Nor does the lack of consent preclude the BIR from assessing deficiency
taxes on the taxpayer based on the documents. 43 In the same vein, herein private respondents cannot be allowed to escape criminal
prosecution under Sections 254 and 255 of the NIRC by mere imputation of a "fictitious" or disqualified informant under Section 282
simply because other than disclosure of the official registry number of the third party "informer," the Bureau insisted on maintaining the
confidentiality of the identity and personal circumstances of said "informer."
Subsequently, petitioner sent to LMCEC by constructive service allowed under Section 3 of RR No. 12-99, assessment notice and formal
demand informing the said taxpayer of the law and the facts on which the assessment is made, as required by Section 228 of the NIRC.
Respondent Secretary, however, fully concurred with private respondents contention that the assessment notices were invalid for being
unnumbered and the tax liabilities therein stated have already been settled and/or terminated.
We do not agree.
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 taxpayers 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.44
As it is, the formality of a control number in the assessment notice is not a requirement for its validity but rather the contents thereof
which should inform the taxpayer of the declaration of deficiency tax against said taxpayer. Both the formal letter of demand and the
notice of assessment shall be void if the former failed to state the fact, the law, rules and regulations or jurisprudence on which the
assessment is based, which is a mandatory requirement under Section 228 of the NIRC.
Section 228 of the NIRC provides that the taxpayer shall be informed in writing of the law and the facts on which the assessment is made.
Otherwise, the assessment is void. 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 taxpayers 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.45 (Emphasis supplied.)
The Formal Letter of Demand dated August 7, 2002 contains not only a detailed computation of LMCECs tax deficiencies but also
details of the specified discrepancies, explaining the legal and factual bases of the assessment. It also reiterated that in the absence of
accounting records and other documents necessary for the proper determination of the companys internal revenue tax liabilities, the
investigating revenue officers resorted to the "Best Evidence Obtainable" as provided in Section 6(B) of the NIRC (third party
information) and in accordance with the procedure laid down in RMC No. 23-2000 dated November 27, 2000. Annex "A" of the Formal
Letter of Demand thus stated:
Tax II Set 4 * Assessment Cases*Page 4 of 65
Thus, to verify the validity of the information previously provided by the informant, the assigned revenue officers resorted to third party
information. Pursuant to Section 5(B) of the NIRC of 1997, access letters requesting for information and the submission of certain
documents (i.e., Certificate of Income Tax Withheld at Source and/or Alphabetical List showing the income payments made to L.M.
Camus Engineering Corporation for the taxable years 1997 to 1999) were sent to the various clients of the subject corporation, including
but not limited to the following:
1. Ayala Land Inc.
2. Filinvest Alabang Inc.
3. D.M. Consunji, Inc.
4. SM Prime Holdings, Inc.
5. Alabang Commercial Corporation
6. Philam Properties Corporation
7. SM Investments, Inc.
8. Shoemart, Inc.
9. Philippine Securities Corporation
10. Makati Development Corporation
From the documents gathered and the data obtained therein, the substantial underdeclaration as defined under Section 248(B) of the
NIRC of 1997 by your corporation of its income had been confirmed. x x x x 46 (Emphasis supplied.)
In the same letter, Assistant Commissioner Percival T. Salazar informed private respondents that the estimated tax liabilities arising from
LMCECs underdeclaration amounted to P186,773,600.84 in 1997, P150,069,323.81 in 1998 and P163,220,111.13 in 1999. These figures
confirmed that the non-declaration by LMCEC for the taxable years 1997, 1998 and 1999 of an amount exceeding 30% income 47 declared
in its return is considered a substantial underdeclaration of income, which constituted prima facie evidence of false or fraudulent return
under Section 248(B)48 of the NIRC, as amended.49
On the alleged settlement of the assessed tax deficiencies by private respondents, respondent Secretary found the latters claim as
meritorious on the basis of the Certificate of Immunity From Audit issued on December 6, 1999 pursuant to RR No. 2-99 and Letter of
Termination dated June 1, 1999 issued by Revenue Region No. 7 Chief of Assessment Division Ruth Vivian G. Gandia. Petitioner,
however, clarified that the certificate of immunity from audit covered only income tax for the year 1997 and does not include VAT and
withholding taxes, while the Letter of Termination involved tax liabilities for taxable year 1997 (EWT, VAT and income taxes) but which
was submitted for review of higher authorities as per the Certification of RD No. 40 District Officer Pablo C. Cabreros, Jr. 50 For 1999,
private respondents supposedly availed of the VAP pursuant to RR No. 8-2001.
RR No. 2-99 issued on February 7, 1999 explained in its Policy Statement that considering the scarcity of financial and human resources
as well as the time constraints within which the Bureau has to "clean the Bureaus backlog of unaudited tax returns in order to keep
updated and be focused with the most current accounts" in preparation for the full implementation of a computerized tax administration,
the said revenue regulation was issued "providing for last priority in audit and investigation of tax returns" to accomplish the said
objective "without, however, compromising the revenue collection that would have been generated from audit and enforcement
activities." The program named as "Economic Recovery Assistance Payment (ERAP) Program" granted immunity from audit and
investigation of income tax, VAT and percentage tax returns for 1998. It expressly excluded withholding tax returns (whether for income,
VAT, or percentage tax purposes). Since such immunity from audit and investigation does not preclude the collection of revenues
generated from audit and enforcement activities, it follows that the Bureau is likewise not barred from collecting any tax deficiency
discovered as a result of tax fraud investigations. Respondent Secretarys opinion that RR No. 2-99 contains the feature of a tax amnesty
is thus misplaced.
Tax amnesty is a general pardon to taxpayers who want to start a clean tax slate. It also gives the government a chance to collect
uncollected tax from tax evaders without having to go through the tedious process of a tax case. 51 Even assuming arguendo that the
issuance of RR No. 2-99 is in the nature of tax amnesty, it bears noting that a tax amnesty, much like a tax exemption, is never favored
nor presumed in law and if granted by statute, the terms of the amnesty like that of a tax exemption must be construed strictly against the
taxpayer and liberally in favor of the taxing authority.52
For the same reason, the availment by LMCEC of VAP under RR No. 8-2001 as amended by RR No. 10-2001, through payment
supposedly made in October 29, 2001 before the said program ended on October 31, 2001, did not amount to settlement of its assessed
tax deficiencies for the period 1997 to 1999, nor immunity from prosecution for filing fraudulent return and attempt to evade or defeat

tax. As correctly asserted by petitioner, from the express terms of the aforesaid revenue regulations, LMCEC is not qualified to avail of
the VAP granting taxpayers the privilege of last priority in the audit and investigation of all internal revenue taxes for the taxable year
2000 and all prior years under certain conditions, considering that first, it was issued a PAN on February 19, 2001, and second, it was the
subject of investigation as a result of verified information filed by a Tax Informer under Section 282 of the NIRC duly recorded in the
BIR Official Registry as Confidential Information (CI) No. 29-200053 even prior to the issuance of the PAN.
Section 1 of RR No. 8-2001 provides:
SECTION 1. COVERAGE. x x x
Any person, natural or juridical, including estates and trusts, liable to pay any of the above-cited internal revenue taxes for the above
specified period/s who, due to inadvertence or otherwise, erroneously paid his internal revenue tax liabilities or failed to file tax
return/pay taxes may avail of the Voluntary Assessment Program (VAP), except those falling under any of the following instances:
1.1 Those covered by a Preliminary Assessment Notice (PAN), Final Assessment Notice (FAN), or Collection Letter issued
on or before July 31, 2001; or
1.2 Persons under investigation as a result of verified information filed by a Tax Informer under Section 282 of the Tax Code
of 1997, duly processed and recorded in the BIR Official Registry Book on or before July 31, 2001;
1.3 Tax fraud cases already filed and pending in courts for adjudication; andx x x x (Emphasis supplied.)
Moreover, private respondents cannot invoke LMCECs availment of VAP to foreclose any subsequent audit of its account books and
other accounting records in view of the strong finding of underdeclaration in LMCECs payment of correct income tax liability by more
than 30% as supported by the written report of the TFD detailing the facts and the law on which such finding is based, pursuant to the tax
fraud investigation authorized by petitioner under LA No. 00009361. This conclusion finds support in Section 2 of RR No. 8-2001 as
amended by RR No. 10-2001 provides:
SEC. 2. TAXPAYERS BENEFIT FROM AVAILMENT OF THE VAP. A taxpayer who has availed of the VAP shall not be audited
except upon authorization and approval of the Commissioner of Internal Revenue when there is strong evidence or finding of
understatement in the payment of taxpayers correct tax liability by more than thirty percent (30%) as supported by a written report of the
appropriate office detailing the facts and the law on which such finding is based: Provided, however, that any VAP payment should be
allowed as tax credit against the deficiency tax due, if any, in case the concerned taxpayer has been subjected to tax audit.
xxxx
Given the explicit conditions for the grant of immunity from audit under RR No. 2-99, RR No. 8-2001 and RR No. 10-2001, we hold that
respondent Secretary gravely erred in declaring that petitioner is now estopped from assessing any tax deficiency against LMCEC after
issuance of the aforementioned documents of immunity from audit/investigation and settlement of tax liabilities. It is axiomatic that the
State can never be in estoppel, and this is particularly true in matters involving taxation. The errors of certain administrative officers
should never be allowed to jeopardize the governments financial position. 54
Respondent Secretarys other ground for assailing the course of action taken by petitioner in proceeding with the audit and investigation
of LMCEC -- the alleged violation of the general rule in Section 235 of the NIRC allowing the examination and inspection of taxpayers
books of accounts and other accounting records only once in a taxable year -- is likewise untenable. As correctly pointed out by
petitioner, the discovery of substantial underdeclarations of income by LMCEC for taxable years 1997, 1998 and 1999 upon verified
information provided by an "informer" under Section 282 of the NIRC, as well as the necessity of obtaining information from third
parties to ascertain the correctness of the return filed or evaluation of tax compliance in collecting taxes (as a result of the disobedience to
the summons issued by the Bureau against the private respondents), are circumstances warranting exception from the general rule in
Section 235.55
As already stated, the substantial underdeclared income in the returns filed by LMCEC for 1997, 1998 and 1999 in amounts equivalent to
more than 30% (the computation in the final assessment notice showed underdeclarations of almost 200%) constitutes prima facie
evidence of fraudulent return under Section 248(B) of the NIRC. Prior to the issuance of the preliminary and final notices of assessment,
the revenue officers conducted a preliminary investigation on the information and documents showing substantial understatement of
LMCECs tax liabilities which were provided by the Informer, following the procedure under RMO No. 15-95. 56 Based on the prima
facie finding of the existence of fraud, petitioner issued LA No. 00009361 for the TFD to conduct a formal fraud investigation of
LMCEC.57 Consequently, respondent Secretarys ruling that the filing of criminal complaint for violation of Sections 254 and 255 of the
Tax II Set 4 * Assessment Cases*Page 5 of 65
NIRC cannot prosper because of lack of prior determination of the existence of fraud, is bereft of factual basis and contradicted by the
evidence on record.
Tax assessments by tax examiners are presumed correct and made in good faith, and all presumptions are in favor of the correctness of a
tax assessment unless proven otherwise.58 We have held that a taxpayers failure to file a petition for review with the Court of Tax
Appeals within the statutory period rendered the disputed assessment final, executory and demandable, thereby precluding it from
interposing the defenses of legality or validity of the assessment and prescription of the Governments right to assess. 59 Indeed, any
objection against the assessment should have been pursued following the avenue paved in Section 229 (now Section 228) of the NIRC on
protests on assessments of internal revenue taxes.60
Records bear out that the assessment notice and Formal Letter of Demand dated August 7, 2002 were duly served on LMCEC on October
1, 2002. Private respondents did not file a motion for reconsideration of the said assessment notice and formal demand; neither did they
appeal to the Court of Tax Appeals. Section 228 of the NIRC 61 provides the remedy to dispute a tax assessment within a certain period of
time. It states that an assessment may be protested by filing a request for reconsideration or reinvestigation within 30 days from receipt of
the assessment by the taxpayer. No such administrative protest was filed by private respondents seeking reconsideration of the August 7,
2002 assessment notice and formal letter of demand. Private respondents cannot belatedly assail the said assessment, which they allowed
to lapse into finality, by raising issues as to its validity and correctness during the preliminary investigation after the BIR has referred the
matter for prosecution under Sections 254 and 255 of the NIRC.
As we held in Marcos II v. Court of Appeals62:
It is not the Department of Justice which is the government agency tasked to determine the amount of taxes due upon the subject estate,
but the Bureau of Internal Revenue, whose determinations and assessments are presumed correct and made in good faith. The taxpayer
has the duty of proving otherwise. In the absence of proof of any irregularities in the performance of official duties, an assessment will
not be disturbed. Even an assessment based on estimates is prima facie valid and lawful where it does not appear to have been arrived at
arbitrarily or capriciously. The burden of proof is upon the complaining party to show clearly that the assessment is erroneous. Failure to
present proof of error in the assessment will justify the judicial affirmance of said assessment. x x x.
Moreover, these objections to the assessments should have been raised, considering the ample remedies afforded the taxpayer by the Tax
Code, with the Bureau of Internal Revenue and the Court of Tax Appeals, as described earlier, and cannot be raised now via Petition
for Certiorari, under the pretext of grave abuse of discretion. The course of action taken by the petitioner reflects his disregard or even
repugnance of the established institutions for governance in the scheme of a well-ordered society. The subject tax assessments having
become final, executory and enforceable, the same can no longer be contested by means of a disguised protest. In the main, Certiorari
may not be used as a substitute for a lost appeal or remedy. This judicial policy becomes more pronounced in view of the absence of
sufficient attack against the actuations of government. (Emphasis supplied.)
The determination of probable cause is part of the discretion granted to the investigating prosecutor and ultimately, the Secretary of
Justice. However, this Court and the CA possess the power to review findings of prosecutors in preliminary investigations. Although
policy considerations call for the widest latitude of deference to the prosecutors findings, courts should never shirk from exercising their
power, when the circumstances warrant, to determine whether the prosecutors findings are supported by the facts, or by the law. In so
doing, courts do not act as prosecutors but as organs of the judiciary, exercising their mandate under the Constitution, relevant statutes,
and remedial rules to settle cases and controversies. 63 Clearly, the power of the Secretary of Justice to review does not preclude this Court
and the CA from intervening and exercising our own powers of review with respect to the DOJs findings, such as in the exceptional case
in which grave abuse of discretion is committed, as when a clear sufficiency or insufficiency of evidence to support a finding of probable
cause is ignored.64
WHEREFORE, the petition is GRANTED. The Decision dated October 31, 2006 and Resolution dated March 6, 2007 of the Court of
Appeals in CA-G.R. SP No. 93387 are hereby REVERSED and SET ASIDE. The Secretary of Justice is hereby DIRECTED to order the
Chief State Prosecutor to file before the Regional Trial Court of Quezon City, National Capital Judicial Region, the corresponding
Information against L. M. Camus Engineering Corporation, represented by its President Luis M. Camus and Comptroller Lino D.
Mendoza, for Violation of Sections 254 and 255 of the National Internal Revenue Code of 1997.No costs.SO ORDERED.
EN BANCG.R. No. 166387 January 19, 2009

COMMISSIONER OF INTERNAL REVENUE, Petitioners, vs.ENRON SUBIC POWERCORPORATION, Respondents.
R E SO LUTI O N
CORONA, J.:
In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Commissioner of Internal Revenue (CIR) assails
the November 24, 2004 decision1 of the Court of Appeals (CA) annulling the formal assessment notice issued by the CIR against
respondent Enron Subic Power Corporation (Enron) for failure to state the legal and factual bases for such assessment.
Enron, a domestic corporation registered with the Subic Bay Metropolitan Authority as a freeport enterprise, 2 filed its annual income tax
return for the year 1996 on April 12, 1997. It indicated a net loss of P7,684,948. Subsequently, the Bureau of Internal Revenue, through a
preliminary five-day letter,3 informed it of a proposed assessment of an alleged P2,880,817.25 deficiency income tax. 4 Enron disputed the
proposed deficiency assessment in its first protest letter.5
On May 26, 1999, Enron received from the CIR a formal assessment notice 6 requiring it to pay the alleged deficiency income tax of
P2,880,817.25 for the taxable year 1996. Enron protested this deficiency tax assessment. 7
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 disregarded the provisions of Section 228 of the National Internal Revenue Code (NIRC), as
amended,8and Section 3.1.4 of Revenue Regulations (RR) No. 12-99 9by not providing the legal and factual bases of the assessment.
Enron likewise questioned the substantive validity of the assessment. 10
In a decision dated September 12, 2001, the CTA granted Enrons petition and ordered the cancellation of its deficiency tax assessment
for the year 1996. The CTA reasoned that the assessment notice sent to Enron failed to comply with the requirements of a valid written
notice under Section 228 of the NIRC and RR No. 12-99. The CIRs motion for reconsideration of the CTA decision was denied in a
resolution dated November 12, 2001.
The CIR appealed the CTA decision to the CA but the CA affirmed it. The CA held that the audit working papers did not substantially
comply with Section 228 of the NIRC and RR No. 12-99 because they failed to show the applicability of the cited law to the facts of the
assessment. The CIR filed a motion for reconsideration but this was deemed abandoned when he filed a motion for extension to file a
petition for review in this Court.
The CIR now argues that respondent was informed of the legal and factual bases of the deficiency assessment against it.
We adopt in toto the findings of fact of the CTA, as affirmed by the CA. In Compagnie Financiere Sucres et Denrees v. CIR,11 we held:
We reiterate the well-established doctrine that as a matter of practice and principle, [we] will not set aside the conclusion reached by an
agency, like the CTA, especially if affirmed by the [CA]. By the very nature of its function, it has dedicated itself to the study and
consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident
exercise of authority on its part, which is not present here.
The CIR errs in insisting that the notice of assessment in question complied with the requirements of the NIRC and RR No. 12-99.
A notice of assessment is:
Tax II Set 4 * Assessment Cases*Page 6 of 65
[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 taxpayers 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)12
Section 228 of the NIRC provides that the taxpayer shall be informed in writing of the law and the facts on which the assessment is made.
Otherwise, the assessment is void. 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 taxpayers 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. xxx (emphasis supplied)
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. We note
the CTAs findings:
In [this] case, [the CIR] merely issued a formal assessment and indicated therein the supposed tax, surcharge, interest and compromise
penalty due thereon. The Revenue Officers of the [the CIR] in the issuance of the Final Assessment Notice did not provide Enron with the
written bases of the law and facts on which the subject assessment is based. [The CIR] did not bother to explain how it arrived at such an
assessment. Moreso, he failed to mention the specific provision of the Tax Code or rules and regulations which were not complied with
by Enron.13
Both the CTA and the CA concluded that the deficiency tax assessment merely itemized the deductions disallowed and included these in
the gross income. It also imposed the preferential rate of 5% on some items categorized by Enron as costs. The legal and factual bases
were, however, not indicated.
The CIR insists that an examination of the facts shows that Enron was properly apprised of its tax deficiency. During the pre-assessment
stage, the CIR advised Enrons representative of the tax deficiency, informed it of the proposed tax deficiency assessment through a
preliminary five-day letter and furnished Enron a copy of the audit working paper 14 allegedly showing in detail the legal and factual bases
of the assessment. The CIR argues that these steps sufficed to inform Enron of the laws and facts on which the deficiency tax assessment
was based.
We disagree. 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 CIRs duties in correctly assessing a taxpayer.15 The requirement for issuing a preliminary or final notice, as the case
may be, informing a taxpayer of the existence of a deficiency tax assessment is markedly different from the requirement of what such
notice must contain. Just because the CIR issued an advice, a preliminary letter during the pre-assessment stage and a final notice, in the
order required by law, does not necessarily mean that Enron was informed of the law and facts on which the deficiency tax assessment
was made.
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.
 Tax II Set 4 * Assessment Cases*Page 7 of 65

We note that the old law merely required that the taxpayer be notified of the assessment made by the CIR. This was changed in 1998 and
the taxpayer must now be informed not only of the law but also of the facts on which the assessment is made. 16 Such amendment is in
keeping with the constitutional principle that no person shall be deprived of property without due process. 17 In view of the absence of a
fair opportunity for Enron to be informed of the legal and factual bases of the assessment against it, the assessment in question was void.
We reiterate our ruling in Reyes v. Almanzor, et al.:18
Verily, taxes are the lifeblood of the Government and so should be collected without unnecessary hindrance. However, such collection
should be made in accordance with law as any arbitrariness will negate the very reason for the Government itself.WHEREFORE, the
petition is hereby DENIED. The November 24, 2004 decision of the Court of Appeals isAFFIRMED.No costs.SO ORDERED.
FIRST DIVISIONG.R. No. 134062 April 17, 2007
COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs.BANK OF THE PHILIPPINE ISLANDS, Respondent.
DECISION
CORONA, J.:
This is a petition for review on certiorari 1 of a decision2 of the Court of Appeals (CA) dated May 29, 1998 in CA-G.R. SP No. 41025
which reversed and set aside the decision 3 and resolution4 of the Court of Tax Appeals (CTA) dated November 16, 1995 and May 27,
1996, respectively, in CTA Case No. 4715.
In two notices dated October 28, 1988, petitioner Commissioner of Internal Revenue (CIR) assessed respondent Bank of the Philippine
Islands (BPIs) deficiency percentage and documentary stamp taxes for the year 1986 in the total amount of P129,488,656.63:
1986 Deficiency Percentage Tax
In a letter dated December 10, 1988, BPI, through counsel, replied as follows:
1. Your "deficiency assessments" are no assessments at all. The taxpayer is not informed, even in the vaguest terms, why it is
being assessed a deficiency. The very purpose of a deficiency assessment is to inform taxpayer why he has incurred a
deficiency so that he can make an intelligent decision on whether to pay or to protest the assessment. This is all the more so
when the assessment involves astronomical amounts, as in this case.
We therefore request that the examiner concerned be required to state, even in the briefest form, why he believes the taxpayer
has a deficiency documentary and percentage taxes, and as to the percentage tax, it is important that the taxpayer be informed
also as to what particular percentage tax the assessment refers to.
2. As to the alleged deficiency documentary stamp tax, you are aware of the compromise forged between your office and the
Bankers Association of the Philippines [BAP] on this issue and of BPIs submission of its computations under this
compromise. There is therefore no basis whatsoever for this assessment, assuming it is on the subject of the BAP
compromise. On the other hand, if it relates to documentary stamp tax on some other issue, we should like to be informed
about what those issues are.
3. As to the alleged deficiency percentage tax, we are completely at a loss on how such assessment may be protested since
your letter does not even tell the taxpayer what particular percentage tax is involved and how your examiner arrived at the
deficiency. As soon as this is explained and clarified in a proper letter of assessment, we shall inform you of the taxpayers
decision on whether to pay or protest the assessment.7
On June 27, 1991, BPI received a letter from CIR dated May 8, 1991 stating that:

Deficiency percentage tax P 7, 270,892.88

although in all respects, your letter failed to qualify as a protest under Revenue Regulations No. 12-85 and therefore not deserving of
Add: 25% surcharge 1,817,723.22 any rejoinder by this office as no valid issue was raised against the validity of our assessment still we obliged to explain the basis of
the assessments.
20% interest from 1-21-87 to 10-28-88 3,215,825.03 xxx xxx xxx
this constitutes the final decision of this office on the matter.8
15,000.00
Compromise penalty
On July 6, 1991, BPI requested a reconsideration of the assessments stated in the CIRs May 8, 1991 letter. 9 This was denied in a letter
dated December 12, 1991, received by BPI on January 21, 1992. 10
TOTAL AMOUNT DUE AND COLLECTIBLE P12,319,441.13

On February 18, 1992, BPI filed a petition for review in the CTA. 11 In a decision dated November 16, 1995, the CTA dismissed the case
1986 Deficiency Documentary Stamp Tax for lack of jurisdiction since the subject assessments had become final and unappealable. The CTA ruled that BPI failed to protest on time
under Section 270 of the National Internal Revenue Code (NIRC) of 1986 and Section 7 in relation to Section 11 of RA 1125. 12 It denied
reconsideration in a resolution dated May 27, 1996. 13
Deficiency percentage tax P93,723,372.40
On appeal, the CA reversed the tax courts decision and resolution and remanded the case to the CTA 14 for a decision on the merits. 15 It
Add: 25% surcharge 23,430,843.10
ruled that the October 28, 1988 notices were not valid assessments because they did not inform the taxpayer of the legal and factual bases
15,000.00 therefor. It declared that the proper assessments were those contained in the May 8, 1991 letter which provided the reasons for the
Compromise penalty claimed deficiencies.16 Thus, it held that BPI filed the petition for review in the CTA on time. 17 The CIR elevated the case to this Court.

TOTAL AMOUNT DUE AND COLLECTIBLE P117,169,215.50.5 This petition raises the following issues:

Both notices of assessment contained the following note:
Please be informed that your [percentage and documentary stamp taxes have] been assessed as shown above. Said assessment has been
based on return (filed by you) (as verified) (made by this Office) (pending investigation) (after investigation). You are requested
to pay the above amount to this Office or to our Collection Agent in the Office of the City or Deputy Provincial Treasurer of xxx 6
1) whether or not the assessments issued to BPI for deficiency percentage and documentary stamp taxes for 1986 had already
become final and unappealable and
2) whether or not BPI was liable for the said taxes.
The former Section 27018 (now renumbered as Section 228) of the NIRC stated:
Sec. 270. Protesting of assessment. When the [CIR] or his duly authorized representative finds that proper taxes should be
assessed, he shall first notify the taxpayer of his findings. Within a period to be prescribed by implementing regulations, the taxpayer

shall be required to respond to said notice. If the taxpayer fails to respond, the [CIR] shall issue an assessment based on his
findings.xxx xxx xxx (emphasis supplied)
Were the October 28, 1988 Notices Valid Assessments?
The first issue for our resolution is whether or not the October 28, 1988 notices 19 were valid assessments. If they were not, as held by the
CA, then the correct assessments were in the May 8, 1991 letter, received by BPI on June 27, 1991. BPI, in its July 6, 1991 letter,
seasonably asked for a reconsideration of the findings which the CIR denied in his December 12, 1991 letter, received by BPI on January
21, 1992. Consequently, the petition for review filed by BPI in the CTA on February 18, 1992 would be well within the 30-day period
provided by law.20
The CIR argues that the CA erred in holding that the October 28, 1988 notices were invalid assessments. He asserts that he used BIR
Form No. 17.08 (as revised in November 1964) which was designed for the precise purpose of notifying taxpayers of the assessed
amounts due and demanding payment thereof. 21 He contends that there was no law or jurisprudence then that required notices to state the
reasons for assessing deficiency tax liabilities.22
BPI counters that due process demanded that the facts, data and law upon which the assessments were based be provided to the taxpayer.
It insists that the NIRC, as worded now (referring to Section 228), specifically provides that:
"[t]he taxpayer shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be
void."
According to BPI, this is declaratory of what sound tax procedure is and a confirmation of what due process requires even under the
former Section 270.
BPIs contention has no merit. The present Section 228 of the NIRC provides:
Sec. 228. Protesting of Assessment. When the [CIR] or his duly authorized representative finds that proper taxes should be
assessed, he shall first notify the taxpayer of his findings: Provided, however, That a preassessment notice shall not be required in the
following cases:
xxx xxx xxx
The taxpayer shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment
shall be void.
xxx xxx xxx (emphasis supplied)
Admittedly, the CIR did not inform BPI in writing of the law and facts on which the assessments of the deficiency taxes were made. He
merely notified BPI of his findings, consisting only of the computation of the tax liabilities and a demand for payment thereof within 30
days after receipt.
In merely notifying BPI of his findings, the CIR relied on the provisions of the former Section 270 prior to its amendment by RA 8424
(also known as the Tax Reform Act of 1997).23 In CIR v. Reyes,24 we held that:
In the present case, Reyes was not informed in writing of the law and the facts on which the assessment of estate taxes had been made.
She was merely notified of the findings by the CIR, who had simply relied upon the provisions of former Section 229 prior to its
amendment by [RA] 8424, otherwise known as the Tax Reform Act of 1997.
First, 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.
It was on February 12, 1998, that a preliminary assessment notice was issued against the estate. On April 22, 1998, the final estate tax
assessment notice, as well as demand letter, was also issued. During those dates, RA 8424 was already in effect. The notice required
under the old law was no longer sufficient under the new law.25 (emphasis supplied; italics in the original)
Tax II Set 4 * Assessment Cases*Page 8 of 65
Accordingly, when the assessments were made pursuant to the former Section 270, the only requirement was for the CIR to "notify" or
inform the taxpayer of his "findings." Nothing in the old law required a written statement to the taxpayer of the law and facts on which
the assessments were based. The Court cannot read into the law what obviously was not intended by Congress. That would be judicial
legislation, nothing less.
Jurisprudence, on the other hand, simply required that the assessments contain a computation of tax liabilities, the amount the taxpayer
was to pay and a demand for payment within a prescribed period. 26 Everything considered, there was no doubt the October 28, 1988
notices sufficiently met the requirements of a valid assessment under the old law and jurisprudence.
The sentence
[t]he taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be
void
was not in the old Section 270 but was only later on inserted in the renumbered Section 228 in 1997. Evidently, the legislature saw the
need to modify the former Section 270 by inserting the aforequoted sentence. 27 The fact that the amendment was necessary showed that,
prior to the introduction of the amendment, the statute had an entirely different meaning. 28
Contrary to the submission of BPI, the inserted sentence in the renumbered Section 228 was not an affirmation of what the law required
under the former Section 270. The amendment introduced by RA 8424 was an innovation and could not be reasonably inferred from the
old law.29 Clearly, the legislature intended to insert a new provision regarding the form and substance of assessments issued by the CIR.30
In ruling that the October 28, 1988 notices were not valid assessments, the CA explained:
xxx. Elementary concerns of due process of law should have prompted the [CIR] to inform [BPI] of the legal and factual basis of the
formers decision to charge the latter for deficiency documentary stamp and gross receipts taxes. 31
In other words, the CAs theory was that BPI was deprived of due process when the CIR failed to inform it in writing of the factual and
legal bases of the assessments even if these were not called for under the old law.
We disagree.
Indeed, the underlying reason for the law was the basic constitutional requirement that "no person shall be deprived of his property
without due process of law."32 We note, however, what the CTA had to say:
xxx xxx xxx
From the foregoing testimony, it can be safely adduced that not only was [BPI] given the opportunity to discuss with the [CIR] when the
latter issued the former a Pre-Assessment Notice (which [BPI] ignored) but that the examiners themselves went to [BPI] and "we talk to
them and we try to [thresh] out the issues, present evidences as to what they need." Now, how can [BPI] and/or its counsel honestly tell
this Court that they did not know anything about the assessments?
Not only that. To further buttress the fact that [BPI] indeed knew beforehand the assessments[,] contrary to the allegations of its
counsel[,] was the testimony of Mr. Jerry Lazaro, Assistant Manager of the Accounting Department of [BPI]. He testified to the fact that
he prepared worksheets which contain his analysis regarding the findings of the [CIRs] examiner, Mr. San Pedro and that the same
worksheets were presented to Mr. Carlos Tan, Comptroller of [BPI].
xxx xxx xxx
From all the foregoing discussions, We can now conclude that [BPI] was indeed aware of the nature and basis of the assessments, and
was given all the opportunity to contest the same but ignored it despite the notice conspicuously written on the assessments which states
that "this ASSESSMENT becomes final and unappealable if not protested within 30 days after receipt." Counsel resorted to dilatory
tactics and dangerously played with time. Unfortunately, such strategy proved fatal to the cause of his client. 33

The CA never disputed these findings of fact by the CTA:
[T]his Court recognizes that the [CTA], which by the very nature of its function is dedicated exclusively to the consideration of tax
problems, has necessarily developed an expertise on the subject, and its conclusions will not be overturned unless there has been an abuse
or improvident exercise of authority. Such findings can only be disturbed on appeal if they are not supported by substantial evidence or
there is a showing of gross error or abuse on the part of the [CTA]. 34
Under the former Section 270, there were two instances when an assessment became final and unappealable: (1) when it was not
protested within 30 days from receipt and (2) when the adverse decision on the protest was not appealed to the CTA within 30 days from
receipt of the final decision:35
Sec. 270. Protesting of assessment.1a\^/phi1.net
xxx xxx xxx
Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation in such form and manner as
may be prescribed by the implementing regulations within thirty (30) days from receipt of the assessment; otherwise, the assessment shall
become final and unappealable.
If the protest is denied in whole or in part, the individual, association or corporation adversely affected by the decision on the protest may
appeal to the [CTA] within thirty (30) days from receipt of the said decision; otherwise, the decision shall become final, executory and
demandable.
Implications Of A Valid Assessment
Considering that the October 28, 1988 notices were valid assessments, BPI should have protested the same within 30 days from receipt
thereof. The December 10, 1988 reply it sent to the CIR did not qualify as a protest since the letter itself stated that "[a]s soon as this is
explained and clarified in a proper letter of assessment, we shall inform you of the taxpayers decision on whether to pay or protest
the assessment."36 Hence, by its own declaration, BPI did not regard this letter as a protest against the assessments. As a matter of fact,
BPI never deemed this a protest since it did not even consider the October 28, 1988 notices as valid or proper assessments.
The inevitable conclusion is that BPIs failure to protest the assessments within the 30-day period provided in the former Section 270
meant that they became final and unappealable. Thus, the CTA correctly dismissed BPIs appeal for lack of jurisdiction. BPI was, from
then on, barred from disputing the correctness of the assessments or invoking any defense that would reopen the question of its liability
on the merits.37 Not only that. There arose a presumption of correctness when BPI failed to protest the assessments:
Tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer has the duty to prove otherwise. In the
absence of proof of any irregularities in the performance of duties, an assessment duly made by a Bureau of Internal Revenue examiner
and approved by his superior officers will not be disturbed. All presumptions are in favor of the correctness of tax assessments. 38
Even if we considered the December 10, 1988 letter as a protest, BPI must nevertheless be deemed to have failed to appeal the CIRs
final decision regarding the disputed assessments within the 30-day period provided by law. The CIR, in his May 8, 1991 response, stated
that it was his "final decision on the matter." BPI therefore had 30 days from the time it received the decision on June 27, 1991 to
appeal but it did not. Instead it filed a request for reconsideration and lodged its appeal in the CTA only on February 18, 1992, way
beyond the reglementary period. BPI must now suffer the repercussions of its omission. We have already declared that:
the [CIR] should always indicate to the taxpayer in clear and unequivocal language whenever his action on an assessment questioned
by a taxpayer constitutes his final determination on the disputed assessment, as contemplated by Sections 7 and 11 of [RA 1125], as
amended. On the basis of his statement indubitably showing that the Commissioner's communicated action is his final decision on
the contested assessment, the aggrieved taxpayer would then be able to take recourse to the tax court at the opportune time.
Without needless difficulty, the taxpayer would be able to determine when his right to appeal to the tax court accrues.
The rule of conduct would also obviate all desire and opportunity on the part of the taxpayer to continually delay the finality of
the assessment and, consequently, the collection of the amount demanded as taxes by repeated requests for recomputation
and reconsideration. On the part of the [CIR], this would encourage his office to conduct a careful and thorough study of every
questioned assessment and render a correct and definite decision thereon in the first instance. This would also deter the [CIR] from
Tax II Set 4 * Assessment Cases*Page 9 of 65
unfairly making the taxpayer grope in the dark and speculate as to which action constitutes the decision appealable to the tax court. Of
greater import, this rule of conduct would meet a pressing need for fair play, regularity, and orderliness in administrative
action.39 (emphasis supplied)
Either way (whether or not a protest was made), we cannot absolve BPI of its liability under the subject tax assessments.
We realize that these assessments (which have been pending for almost 20 years) involve a considerable amount of money. Be that as it
may, we cannot legally presume the existence of something which was never there. The state will be deprived of the taxes validly due it
and the public will suffer if taxpayers will not be held liable for the proper taxes assessed against them:
Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor endure. A principal attribute of
sovereignty, the exercise of taxing power derives its source from the very existence of the state whose social contract with its citizens
obliges it to promote public interest and common good. The theory behind the exercise of the power to tax emanates from necessity;
without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the people. 40WHEREFORE, the
petition is hereby GRANTED. The May 29, 1998 decision of the Court of Appeals in CA-G.R. SP No. 41025 is REVERSED and SET
ASIDE.SO ORDERED.
THIRD DIVISION G.R. No. 128315 June 29, 1999
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.PASCOR REALTY AND DEVELOPMENT CORPORATION,
ROGELIO A. DIO and VIRGINIA S. DIO, respondents.
PANGANIBAN, J.:
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 protests 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. Accordingly, an affidavit, which was executed by revenue officers
stating the tax liabilities of a taxpayer and attached to a criminal complaint for tax evasion, cannot be deemed an assessment that can be
questioned before the Court of Tax Appeals.
Statement of the Case
Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court praying for the nullification of the October
30, 1996
Decision 1 of the Court of Appeals 2 in CA-GR SP No. 40853, which effectively affirmed the January 25, 1996 Resolution 3 of the Court
of Tax Appeals 4 CTA Case No. 5271. The CTA disposed as follows:
WHEREFORE, finding [the herein petitioner's] "Motion to Dismiss" as UNMERITORIOUS, the same is hereby DENIED.
[The CIR] is hereby given a period of thirty (30) days from receipt hereof to file her answer.
Petitioner also seeks to nullify the February 13, 1997 Resolution 5 of the Court of Appeals denying reconsideration.
The Facts
As found by the Court of Appeals, the undisputed facts of the case are as follows:
It appears that by virtue of Letter of Authority No. 001198, then BIR Commissioner Jose U. Ong authorized Revenue Officers Thomas T.
Que, Sonia T. Estorco and Emmanuel M. Savellano to examine the books of accounts and other accounting records of Pascor Realty and
 Tax II Set 4 * Assessment Cases*Page 10 of 65

Development Corporation. (PRDC) for the years ending 1986, 1987 and 1988. The said examination resulted in a recommendation for
the issuance of an assessment in the amounts of P7,498,434.65 and P3,015,236.35 for the years 1986 and 1987, respectively.
On March 1, 1995, the Commissioner of Internal Revenue filed a criminal complaint before the Department of Justice against the PRDC,
its President Rogelio A. Dio, and its Treasurer Virginia S. Dio, alleging evasion of taxes in the total amount of P10,513,671 .00. Private
respondents PRDC, et. al. filed an Urgent Request for Reconsideration/Reinvestigation disputing the tax assessment and tax liability.
On March 23, 1995, private respondents received a subpoena from the DOJ in connection with the criminal complaint filed by the
Commissioner of Internal Revenue (BIR) against them.1wphi1.nt
The word assessment when used in connection with taxation, may have more than one meaning. The ultimate purpose of an assessment
to such a connection is to ascertain the amount that each taxpayer is to pay. More commonly, the word "assessment" means the official
valuation of a taxpayer's property for purpose of taxation. State v. New York, N.H. and H.R. Co. 22 A. 765, 768, 60 Conn. 326, 325.
(Ibid. p. 445)
From the above, it can be gleaned that an assessment simply states how much tax is due from a taxpayer. Thus, based on these
definitions, the details of the tax as given in the Joint Affidavit of respondent's examiners, which was attached to the tax evasion
complaint, more than suffice to qualify as an assessment. Therefore, this assessment having been disputed by petitioners, and there being
a denial of their letter disputing such assessment, this Court unquestionably acquired jurisdiction over the instant petition for review. 6

As earlier observed, the Court of Appeals sustained the CTA and dismissed the petition.
In a letter dated May 17, 1995, the CIR denied the urgent request for reconsideration/reinvestigation of the private respondents on the
ground that no formal assessment of the has as yet been issued by the Commissioner.
Hence, this recourse to this Court. 7
Private respondents then elevated the Decision of the CIR dated May 17, 1995 to the Court of Tax Appeals on a petition for review
docketed as CTA Case No. 5271 on July 21, 1995. On September 6, 1995, the CIR filed a Motion to Dismiss the petition on the ground Ruling of the Court of Appeals
that the CTA has no jurisdiction over the subject matter of the petition, as there was no formal assessment issued against the petitioners.
The CTA denied the said motion to dismiss in a Resolution dated January 25, 1996 and ordered the CIR to file an answer within thirty
The Court of Appeals held that the tax court committed no grave abuse of discretion in ruling that the Criminal Complaint for tax evasion
(30) days from receipt of said resolution. The CIR received the resolution on January 31, 1996 but did not file an answer nor did she
filed by the Commissioner of Internal Revenue with the Department of Justice constituted an "assessment" of the tax due, and that the
move to reconsider the resolution.
said assessment could be the subject of a protest. By definition, an assessment is simply the statement of the details and the amount of tax
due from a taxpayer. Based on this definition, the details of the tax contained in the BIR examiners' Joint Affidavit, 8 which was attached
Instead, the CIR filed this petition on June 7, 1996, alleging as grounds that: to the criminal Complaint, constituted an assessment. Since the assailed Order of the CTA was merely interlocutory and devoid of grave
abuse of discretion, a petition for certiorari did not lie.
Respondent Court of Tax Appeals acted with grave abuse of discretion and without jurisdiction in considering the
affidavit/report of the revenue officer and the indorsement of said report to the secretary of justice as assessment which may Issues
be appealed to the Court of Tax Appeals;

Respondent Court Tax Appeals acted with grave abuse of discretion in considering the denial by petitioner of private
respondents' Motion for Reconsideration as [a] final decision which may be appealed to the Court of Tax Appeals.
Petitioners submit for the consideration of this Court following issues:

In denying the motion to dismiss filed by the CIR, the Court of Tax Appeals stated:
(1) Whether or not the criminal complaint for tax evasion can be construed as an assessment.

We agree with petitioners' contentions, that the criminal complaint for tax evasion is the assessment issued, and that the letter
(2) Whether or not an assessment is necessary before criminal charges for tax evasion may be instituted.
denial of May 17, 1995 is the decision properly appealable to [u]s. Respondent's ground of denial, therefore, that there was no
formal assessment issued, is untenable.
(3) Whether or not the CTA can take cognizance of the case in the absence of an assessment. 9
It is the Court's honest belief, that the criminal case for tax evasion is already anassessment. The complaint, more particularly, the Joint
Affidavit of Revenue Examiners Lagmay and Savellano attached thereto, contains the details of the assessment like the kind and amount In the main, the Court will resolve whether the revenue officers' Affidavit-Report, which was attached to criminal revenue Complaint
of tax due, and the period covered: filed the Department of Justice, constituted an assessment that could be questioned before the Court of Tax Appeals.

Petitioners are right, in claiming that the provisions of Republic Act No. 1125, relating to exclusive appellate jurisdiction of this Court, do The Court's Ruling
not, make any mention of "formal assessment." The law merely states, that this Court has exclusive appellate jurisdiction over decisions
of the Commissioner of Internal Revenue on disputed assessments, and other matters arising under the National Internal Revenue Code,
The petition is meritorious.
other law or part administered by the Bureau of Internal Revenue Code.

Main Issue: Assessment

As far as this Court is concerned, the amount and kind of tax due, and the period covered, are sufficient details needed for an
"assessment." These details are more than complete, compared to the following definitions of the term as quoted hereunder. Thus:
Petitioner argues that the filing of the criminal complaint with the Department of Justice cannot in any way be construed as a formal
assessment of private respondents' tax liabilities. This position is based on Section 205 of the National Internal Revenue Code 10 (NIRC),
Assessment is laying a tax. Johnson City v. Clinchfield R. Co., 43 S.W. (2d) 386, 387, 163 Tenn. 332. (Words and Phrases, Permanent
which provides that remedies for the collection of deficient taxes may be by either civil or criminal action. Likewise, petitioner cites
Edition, Vol. 4, p. 446).

Section 223(a) of the same Code, which states that in case of failure to file a return, the tax may be assessed or a proceeding in court may
be begun without assessment.
Respondents, on the other hand, maintain that an assessment is not an action or proceeding for the collection of taxes, but merely a notice
that the amount stated therein is due as tax and that the taxpayer is required to pay the same. Thus, qualifying as an assessment was the
BIR examiners' Joint Affidavit, which contained the details of the supposed taxes due from respondent for taxable years ending 1987 and
1988, and which was attached to the tax evasion Complaint filed with the DOJ. Consequently, the denial by the BIR of private
respondents' request for reinvestigation of the disputed assessment is properly appealable to the CTA.
We agree with petitioner. Neither the NIRC nor the regulations governing the protest of assessments 11 provide a specific definition or
form of an assessment. However, the NIRC defines the specific functions and effects of an assessment. To consider the affidavit attached
to the Complaint as a proper assessment is to subvert the nature of an assessment and to set a bad precedent that will prejudice innocent
taxpayers.
True, as pointed out by the private respondents, an assessment informs the taxpayer that he or she has tax liabilities. But not all
documents coming from the BIR containing a computation of the tax liability can be deemed assessments.
To start with, an assessment must be sent to and received by a taxpayer, and must demand payment of the taxes described therein within a
specific period. Thus, the NIRC imposes a 25 percent penalty, in addition to the tax due, in case the taxpayer fails to pay deficiency tax
within the time prescribed for its payment in the notice of assessment. Likewise, an interest of 20 percent per annum, or such higher rates
as may be prescribed by rules and regulations, is to be collected form the date prescribed for its payment until the full payment. 12
The issuance of an assessment is vital in determining, the period of limitation regarding its proper issuance and the period within which
to protest it. Section 203 13 of the NIRC provides that internal revenue taxes must be assessed within three years from the last day within
which to file the return. Section 222, 14 on the other hand, specifies a period of ten years in case a fraudulent return with intent to evade
was submitted or in case of failure to file a return. Also, Section 228 15 of the same law states that said assessment may be protested only
within thirty days from receipt thereof. Necessarily, the taxpayer must be certain that a specific document constitutes an assessment.
Otherwise, confusion would arise regarding the period within which to make an assessment or to protest the same, or whether interest and
penalty may accrue thereon.
It should also be stressed that the said document is a notice duly sent to the taxpayer. Indeed, an assessment is deemed made only when
the collector of internal revenue releases, mails or sends such notice to the taxpayer. 16
In the present case, the revenue officers' Affidavit merely contained a computation of respondents' tax liability. It did not state a demand
or a period for payment. Worse, it was addressed to the justice secretary, not to the taxpayers.
Respondents maintain that an assessment, in relation to taxation, is simply understood' to mean:
17
A notice to the effect that the amount therein stated is due as tax and a demand for payment thereof.
18
Fixes the liability of the taxpayer and ascertains the facts and furnishes the data for the proper presentation of tax rolls.
Even these definitions fail to advance private respondents' case. That the BIR examiners' Joint Affidavit attached to the Criminal
Complaint contained some details of the tax liabilities of private respondents does not ipso facto make it an assessment. The purpose of
the Joint Affidavit was merely to support and substantiate the Criminal Complaint for tax evasion. Clearly, it was not meant to be a notice
of the tax due and a demand to the private respondents for payment thereof.
The fact that the Complaint itself was specifically directed and sent to the Department of Justice and not to private respondents shows
that the intent of the commissioner was to file a criminal complaint for tax evasion, not to issue an assessment. Although the revenue
Tax II Set 4 * Assessment Cases*Page 11 of 65
officers recommended the issuance of an assessment, the commissioner opted instead to file a criminal case for tax evasion. What private
respondents received was a notice from the DOJ that a criminal case for tax evasion had been filed against them, not a notice that the
Bureau of Internal Revenue had made an assessment.
In addition, what private respondents sent to the commissioner was a motion for a reconsideration of the tax evasion charges filed, not of
an assessment, as shown thus:
This is to request for reconsideration of the tax evasion charges against my client, PASCOR Realty and Development Corporation and for
the same to be referred to the Appellate Division in order to give my client the opportunity of a fair and objective hearing. 19
Additional Issues:
Assessment Not
Necessary Before Filing of
Criminal Complaint
Private respondents maintain that the filing of a criminal complaint must be preceded by an assessment. This is incorrect, because Section
222 of the NIRC specifically states that in cases where a false or fraudulent return is submitted or in cases of failure to file a return such
as this case, proceedings in court may be commenced without an assessment. Furthermore, Section 205 of the same Code clearly
mandates that the civil and criminal aspects of the case may be pursued simultaneously. In Ungab v. Cusi, 20 petitioner therein sought the
dismissal of the criminal Complaints for being premature, since his protest to the CTA had not yet been resolved. The Court held that
such protests could not stop or suspend the criminal action which was independent of the resolution of the protest in the CTA. This was
because the commissioner of internal revenue had, in such tax evasion cases, discretion on whether to issue an assessment or to file a
criminal case against the taxpayer or to do both.
Private respondents insist that Section 222 should be read in relation to Section 255 of the NLRC, 21 which penalizes failure to file a
return. They add that a tax assessment should precede a criminal indictment. We disagree. To reiterate, said Section 222 states that an
assessment is not necessary before a criminal charge can be filed. This is the general rule. Private respondents failed to show that they are
entitled to an exception. Moreover, the criminal charge need only be supported by a prima facie showing of failure to file a required
return. This fact need not be proven by an assessment.
The issuance of an assessment must be distinguished from the filing of a complaint. Before an assessment is issued, there is, by practice,
a pre-assessment notice sent to the taxpayer. The taxpayer is then given a chance to submit position papers and documents to prove that
the assessment is unwarranted. If the commissioner is unsatisfied, an assessment signed by him or her is then sent to the taxpayer
informing the latter specifically and clearly that an assessment has been made against him or her. In contrast, the criminal charge need not
go through all these. The criminal charge is filed directly with the DOJ. Thereafter, the taxpayer is notified that a criminal case had been
filed against him, not that the commissioner has issued an assessment. It must be stressed that a criminal complaint is instituted not to
demand payment, but to penalize the taxpayer for violation of the Tax Code.WHEREFORE, the petition is hereby GRANTED. The
assailed Decision is REVERSED and SET ASIDE. CTA Case No. 5271 is likewise DISMISSED. No costs.SO ORDERED.
FIRST DIVISIONG.R. No. 159694 January 27, 2006
COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs.AZUCENA T. REYES, Respondent.
G.R. No. 163581 January 27, 2006
AZUCENA T. REYES, Petitioner, vs.COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION
PANGANIBAN, CJ.:
Under the present provisions of the Tax Code and pursuant to elementary due process, taxpayers must be informed in writing of the law
and the facts upon which a tax assessment is based; otherwise, the assessment is void. Being invalid, the assessment cannot in turn be
used as a basis for the perfection of a tax compromise.
The Case
Before us are two consolidated1 Petitions for Review2 filed under Rule 45 of the Rules of Court, assailing the August 8, 2003 Decision 3 of
the Court of Appeals (CA) in CA-GR SP No. 71392. The dispositive portion of the assailed Decision reads as follows:
"WHEREFORE, the petition is GRANTED. The assailed decision of the Court of Tax Appeals is ANNULLED and SET ASIDE without
prejudice to the action of the National Evaluation Board on the proposed compromise settlement of the Maria C. Tancinco estates tax
liability."4
The Facts
The CA narrated the facts as follows:
"On July 8, 1993, Maria C. Tancinco (or decedent) died, leaving a 1,292 square-meter residential lot and an old house thereon (or
subject property) located at 4931 Pasay Road, Dasmarias Village, Makati City.
"On the basis of a sworn information-for-reward filed on February 17, 1997 by a certain Raymond Abad (or Abad), Revenue District
Office No. 50 (South Makati) conducted an investigation on the decedents estate (or estate). Subsequently, it issued a Return
Verification Order. But without the required preliminary findings being submitted, it issued Letter of Authority No. 132963 for the
regular investigation of the estate tax case. Azucena T. Reyes (or [Reyes]), one of the decedents heirs, received the Letter of Authority
on March 14, 1997.
"On February 12, 1998, the Chief, Assessment Division, Bureau of Internal Revenue (or BIR), issued a preliminary assessment notice
against the estate in the amount of P14,580,618.67. On May 10, 1998, the heirs of the decedent (or heirs) received a final estate tax
assessment notice and a demand letter, both dated April 22, 1998, for the amount of P14,912,205.47, inclusive of surcharge and interest.
"On June 1, 1998, a certain Felix M. Sumbillo (or Sumbillo) protested the assessment [o]n behalf of the heirs on the ground that the
subject property had already been sold by the decedent sometime in 1990.
"On November 12, 1998, the Commissioner of Internal Revenue (or [CIR]) issued a preliminary collection letter to [Reyes], followed
by a Final Notice Before Seizure dated December 4, 1998.
"On January 5, 1999, a Warrant of Distraint and/or Levy was served upon the estate, followed on February 11, 1999 by Notices of Levy
on Real Property and Tax Lien against it.
"On March 2, 1999, [Reyes] protested the notice of levy. However, on March 11, 1999, the heirs proposed a compromise settlement
of P1,000,000.00.
"In a letter to [the CIR] dated January 27, 2000, [Reyes] proposed to pay 50% of the basic tax due, citing the heirs inability to pay the tax
assessment. On March 20, 2000, [the CIR] rejected [Reyess] offer, pointing out that since the estate tax is a charge on the estate and not
Tax II Set 4 * Assessment Cases*Page 12 of 65
on the heirs, the latters financial incapacity is immaterial as, in fact, the gross value of the estate amounting to P32,420,360.00 is more
than sufficient to settle the tax liability. Thus, [the CIR] demanded payment of the amount of P18,034,382.13 on or before April 15,
2000[;] otherwise, the notice of sale of the subject property would be published.
"On April 11, 2000, [Reyes] again wrote to [the CIR], this time proposing to pay 100% of the basic tax due in the amount
of P5,313,891.00. She reiterated the proposal in a letter dated May 18, 2000.
"As the estate failed to pay its tax liability within the April 15, 2000 deadline, the Chief, Collection Enforcement Division, BIR, notified
[Reyes] on June 6, 2000 that the subject property would be sold at public auction on August 8, 2000.
"On June 13, 2000, [Reyes] filed a protest with the BIR Appellate Division. Assailing the scheduled auction sale, she asserted that x x x
the assessment, letter of demand[,] and the whole tax proceedings against the estate are void ab initio. She offered to file the
corresponding estate tax return and pay the correct amount of tax without surcharge [or] interest.
"Without acting on [Reyess] protest and offer, [the CIR] instructed the Collection Enforcement Division to proceed with the August 8,
2000 auction sale. Consequently, on June 28, 2000, [Reyes] filed a [P]etition for [R]eview with the Court of Tax Appeals (or CTA),
docketed as CTA Case No. 6124.
"On July 17, 2000, [Reyes] filed a Motion for the Issuance of a Writ of Preliminary Injunction or Status Quo Order, which was granted
by the CTA on July 26, 2000. Upon [Reyess] filing of a surety bond in the amount of P27,000,000.00, the CTA issued a [R]esolution
dated August 16, 2000 ordering [the CIR] to desist and refrain from proceeding with the auction sale of the subject property or from
issuing a [W]arrant of [D]istraint or [G]arnishment of [B]ank [A]ccount[,] pending determination of the case and/or unless a contrary
order is issued.
"[The CIR] filed a [M]otion to [D]ismiss the petition on the grounds (i) that the CTA no longer has jurisdiction over the case[,] because
the assessment against the estate is already final and executory; and (ii) that the petition was filed out of time. In a [R]esolution dated
November 23, 2000, the CTA denied [the CIRs] motion.
"During the pendency of the [P]etition for [R]eview with the CTA, however, the BIR issued Revenue Regulation (or RR) No. 6-2000
and Revenue Memorandum Order (or RMO) No. 42-2000 offering certain taxpayers with delinquent accounts and disputed assessments
an opportunity to compromise their tax liability.
"On November 25, 2000, [Reyes] filed an application with the BIR for the compromise settlement (or compromise) of the assessment
against the estate pursuant to Sec. 204(A) of the Tax Code, as implemented by RR No. 6-2000 and RMO No. 42-2000.
"On December 26, 2000, [Reyes] filed an Ex-Parte Motion for Postponement of the hearing before the CTA scheduled on January 9,
2001, citing her pending application for compromise with the BIR. The motion was granted and the hearing was reset to February 6,
2001.
"On January 29, 2001, [Reyes] moved for postponement of the hearing set on February 6, 2001, this time on the ground that she had
already paid the compromise amount of P1,062,778.20 but was still awaiting approval of the National Evaluation Board (or NEB). The
CTA granted the motion and reset the hearing to February 27, 2001.
"On February 19, 2001, [Reyes] filed a Motion to Declare Application for the Settlement of Disputed Assessment as a Perfected
Compromise. In said motion, she alleged that [the CIR] had not yet signed the compromise[,] because of procedural red tape requiring the
initials of four Deputy Commissioners on relevant documents before the compromise is signed by the [CIR]. [Reyes] posited that the
absence of the requisite initials and signature[s] on said documents does not vitiate the perfected compromise.
 Tax II Set 4 * Assessment Cases*Page 13 of 65

"Commenting on the motion, [the CIR] countered that[,] without the approval of the NEB, [Reyess] application for compromise with the
BIR cannot be considered a perfected or consummated compromise.
"On March 9, 2001, the CTA denied [Reyess] motion, prompting her to file a Motion for Reconsideration Ad Cautelam. In a
[R]esolution dated April 10, 2001, the CTA denied the [M]otion for [R]econsideration with the suggestion that[,] for an orderly
presentation of her case and to prevent piecemeal resolutions of different issues, [Reyes] should file a [S]upplemental [P]etition for
[R]eview[,] setting forth the new issue of whether there was already a perfected compromise.
"On May 2, 2001, [Reyes] filed a Supplemental Petition for Review with the CTA, followed on June 4, 2001 by its Amplificatory
Arguments (for the Supplemental Petition for Review), raising the following issues:
they were deemed void.6 The appellate court held that while administrative agencies, like the BIR, were not bound by procedural
requirements, they were still required by law and equity to observe substantive due process. The reason behind this requirement, said the
CA, was to ensure that taxpayers would be duly apprised of -- and could effectively protest -- the basis of tax assessments against
them.7 Since the assessment and the demand were void, the proceedings emanating from them were likewise void, and any order
emanating from them could never attain finality.
The appellate court added, however, that it was premature to declare as perfected and consummated the compromise of the estates tax
liability. It explained that, where the basic tax assessed exceeded P1 million, or where the settlement offer was less than the prescribed
minimum rates, the National Evaluation Boards (NEB) prior evaluation and approval were the conditio sine qua non to the perfection
and consummation of any compromise. 8 Besides, the CA pointed out, Section 204(A) of the Tax Code applied to all compromises,
whether government-initiated or not.9 Where the law did not distinguish, courts too should not distinguish.

1. Whether or not an offer to compromise by the [CIR], with the acquiescence by the Secretary of Finance, of a tax liability pending in
Hence, this Petition.10
court, that was accepted and paid by the taxpayer, is a perfected and consummated compromise.

The Issues
2. Whether this compromise is covered by the provisions of Section 204 of the Tax Code (CTRP) that requires approval by the BIR
[NEB].
In GR No. 159694, petitioner raises the following issues for the Courts consideration:
"Answering the Supplemental Petition, [the CIR] averred that an application for compromise of a tax liability under RR No. 6-2000 and
RMO No. 42-2000 requires the evaluation and approval of either the NEB or the Regional Evaluation Board (or REB), as the case may "I.
be.
Whether petitioners assessment against the estate is valid.
"On June 14, 2001, [Reyes] filed a Motion for Judgment on the Pleadings; the motion was granted on July 11, 2001. After submission of
memoranda, the case was submitted for [D]ecision.
"II.

"On June 19, 2002, the CTA rendered a [D]ecision, the decretal portion of which pertinently reads:
Whether respondent can validly argue that she, as well as the other heirs, was not aware of the facts and the law on which the assessment
in question is based, after she had opted to propose several compromises on the estate tax due, and even prematurely acting on such
WHEREFORE, in view of all the foregoing, the instant [P]etition for [R]eview is hereby DENIED. Accordingly, [Reyes] is hereby proposal by paying 20% of the basic estate tax due."11
ORDERED to PAY deficiency estate tax in the amount of Nineteen Million Five Hundred Twenty Four Thousand Nine Hundred Nine
and 78/100 (P19,524,909.78), computed as follows:
The foregoing issues can be simplified as follows: first, whether the assessment against the estate is valid; and, second, whether the
compromise entered into is also valid.
xxxxxxxxx
The Courts Ruling
[Reyes] is likewise ORDERED to PAY 20% delinquency interest on deficiency estate tax due of P17,934,382.13 from January 11, 2001
until full payment thereof pursuant to Section 249(c) of the Tax Code, as amended.
The Petition is unmeritorious.

"In arriving at its decision, the CTA ratiocinated that there can only be a perfected and consummated compromise of the estates tax
First Issue:
liability[,] if the NEB has approved [Reyess] application for compromise in accordance with RR No. 6-2000, as implemented by RMO
No. 42-2000.
Validity of the Assessment Against the Estate
"Anent the validity of the assessment notice and letter of demand against the estate, the CTA stated that at the time the questioned
assessment notice and letter of demand were issued, the heirs knew very well the law and the facts on which the same were based. It also The second paragraph of Section 228 of the Tax Code 12 is clear and mandatory. It provides as follows:
observed that the petition was not filed within the 30-day reglementary period provided under Sec. 11 of Rep. Act No. 1125 and Sec. 228
of the Tax Code."5
"Sec. 228. Protesting of Assessment. --

Ruling of the Court of Appeals

xxxxxxxxx

In partly granting the Petition, the CA said that Section 228 of the Tax Code and RR 12-99 were mandatory and unequivocal in their
requirement. The assessment notice and the demand letter should have stated the facts and the law on which they were based; otherwise,

"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."
In the present case, Reyes was not informed in writing of the law and the facts on which the assessment of estate taxes had been made.
She was merely notified of the findings by the CIR, who had simply relied upon the provisions of former Section 229 13 prior to its
amendment by Republic Act (RA) No. 8424, otherwise known as the Tax Reform Act of 1997.
First, RA 8424 has already amended the provision of Section 229 on protesting an assessment. The old requirement of
merely notifying the taxpayer of the CIRs 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.
It was on February 12, 1998, that a preliminary assessment notice was issued against the estate. On April 22, 1998, the final estate tax
assessment notice, as well as demand letter, was also issued. During those dates, RA 8424 was already in effect. The notice required
under the old law was no longer sufficient under the new law.
To be simply informed in writing of the investigation being conducted and of the recommendation for the assessment of the estate taxes
due is nothing but a perfunctory discharge of the tax function of correctly assessing a taxpayer. The act cannot be taken to mean that
Reyes already knew the law and the facts on which the assessment was based. It does not at all conform to the compulsory requirement
under Section 228. Moreover, the Letter of Authority received by respondent on March 14, 1997 was for the sheer purpose of
investigation and was not even the requisite notice under the law.
The procedure for protesting an assessment under the Tax Code is found in Chapter III of Title VIII, which deals with remedies. Being
procedural in nature, can its provision then be applied retroactively? The answer is yes.
The general rule is that statutes are prospective. However, statutes that are remedial, or that do not create new or take away vested rights,
do not fall under the general rule against the retroactive operation of statutes. 14 Clearly, Section 228 provides for the procedure in case an
assessment is protested. The provision does not create new or take away vested rights. In both instances, it can surely be applied
retroactively. Moreover, RA 8424 does not state, either expressly or by necessary implication, that pending actions are excepted from the
operation of Section 228, or that applying it to pending proceedings would impair vested rights.
Second, the non-retroactive application of Revenue Regulation (RR) No. 12-99 is of no moment, considering that it merely implements
the law.
A tax regulation is promulgated by the finance secretary to implement the provisions of the Tax Code. 15 While it is desirable for the
government authority or administrative agency to have one immediately issued after a law is passed, the absence of the regulation does
not automatically mean that the law itself would become inoperative.
At the time the pre-assessment notice was issued to Reyes, RA 8424 already stated that the taxpayer must be informed of both the law
and facts on which the assessment was based. Thus, the CIR should have required the assessment officers of the Bureau of Internal
Revenue (BIR) to follow the clear mandate of the new law. The old regulation governing the issuance of estate tax assessment notices ran
afoul of the rule that tax regulations -- old as they were -- should be in harmony with, and not supplant or modify, the law. 16
It may be argued that the Tax Code provisions are not self-executory. It would be too wide a stretch of the imagination, though, to still
issue a regulation that would simply require tax officials to inform the taxpayer, in any manner, of the law and the facts on which an
assessment was based. That requirement is neither difficult to make nor its desired results hard to achieve.
Moreover, an administrative rule interpretive of a statute, and not declarative of certain rights and corresponding obligations, is given
retroactive effect as of the date of the effectivity of the statute. 17 RR 12-99 is one such rule. Being interpretive of the provisions of the Tax
Code, even if it was issued only on September 6, 1999, this regulation was to retroact to January 1, 1998 -- a date prior to the issuance of
the preliminary assessment notice and demand letter.
Tax II Set 4 * Assessment Cases*Page 14 of 65
Third, neither Section 229 nor RR 12-85 can prevail over Section 228 of the Tax Code.
No doubt, Section 228 has replaced Section 229. The provision on protesting an assessment has been amended. Furthermore, in case of
discrepancy between the law as amended and its implementing but old regulation, the former necessarily prevails. 18 Thus, between
Section 228 of the Tax Code and the pertinent provisions of RR 12-85, the latter cannot stand because it cannot go beyond the provision
of the law. The law must still be followed, even though the existing tax regulation at that time provided for a different procedure. The
regulation then simply provided that notice be sent to the respondent in the form prescribed, and that no consequence would ensue for
failure to comply with that form.
Fourth, petitioner violated the cardinal rule in administrative law that the taxpayer be accorded due process. Not only was the law here
disregarded, but no valid notice was sent, either. A void assessment bears no valid fruit.
The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax collection without first establishing a
valid assessment is evidently violative of the cardinal principle in administrative investigations: that taxpayers should be able to present
their case and adduce supporting evidence. 19 In the instant case, respondent has not been informed of the basis of the estate tax liability.
Without complying with the unequivocal mandate of first informing the taxpayer of the governments claim, there can be no deprivation
of property, because no effective protest can be made. 20 The haphazard shot at slapping an assessment, supposedly based on estate
taxations general provisions that are expected to be known by the taxpayer, is utter chicanery.
Even a cursory review of the preliminary assessment notice, as well as the demand letter sent, reveals the lack of basis for -- not to
mention the insufficiency of -- the gross figures and details of the itemized deductions indicated in the notice and the letter. This Court
cannot countenance an assessment based on estimates that appear to have been arbitrarily or capriciously arrived at. Although taxes are
the lifeblood of the government, their assessment and collection "should be made in accordance with law as any arbitrariness will negate
the very reason for government itself."21
Fifth, the rule against estoppel does not apply. Although the government cannot be estopped by the negligence or omission of its agents,
the obligatory provision on protesting a tax assessment cannot be rendered nugatory by a mere act of the CIR .
Tax laws are civil in nature. 22 Under our Civil Code, acts executed against the mandatory provisions of law are void, except when the law
itself authorizes the validity of those acts. 23 Failure to comply with Section 228 does not only render the assessment void, but also finds
no validation in any provision in the Tax Code. We cannot condone errant or enterprising tax officials, as they are expected to be vigilant
and law-abiding.
Second Issue:
Validity of Compromise
It would be premature for this Court to declare that the compromise on the estate tax liability has been perfected and consummated,
considering the earlier determination that the assessment against the estate was void. Nothing has been settled or finalized. Under Section
204(A) of the Tax Code, where the basic tax involved exceeds one million pesos or the settlement offered is less than the prescribed
minimum rates, the compromise shall be subject to the approval of the NEB composed of the petitioner and four deputy commissioners.
Finally, as correctly held by the appellate court, this provision applies to all compromises, whether government-initiated or not. Ubi lex
non distinguit, nec nos distinguere debemos. Where the law does not distinguish, we should not distinguish.WHEREFORE, the Petition is
hereby DENIED and the assailed Decision AFFIRMED. No pronouncement as to costs.SO ORDERED.
THIRD DIVISIONG.R. No. 193100 December 10, 2014
SAMAR-I ELECTRIC COOPERATIVE, Petitioner, vs.COMMISSIONER OF INTERNAL REVENUE, Respondent.
 Tax II Set 4 * Assessment Cases*Page 15 of 65

DECISION 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 [P]3,760,225.69, as well as deficiency income tax covering the
years 1998 to 1999 in the amount of [P]440,545.71, or in the aggregate amount of [P]4,200,771.40. Petitioner filed its protest and
VILLARAMA, JR., J.:
Supplemental Protest to the Final Assessment Notices on October 14, 2002 and November 4, 2002, respectively. But on the Final
Decision on Disputed Assessment issued on April 10, 2003, petitioner was still held liable for the alleged tax liabilities. 5
At bar is a petition for review on certiorari of the Decision 1 of the Court of Tax Appeals En Banc (CTA EB) dated March 11, 2010 and it,s
Resolution2 dated July 28, 2010 in C.T.A. EB Nos. 460 and 462 (C.T.A. Case No. 6697) affirming the May 27, 2008 Decision 3 and the
The CTA EB narrates the following succeeding events:
January 19, 2009 Amended Decision 4 of the CTA's First Division, and ordering petitioner to pay respondent Commissioner of Internal
Revenue (CIR) deficiency withholding tax on compensation in the aggregate amount of P2,690,850.91, plus 20% interest starting
September 30, 2002, until fully paid, pursuant to Section 249( c) of the National Internal Revenue Code (NIRC) of 1997. On May 29, 2003, the Petition for Review was filed by SAMELCO-I with the Court in division.

The following facts are undisputed as found by the CTA's First Division and adopted by the CTA EB: On May 27, 2008, the assailed Decision partially granting SAMELCO-Is petition was promulgated.

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).
Dissatisfied, both parties sought reconsideration of the said decision. CIR filed the "Motion for Partial Reconsideration (Re: Decision
dated 27 May 2008[)]" on June 13, 2008. On the other hand, SAMELCOIs "Motion for Reconsideration" was filed on June 17, 2008.
On January 19, 2009, the Court in division promulgated its Amended Decision which denied CIRs motion and partially granted
SAMELCO-Is motion.

Respondent Commissioner of InternalRevenue is a public officer authorized under the National Internal Revenue Code (NIRC) to Thereafter, CIR and SAMELCO-I filed their "Motion for Extension of Time to File Petition for Review" on February 6, 2009 and
examine any taxpayer including inter alia, the power to issue tax assessment, evaluate, and decide upon protests relative thereto. February 11, 2009, respectively. Both motionswere granted by the Court. 6

On July 13, 1999 and April 17, 2000, petitioner filed its 1998 and 1999 income tax returns, respectively. 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
petitioners 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.
The following issues were raised by the parties in their petitions for review before the CTA EB. In C.T.A. EB 460, herein respondent CIR
raised the following grounds:
I. Whether or not SAMELCO-I is entitled to tax privileges accorded to members in accordance with Republic Act No. 6938, or the
Cooperative Code, or to privileges of Presidential Decree (PD) No. 269.
II. Whether or not SAMELCO-I is liable for the minimum corporate income tax (MCIT) for taxable years 1998 to 1999.

Petitioner cooperated in the audit and investigation conducted by the Special Investigation Division of the BIR by submitting the required
III. Whether or not SAMELCO-I is liable to pay the total deficiency expanded withholding tax of [P]3,760,225.69 for taxable years 1997
documents on December 5, 2000.
to 1999.7

On October 19, 2001, respondent sent a Notice for Informal Conference which was received by petitioner in November 2001; indicating
On the other hand, petitioner SAMELCO-I raised the following legal and factual errors in C.T.A. EB No. 462, viz.:
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 findingsof the investigators.
I. 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.
In response, petitioner sent a letter dated November 26, 2001 to respondent maintaining its indifference to the latters findings and
requesting details of the assessment.
II. The Court in Divisionerred 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
On December 13, 2001, petitioner executed a Waiver of the Defense of Prescription under the Statute of Limitations, good until March
the 1997 Tax Code [then Sec. 223, NIRC], due to alleged false withholding tax returns filed by [SAMELCO-I] as the same assertions
29, 2002.
were mere afterthought to justify application of the 10-year prescriptive period to assess.

On February 27, 2002, a letter was sent by petitioner to respondent requesting a detailed computation of the alleged 1997, 1998 and 1999
III. The Court in Division failed to consider that CIR made no findings as to SAMELCO-Is filing of a false return as clearly manifested
deficiency withholding tax on compensation. On February 28, 2002, respondent issued a Preliminary Assessment Notice (PAN). The
by the non-imposition of 50% surcharge on the 1997, 1998 and 1999 basic withholding tax deficiency in the PAN, demand notice and
PAN was received by petitioner on April 9, 2002, which was protested on April 18, 2002. Respondents Reply dated May 27, 2002,
even in the assessment notice other than interest charges.
contained the explanation of the legal basis of the issuance of the questioned tax assessments.

However, on July 8, 2002, respondent dismissed petitioners protest and recommended the issuance of a Final Assessment Notice.

IV. The Court in Division erred innot holding that given SAMELCOIs filing of its 1997, 1998, and 1999 withholding tax returns in good
faith, and in close consultation with the BIR personnel in Calbayog City where SAMELCO-Is place of business is located, the latter
should no longer be imposed the incremental penalties (surcharge and interest).
V. The Court in Division failed to rule that since there was no substantial under remittance of 1998 withholding tax as the basic
deficiency tax per amended decision is less than 30% of the computed total tax due per return, SAMELCO-I did not file a false return.
VI. The Court in Division overlooked the fact that for taxable year 1999, [SAMELCO-I] remitted the amount of [P]844,958.00 as
withholding tax in compensation instead of [P]786,702.43 as indicated in Page 8, Annex C of the CTA (1st Division) Decision.
VII. 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. 8
On February 26, 2009, the CTA EB consolidated both cases. After the filing of the respective Comments of both parties, the cases were
deemed submitted for decision. The CTA EB found that the issues and arguments raised by the parties were "mere reiterations of what
have been considered and passed upon by the Court in division in the assailed Decision and the Amended Decision." 9 It ruled that
SAMELCO-I is exempted in the payment of the Minimum Corporate Income Tax (MCIT); 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. Finding no reversible error in the Decision and the Amended Decision, the CTA EB ruled, viz.:
WHEREFORE, premises considered, We deny the petitions for lack of merit. Accordingly, We AFFIRM the May 27, 2008 Decision and
the January 19, 2009 Amended Decision promulgated by the First Division of this Court.SO ORDERED. 10
Petitioner moved for reconsideration.In a Resolution dated July 28, 2010, the CTA EB denied the motion. Petitioner now comes to this
Court raising the following assignment of errors:
A. The Honorable CTA En Banc gravely erred in holding that respondent sufficiently complied withthe due process
requirements mandated by Section 228 of the 1997 Tax Code in the issuance of 1997-1999 assessments to petitioner, even if
the details of discrepancies on which the assessments were factually and legally based as required under Section 3.1.4 of
Revenue Regulations (RR) No[.] 12-99, were not found in the Formal Letter of Demand and Final Assessment Notice (FAN)
sent to petitioner, in clear violation of the doctrine established in the case of Commissioner of Internal Revenue vs. Enron
Subic Power Corporation, G.R. No. 166387, January 19, 2009, applying Section 3.1.4 of RR 12-99 in relation to Section 228
NIRC. B. The Honorable CTA En Banc erred in holding that respondent observed due process notwithstanding the missing
Annex "A-1" that was meant to show Details of Discrepancies and to be attached to BIRs Letter of Demand/Final Notice
dated September 15, 2002, which was not furnished to petitioner and worse, a file copy of which is not even found in the BIR
records as part of its Exhibit "16" and neither is the same found in the CTA records.
C. In deciding that the 1997 and 1998 withholding tax assessments have not yet prescribed, the Honorable CTA En Banc
failed to consider the singular significance of the Waiver of the Defense of Prescription validly agreed upon and executed by
the parties.
D. The Honorable CTA En Bancerred in holding that respondent can validly assess within the ten (10)-year prescriptive
period even if the Notice of Informal Conference, PAN, and Final Letter of Demand (dated September 15, 2002), mentioned
not a word as to the falsity of the returns filed by petitioner, but as anafter thought that was raised rather belatedly only in the
Answer and during the trial.
E. The Honorable CTA En Bancerred in holding as valid the 1997 deficiency withholding tax assessment being anchored on
RR 2-98 (as cited in Notice of Informal Conference and PAN), as the said RR 2-98 governs compensation income paid
beginning January 1, 1998.11
Tax II Set 4 * Assessment Cases*Page 16 of 65
We shall resolve the instant controversy by discussing the following two main issues in seriatim: whether the 1997 and 1998 assessments
on withholding tax on compensation were issued within the prescriptive period provided by law; and whether the assessments were
issued in accordance with Section 228 of the NIRC of 1997.
On the issue of prescription, petitioner contends that the subject 1997 and 1998 withholding tax assessments on compensation were
issued beyond the prescriptive period of three years under Section 203 of the NIRC of 1997. Under this section, the government is
allowed a period of only three years to assess the correct tax liability of a taxpayer, viz.:
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. Relying
on Section 203, petitioner argues that the subject deficiency tax assessments issued by respondent on September 15, 2002 was issued
beyond the three-year prescriptive period. Petitioner filed its Annual Information Return of Income Tax Withheld on Compensation,
Expanded and Final Withholding Taxeson the following dates: on February 17, 1998 for the taxable year 1997; and on February 1, 1999
for the year taxable 1998. Thus, if the period prescribed under Section 203 of the NIRC of 1997 is to be followed, the three-year
prescriptive period to assess for the taxable years 1997 and 1998 should have ended on February 16,2001 and January 31, 2002,
respectively.
We disagree.
While petitioner is correct that 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
factof 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) herein
above, may be collected by distraint orlevy or by a proceeding incourt 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.)

In the case at bar, it was petitioners substantial under declaration of withholding taxes in the amount ofP2,690,850.91 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." 12 The case of Aznar v. Court
of Tax Appeals13 discusses what acts or omissions may constitute falsity, viz.:
Petitioner argues that Sec. 332 of the NIRC does not apply because the taxpayer did not file false and fraudulent returns with intent to
evade tax, while respondent Commissioner of Internal Revenue insists contrariwise, with respondent Court of Tax Appeals concluding
that the very "substantial under declarations ofincome for six consecutive years eloquently demonstrate the falsity or fraudulence of the
income tax returns with an intent to evade the payment of tax."
To our minds we can dispense with these controversial arguments on facts, although we do not deny that the findings of facts by the
Court of Tax Appeals, supported as they are by very substantial evidence, carry great weight, by resorting to a proper interpretation of
Section 332 of the NIRC. We believe that 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,(3) omission. Our stand that the law should be interpreted to mean a separation of the three different situations of false return,
fraudulent return with intent to evade tax, and failure to file a return is strengthened immeasurably by the last portion of the provision
which segregates the situations into three different classes, namely "falsity," "fraud" and "omission." That 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 fromproper 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. There being undoubtedly false tax returns in this case, We affirm the conclusion of the respondent Court of
Tax Appeals that Sec. 332 (a) of the NIRC should apply and that the period of ten years within which to assess petitioners tax liability
had not expired at the time said assessment was made.14
A careful examination of the evidence on record yields to no other conclusion but that petitioner failed to withhold taxes from its
employees 13th month pay and other benefits inexcess of thirty thousand pesos (P30,000.00) amounting to P2,690,850.91for the taxable
years 1997 to 1999 resulting to its filing of the subject false returns. Petitioner failed to refute this finding, both in fact and in law,
before the courts a quo.
We quote the following portion of the assailed Decision of the CTA EB, viz.:
It is noteworthy to mention that during the trial, the witness for the CIR testified that SAMELCO-I did not file an accurate return, as
follows:
ATTY. FRANCIA:
Q: Did the petitioner file an accurate Return?
MS. RAPATAN:
A: No.
ATTY. FRANCIA:
Tax II Set 4 * Assessment Cases*Page 17 of 65
Q: Can you please explain?
MS. RAPATAN:
A: Because I based the computation of my deficiency withholding taxes on declared taxable income per alpha list submitted then, I have
extracted a data from the Alpha List, particularly that of the manager and other officials, only their basic salary and their overtime pay
were declared but the other benefits were not actually subjected to withholding tax. So, the deficiency withholding taxes from the taxes
on the taxable 13th month pay and other benefits in excess of the [P]12,000.00 for 1997 and for the taxable years 1998 and 1999, in
excess of the [P]30,000.00. I also noticed that the per diem of the Manager was not included in the withholding tax computation of
SAMELCO[-]I.
ATTY. FRANCIA:
Nothing further, your Honors.
JUSTICE BAUTISTA:
Any re-cross?
ATTY. NAPUTO:
No re-cross, your Honors.15
We have consistently held that courts will not interfere in matters which are addressed to the sound discretion of the government agency
entrusted with the regulation of activities coming under its special and technical training and knowledge. 16 The findings of fact of these
quasijudicial agencies are generally accorded respect and even finality as long as they are supported by substantial evidence in
recognition of their expertise on the specific matters under their consideration. 17 In the case at bar, petitioner failed to proffer convincing
argument and evidence that would persuade us to disturb the factual findings of the CTA First Division, as affirmed by the CTA EB. As
such, we cannot but affirm the finding of petitioners substantial under declaration of withholding taxes in the amount of P2,690,850.91
which constituted the "falsity" in the subject returns.
Anent the issue of violation of due process in the issuance of the final notice of assessment and letter of demand, Section 228 of the
NIRC of 1997 provides:
SEC. 228. Protesting of Assessment. x x x
xxxx
The taxpayers shall be informed in writing of the law and the factson which the assessment is made: otherwise, the assessment shall be
void.
Petitioner contends that as the Final Demand Letter and Assessment Notices (FAN) were silent as to the nature and basis of the
assessments, it was denied due process, 18 and the assessments must be declared void. It likewise invokes Revenue Regulations(RR) No.
12-99 which states, viz.:
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 taxpayers deficiency tax or taxes
 Tax II Set 4 * Assessment Cases*Page 18 of 65

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
We uphold the assessments issued to petitioner.
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. The reason for the mandatory nature of this requirement isexplained in the case of
Commissioner of Internal Revenue v. Reyes:19
Investigation Division. Said summary report contained an explanation of Findings of Investigation stating the legal and factual bases for
the deficiency assessment. In a letter dated February 27, 2002 petitioner requested for copies of working papers indicating how the
deficiency withholding taxes were computed.22 Respondent promptly responded in a letter-reply dated February 28, 2002 stating:
please be informed that the cooperatives deficiency withholding taxes on compensation were due to the failure of the cooperative to
withhold taxes on the taxable 13th month pay and other benefits in excess of P30,000.00 threshold pursuant to Section 3 of Revenue
Regulation No. 2-95 implementing Republic Act No. 7833 and Section 2.78/1 B 11 of Revenue Regulation 2-98 implementing Section 32
B e of Republic Act No. 8424. Further, we are providing you hereunder the computational format on how deficiency withholding taxes
were computed and sample computation from our working papers, for your information and guidance. 23

A void assessment bears no valid fruit.

On April 9, 2002, petitioner received the PAN dated February 28, 2002 which contained the computations of its deficiency income and
withholding taxes.1wphi1 Attached to the PAN was the detailed explanation of the particular provision of law and revenue regulation
The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax collection without first establishing a violated, thus: DETAILS OF DISCREPANCIES
valid assessment is evidently violative of the cardinal principle in administrative investigations: that taxpayers should be able to present
their case and adduce supporting evidence. In the instant case, respondent has not been informed of the basis of the estate tax liability.
1. Deficiency income taxes for 1998 and 1999 respectively result from non-payment of the minimum corporate income tax
Without complying with the unequivocal mandate of first informing the taxpayer of the governments claim, there can be no deprivation
(MCIT) imposed pursuant to Section 27(E) of the 1997 Tax Reform Act.
of property, because no effective protest can be made. The haphazard shot at slapping an assessment, supposedly based on estate
taxations general provisions that are expected to be known by the taxpayer, is utter chicanery.
2. Deficiency Withholding Taxes on Compensation for 1997-1999 are the total withholding taxes on compensation of all
employees of SAMELCO[-]I resulting from failureof employer to withhold taxes on the taxable 13th month pay and other
Even a cursory review of the preliminary assessment notice, as well as the demand letter sent, reveals the lack of basis for not to
benefits in excess of [P]30,000.00 threshold pursuant to Revenue Regulation 2-98. 24
mention the insufficiency of the gross figures and details of the itemized deductions indicated in the notice and the letter. This Court
cannot countenance an assessment based on estimates that appear to have been arbitrarily or capriciously arrived at. Although taxes are
the lifeblood of the government, their assessment and collection "should be made in accordance with law as any arbitrariness will negate The above information provided to petitioner enabled it to protest the PAN by questioning respondent's interpretation of the laws cited as
the very reason for government itself." (Emphasis supplied; citations omitted) legal basis for the computation of the deficiency withholding taxes and assessment of minimum corporate income tax despite petitioner's
position that it remains exempt therefrom. 25 In its letter-reply dated May 27, 2002, respondent answered the arguments raised by
petitioner in its protest, and requested it to pay the assessed deficiency on the date of payment stated in the PAN. A second protest letter
In Commissioner of Internal Revenue v. Enron Subic Power Corporation, 20 we held that the law requires that the legal and factual bases
dated June 23, 2002 was sent by petitioner, to which respondent replied (letter dated July 8, 2002) answering each of the two issues
of the assessment be stated in the formal letter of demand and assessment notice, and that the alleged "factual bases" in the advice,
reiterated by petitioner: ( 1) validity of EO 93 withdrawing the tax exemption privileges under PD 269; and (2) retroactive application of
preliminary letter and "audit working papers" did not suffice. Thus:
RR No. 8-2000.26 The FAN was finally received by petitioner on September 24, 2002, and protested by it in a letter dated October 14,
2002 which reiterated in lengthy arguments its earlier interpretation of the laws and regulations upon which the assessments were based. 27
Both the CTA and the CA concluded that the deficiency tax assessment merely itemized the deductions disallowed and included these in
the gross income. It also imposed the preferential rate of 5% on some items categorized by Enron as costs. The legal and factual bases
Although the FAN and demand letter issued to petitioner were not accompanied by a written explanation of the legal and factual bases of
were, however, not indicated.
the deficiency taxes assessed against the petitioner, the records showed that respondent in its letter dated April 10, 2003 responded to
petitioner's October 14, 2002 letter-protest, explaining at length the factual and legal bases of the deficiency tax assessments and denying
The CIR insists that an examination of the facts shows that Enron was properly apprised of its tax deficiency. During the pre-assessment the protest.28
stage, the CIR advised Enrons representative of the tax deficiency, informed it of the proposed tax deficiency assessment through a
preliminary five-day letter and furnished Enron a copy of the audit working paper allegedly showing in detail the legal and factual bases
Considering the foregoing exchange of correspondence and documents between the parties, we find that the requirement of Section 228
of the assessment. The CIR argues that these steps sufficed to inform Enron of the laws and facts on which the deficiency tax assessment
was substantially complied with. Respondent had fully informed petitioner in writing of the factual and legal bases of the deficiency taxes
was based.
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.
We disagree. 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
WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of the Court of Tax Appeals En Banc dated March 11,
discharges of the CIRs duties in correctly assessing a taxpayer. The requirement for issuing a preliminary or final notice, as the case may
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
be, informing a taxpayer of the existence of a deficiency tax assessment is markedly different from the requirement of what such notice
UPHELD.With costs against the petitioner.SO ORDERED
must contain. Just because the CIR issued an advice, a preliminary letter during the pre-assessment stage and a final notice, in the order
required by law, does not necessarily mean that Enron was informed of the law and facts on which the deficiency tax assessment was
made.21 (Emphasis supplied) Statute of Limitation On Assessment of Internal Revenue Taxes

In this case, we agree with the respondent that petitioner was sufficiently apprised of the nature, factual and legal bases, as well as how FIRST DIVISION G.R. No. 162852 December 16, 2004
the deficiency taxes being assessed against it were computed. Records reveal that on October 19, 2001, prior to the conduct of an PHILIPPINE JOURNALISTS, INC., petitioner, vs.COMMISSIONER OF INTERNAL REVENUE, respondent.
informal conference, petitioner was already informed of the results and findings of the investigations made by the respondent, and was D E C I S I O N YNARES-SANTIAGO, J.:
duly furnished with a copy of the summary of the report submitted by Revenue Officer Elisa G. Ponferrada-Rapatan of the Special

This is a petition for review filed by Philippine Journalists, Incorporated (PJI) assailing the Decision 1 of the Court of Appeals dated
August 5, 2003,2 which ordered petitioner to pay the assessed tax liability of P111,291,214.46 and the Resolution 3 dated March 31, 2004
which denied the Motion for Reconsideration.
The case arose from the Annual Income Tax Return filed by petitioner for the calendar year ended December 31, 1994 which presented a
net income of P30,877,387.00 and the tax due of P10,807,086.00. After deducting tax credits for the year, petitioner paid the amount of
P10,247,384.00.
On August 10, 1995, Revenue District Office No. 33 of the Bureau of Internal Revenue (BIR) issued Letter of Authority No. 87120 4 for
Revenue Officer Federico de Vera, Jr. and Group Supervisor Vivencio Gapasin to examine petitioners books of account and other
accounting records for internal revenue taxes for the period January 1, 1994 to December 31, 1994.
From the examination, the petitioner was told that there were deficiency taxes, inclusive of surcharges, interest and compromise penalty
in the following amounts:
Value Added Tax P 229,527.90
Income Tax 125,002,892.95
Withholding Tax 2,748,012.35
Total P 127,980,433.20
In a letter dated August 29, 1997, Revenue District Officer Jaime Concepcion invited petitioner to send a representative to an informal
conference on September 15, 1997 for an opportunity to object and present documentary evidence relative to the proposed assessment.
On September 22, 1997, petitioners Comptroller, Lorenza Tolentino, executed a "Waiver of the Statute of Limitation Under the National
Internal Revenue Code (NIRC)".5 The document "waive[d] the running of the prescriptive period provided by Sections 223 and 224 and
other relevant provisions of the NIRC and consent[ed] to the assessment and collection of taxes which may be found due after the
examination at any time after the lapse of the period of limitations fixed by said Sections 223 and 224 and other relevant provisions of the
NIRC, until the completion of the investigation". 6
On July 2, 1998, Revenue Officer De Vera submitted his audit report recommending the issuance of an assessment and finding that
petitioner had deficiency taxes in the total amount of P136,952,408.97. On October 5, 1998, the Assessment Division of the BIR issued
Pre-Assessment Notices which informed petitioner of the results of the investigation. Thus, BIR Revenue Region No. 6, Assessment
Division/Billing Section, issued Assessment/Demand No. 33-1-000757-94 7 on December 9, 1998 stating the following deficiency taxes,
inclusive of interest and compromise penalty:
Income Tax P108,743,694.88
Value Added Tax 184,299.20
Expanded Withholding Tax 2,363,220.38
Total P111,291,214.46
On March 16, 1999, a Preliminary Collection Letter was sent by Deputy Commissioner Romeo S. Panganiban to the petitioner to pay the
assessment within ten (10) days from receipt of the letter. On November 10, 1999, a Final Notice Before Seizure 8 was issued by the same
deputy commissioner giving the petitioner ten (10) days from receipt to pay. Petitioner received a copy of the final notice on November
24, 1999. By letters dated November 26, 1999, petitioner asked to be clarified how the tax liability of P111,291,214.46 was reached and
requested an extension of thirty (30) days from receipt of the clarification within which to reply.9
Tax II Set 4 * Assessment Cases*Page 19 of 65
The BIR received a follow-up letter from the petitioner asserting that its (PJI) records do not show receipt of Tax Assessment/Demand
No. 33-1-000757-94.10 Petitioner also contested that the assessment had no factual and legal basis. On March 28, 2000, a Warrant of
Distraint and/or Levy No. 33-06-04611 signed by Deputy Commissioner Romeo Panganiban for the BIR was received by the petitioner.
Petitioner filed a Petition for Review12 with the Court of Tax Appeals (CTA) which was amended on May 12, 2000. Petitioner complains:
(a) that no assessment or demand was received from the BIR; (b) that the warrant of distraint and/or levy was without factual and legal
bases as its issuance was premature; (c) that the assessment, having been made beyond the 3-year prescriptive period, is null and void; (d)
that the issuance of the warrant without being given the opportunity to dispute the same violates its right to due process; and (e) that the
grave prejudice that will be sustained if the warrant is enforced is enough basis for the issuance of the writ of preliminary injunction.
On May 14, 2002, the CTA rendered its decision,13 to wit:
As to whether or not the assessment notices were received by the petitioner, this Court rules in the affirmative.
To disprove petitioners allegation of non-receipt of the aforesaid assessment notices, respondent presented a certification
issued by the Post Master of the Central Post Office, Manila to the effect that Registered Letter No. 76134 sent by the BIR,
Region No. 6, Manila on December 15, 1998 addressed to Phil. Journalists, Inc. at Journal Bldg., Railroad St., Manila was
duly delivered to and received by a certain Alfonso Sanchez, Jr. (Authorized Representative) on January 8, 1999. Respondent
also showed proof that in claiming Registered Letter No. 76134, Mr. Sanchez presented three identification cards, one of
which is his company ID with herein petitioner.
However, as to whether or not the Waiver of the Statute of Limitations is valid and binding on the petitioner is another
question. Since the subject assessments were issued beyond the three-year prescriptive period, it becomes imperative on our
part to rule first on the validity of the waiver allegedly executed on September 22, 1997, for if this court finds the same to be
ineffective, then the assessments must necessarily fail.
After carefully examining the questioned Waiver of the Statute of Limitations, this Court considers the same to be without
any binding effect on the petitioner for the following reasons:
The waiver is an unlimited waiver. It does not contain a definite expiration date. Under RMO No. 20-90, the phrase
indicating the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of prescription
should be filled up
Secondly, the waiver failed to state the date of acceptance by the Bureau which under the aforequoted RMO should likewise
be indicated
Finally, petitioner was not furnished a copy of the waiver. It is to be noted that under RMO No. 20-90, the waiver must be
executed in three (3) copies, the second copy of which is for the taxpayer. It is likewise required that the fact of receipt by the
taxpayer of his/her file copy be indicated in the original copy. Again, respondent failed to comply.
It bears stressing that RMO No. 20-90 is directed to all concerned internal revenue officers. The said RMO even provides that
the procedures found therein should be strictly followed, under pain of being administratively dealt with should non-
compliance result to prescription of the right to assess/collect
Thus, finding the waiver executed by the petitioner on September 22, 1997 to be suffering from legal infirmities, rendering
the same invalid and ineffective, the Court finds Assessment/Demand No. 33-1-000757-94 issued on December 5, 1998 to be
time-barred. Consequently, the Warrant of Distraint and/or Levy issued pursuant thereto is considered null and void.
WHEREFORE, in view of all the foregoing, the instant Petition for Review is hereby GRANTED. Accordingly, the
deficiency income, value-added and expanded withholding tax assessments issued by the respondent against the petitioner on
December 9, 1998, in the total amount of P111,291,214.46 for the year 1994 are hereby declared CANCELLED,
WITHDRAWN and WITH NO FORCE AND EFFECT. Likewise, Warrant of Distraint and/or Levy No. 33-06-046 is
hereby declared NULL and VOID.SO ORDERED.14

After the motion for reconsideration of the Commissioner of Internal Revenue was denied by the CTA in a Resolution dated August 2,
2002, an appeal was filed with the Court of Appeals on August 12, 2002.
In its decision dated August 5, 2003, the Court of Appeals disagreed with the ruling of the CTA, to wit:
The petition for review filed on 26 April 2000 with CTA was neither timely filed nor the proper remedy. Only decisions of the BIR,
denying the request for reconsideration or reinvestigation may be appealed to the CTA. Mere assessment notices which have become
final after the lapse of the thirty (30)-day reglementary period are not appealable. Thus, the CTA should not have entertained the petition
at all.
[T]he CTA found the waiver executed by Phil. Journalists to be invalid for the following reasons: (1) it does not indicate a definite
expiration date; (2) it does not state the date of acceptance by the BIR; and (3) Phil. Journalist, the taxpayer, was not furnished a copy of
the waiver. These grounds are merely formal in nature. The date of acceptance by the BIR does not categorically appear in the document
but it states at the bottom page that the BIR "accepted and agreed to:", followed by the signature of the BIRs authorized
representative. Although the date of acceptance was not stated, the document was dated 22 September 1997. This date could reasonably
be understood as the same date of acceptance by the BIR since a different date was not otherwise indicated. As to the allegation that Phil.
Journalists was not furnished a copy of the waiver, this requirement appears ridiculous. Phil. Journalists, through its comptroller, Lorenza
Tolentino, signed the waiver. Why would it need a copy of the document it knowingly executed when the reason why copies are
furnished to a party is to notify it of the existence of a document, event or proceeding?
As regards the need for a definite expiration date, this is the biggest flaw of the decision. The period of prescription for the
assessment of taxes may be extended provided that the extension be made in writing and that it be made prior to the
expiration of the period of prescription. These are the requirements for a valid extension of the prescriptive period. To these
requirements provided by law, the memorandum order adds that the length of the extension be specified by indicating its
expiration date. This requirement could be reasonably construed from the rule on extension of the prescriptive period. But
this requirement does not apply in the instant case because what we have here is not an extension of the prescriptive period
but a waiver thereof. These are two (2) very different things. What Phil. Journalists executed was a renunciation of its right to
invoke the defense of prescription. This is a valid waiver. When one waives the prescriptive period, it is no longer necessary
to indicate the length of the extension of the prescriptive period since the person waiving may no longer use this defense.
WHEREFORE, the 02 August 2002 resolution and 14 May 2002 decision of the CTA are hereby SET ASIDE. Respondent
Phil. Journalists is ordered [to] pay its assessed tax liability of P111,291,214.46.SO ORDERED. 15
Petitioners Motion for Reconsideration was denied in a Resolution dated March 31, 2004. Hence, this appeal on the following
assignment of errors:
I.
The Honorable Court of Appeals committed grave error in ruling that it is outside the jurisdiction of the Court of Tax Appeals to entertain
the Petition for Review filed by the herein Petitioner at the CTA despite the fact that such case inevitably rests upon the validity of the
issuance by the BIR of warrants of distraint and levy contrary to the provisions of Section 7(1) of Republic Act No. 1125.
II.
The Honorable Court of Appeals gravely erred when it ruled that failure to comply with the provisions of Revenue Memorandum Order
(RMO) No. 20-90 is merely a formal defect that does not invalidate the waiver of the statute of limitations without stating the legal
justification for such conclusion. Such ruling totally disregarded the mandatory requirements of Section 222(b) of the Tax Code and its
implementing regulation, RMO No. 20-90 which are substantive in nature. The RMO provides that violation thereof subjects the erring
officer to administrative sanction. This directive shows that the RMO is not merely cover forms.
III.
The Honorable Court of Appeals gravely erred when it ruled that the assessment notices became final and unappealable. The assessment
issued is void and legally non-existent because the BIR has no power to issue an assessment beyond the three-year prescriptive period
where there is no valid and binding waiver of the statute of limitation.
IV.
The Honorable Court of Appeals gravely erred when it held that the assessment in question has became final and executory due to the
failure of the Petitioner to protest the same. Respondent had no power to issue an assessment beyond the three year period under the
mandatory provisions of Section 203 of the NIRC. Such assessment should be held void and non-existent, otherwise, Section 203, an
expression of a public policy, would be rendered useless and nugatory. Besides, such right to assess cannot be validly granted after three
years since it would arise from a violation of the mandatory provisions of Section 203 and would go against the vested right of the
Petitioner to claim prescription of assessment.
Tax II Set 4 * Assessment Cases*Page 20 of 65
V.
The Honorable Court of Appeals committed grave error when it HELD valid a defective waiver by considering the latter a waiver of the
right to invoke the defense of prescription rather than an extension of the three year period of prescription (to make an assessment) as
provided under Section 222 in relation to Section 203 of the Tax Code, an interpretation that is contrary to law, existing jurisprudence and
outside of the purpose and intent for which they were enacted. 16
We find merit in the appeal.
The first assigned error relates to the jurisdiction of the CTA over the issues in this case. The Court of Appeals ruled that only decisions
of the BIR denying a request for reconsideration or reinvestigation may be appealed to the CTA. Since the petitioner did not file a request
for reinvestigation or reconsideration within thirty (30) days, the assessment notices became final and unappealable. The petitioner now
argue that the case was brought to the CTA because the warrant of distraint or levy was illegally issued and that no assessment was issued
because it was based on an invalid waiver of the statutes of limitations.
We agree with petitioner. Section 7(1) of Republic Act No. 1125, the Act Creating the Court of Tax Appeals, provides for the jurisdiction
of that special court:
SEC. 7. Jurisdiction. The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by appeal, as herein
provided
(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue
taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal
Revenue Code or other laws or part of law administered by the Bureau of Internal Revenue; (Emphasis supplied).
The appellate jurisdiction of the CTA is not limited to cases which involve decisions of the Commissioner of Internal Revenue on matters
relating to assessments or refunds. The second part of the provision covers other cases that arise out of the NIRC or related laws
administered by the Bureau of Internal Revenue. The wording of the provision is clear and simple. It gives the CTA the jurisdiction to
determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the Waiver of Statute of Limitations was validly
effected.
This is not the first case where the CTA validly ruled on issues that did not relate directly to a disputed assessment or a claim for refund.
In Pantoja v. David,17 we upheld the jurisdiction of the CTA to act on a petition to invalidate and annul the distraint orders of the
Commissioner of Internal Revenue. Also, in Commissioner of Internal Revenue v. Court of Appeals,18 the decision of the CTA declaring
several waivers executed by the taxpayer as null and void, thus invalidating the assessments issued by the BIR, was upheld by this Court.
The second and fifth assigned errors both focus on Revenue Memorandum Circular No. 20-90 (RMO No. 20-90) on the requisites of a
valid waiver of the statute of limitations. The Court of Appeals held that the requirements and procedures laid down in the RMO are only
formal in nature and did not invalidate the waiver that was signed even if the requirements were not strictly observed.
The NIRC, under Sections 203 and 222, 19 provides for a statute of limitations on the assessment and collection of internal revenue taxes
in order to safeguard the interest of the taxpayer against unreasonable investigation. 20Unreasonable investigation contemplates cases
where the period for assessment extends indefinitely because this deprives the taxpayer of the assurance that it will no longer be
subjected to further investigation for taxes after the expiration of a reasonable period of time. As was held in Republic of the Phils. v.
Ablaza:21
The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and to its
citizens; to the Government because tax officers would be obliged to act promptly in the making of assessment, and to
citizens because after the lapse of the period of prescription citizens would have a feeling of security against unscrupulous tax
agents who will always find an excuse to inspect the books of taxpayers, not to determine the latters real liability, but to take
advantage of every opportunity to molest peaceful, law-abiding citizens. Without such a legal defense taxpayers would
furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by
unscrupulous tax agents. The law on prescription being a remedial measure should be interpreted in a way conducive to
bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the
Commission which recommend the approval of the law. (Emphasis supplied)
RMO No. 20-90 implements these provisions of the NIRC relating to the period of prescription for the assessment and collection of
taxes. A cursory reading of the Order supports petitioners argument that the RMO must be strictly followed, thus:

In the execution of said waiver, the following procedures should be followed:
1. The waiver must be in the form identified hereof. This form may be reproduced by the Office concernedbut there should
be no deviation from such form. The phrase "but not after __________ 19___" should be filled up
2.
Soon after the waiver is signed by the taxpayer, the Commissioner of Internal Revenue or the revenue official authorized
by him, as hereinafter provided, shall sign the waiver indicating that the Bureau has accepted and agreed to the
waiver. The date of such acceptance by the Bureau should be indicated
3. The following revenue officials are authorized to sign the waiver.
A. In the National Office
3. Commissioner For tax cases involving more than
P1M
B. In the Regional Offices
1. The Revenue District Officer with respect to tax cases still pending investigation and the period to
assess is about to prescribe regardless of amount.
5. The foregoing procedures shall be strictly followed. Any revenue official found not to have
complied with this Order resulting in prescription of the right to assess/collect shall be
administratively dealt with. (Emphasis supplied)22
A waiver of the statute of limitations under the NIRC, to a certain extent, is a derogation of the taxpayers right to security against
prolonged and unscrupulous investigations and must therefore be carefully and strictly construed. 23 The waiver of the statute of
limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the Court of Appeals. It is an
agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due is extended to a date certain.
The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of
the document is equivocal. For the purpose of safeguarding taxpayers from any unreasonable examination, investigation or assessment,
our tax law provides a statute of limitations in the collection of taxes. Thus, the law on prescription, being a remedial measure, should be
liberally construed in order to afford such protection. As a corollary, the exceptions to the law on prescription should perforce be strictly
construed.24 RMO No. 20-90 explains the rationale of a waiver:
... The phrase "but not after _________ 19___" should be filled up. This indicates the expiry date of the period agreed upon to
assess/collect the tax after the regular three-year period of prescription. The period agreed upon shall constitute the time
within which to effect the assessment/collection of the tax in addition to the ordinary prescriptive period. (Emphasis
supplied)
As found by the CTA, the Waiver of Statute of Limitations, signed by petitioners comptroller on September 22, 1997 is not valid and
binding because it does not conform with the provisions of RMO No. 20-90. It did not specify a definite agreed date between the BIR and
petitioner, within which the former may assess and collect revenue taxes. Thus, petitioners waiver became unlimited in time, violating
Section 222(b) of the NIRC.
The waiver is also defective from the government side because it was signed only by a revenue district officer, not the Commissioner, as
mandated by the NIRC and RMO No. 20-90. The waiver is not a unilateral act by the taxpayer or the BIR, but is a bilateral agreement
between two parties to extend the period to a date certain. The conformity of the BIR must be made by either the Commissioner or the
Revenue District Officer. This case involves taxes amounting to more than One Million Pesos (P1,000,000.00) and executed almost seven
months before the expiration of the three-year prescription period. For this, RMO No. 20-90 requires the Commissioner of Internal
Revenue to sign for the BIR.
The case of Commissioner of Internal Revenue v. Court of Appeals,25 dealt with waivers that were not signed by the Commissioner but
were argued to have been given implied consent by the BIR. We invalidated the subject waivers and ruled:
Petitioners submission is inaccurate
The Court of Appeals itself also passed upon the validity of the waivers executed by Carnation, observing thus:
Tax II Set 4 * Assessment Cases*Page 21 of 65
We cannot go along with the petitioners theory. Section 319 of the Tax Code earlier quoted is clear and explicit
that the waiver of the five-year 26 prescriptive period must be in writing and signed by both the BIR Commissioner
and the taxpayer.
Here, the three waivers signed by Carnation do not bear the written consent of the BIR Commissioner as required
by law.
We agree with the CTA in holding "these waivers to be invalid and without any binding effect on petitioner
(Carnation) for the reason that there was no consent by the respondent (Commissioner of Internal Revenue)."
For sure, no such written agreement concerning the said three waivers exists between the petitioner and private
respondent Carnation.
What is more, the waivers in question reveal that they are in no wise unequivocal, and therefore necessitates for its binding
effect the concurrence of the Commissioner of Internal Revenue. On this basis neither implied consent can be presumed
nor can it be contended that the waiver required under Sec. 319 of the Tax Code is one which is unilateral nor can it
be said that concurrence to such an agreement is a mere formality because it is the very signatures of both the
Commissioner of Internal Revenue and the taxpayer which give birth to such a valid agreement. 27 (Emphasis supplied)
The other defect noted in this case is the date of acceptance which makes it difficult to fix with certainty if the waiver was actually agreed
before the expiration of the three-year prescriptive period. The Court of Appeals held that the date of the execution of the waiver on
September 22, 1997 could reasonably be understood as the same date of acceptance by the BIR. Petitioner points out however that
Revenue District Officer Sarmiento could not have accepted the waiver yet because she was not the Revenue District Officer of RDO No.
33 on such date. Ms. Sarmientos transfer and assignment to RDO No. 33 was only signed by the BIR Commissioner on January 16, 1998
as shown by the Revenue Travel Assignment Order No. 14-98. 28 The Court of Tax Appeals noted in its decision that it is unlikely as well
that Ms. Sarmiento made the acceptance on January 16, 1998 because "Revenue Officials normally have to conduct first an inventory of
their pending papers and property responsibilities." 29
Finally, the records show that petitioner was not furnished a copy of the waiver. Under RMO No. 20-90, the waiver must be executed in
three copies with the second copy for the taxpayer. The Court of Appeals did not think this was important because the petitioner need not
have a copy of the document it knowingly executed. It stated that the reason copies are furnished is for a party to be notified of the
existence of a document, event or proceeding.
The flaw in the appellate courts reasoning stems from its assumption that the waiver is a unilateral act of the taxpayer when it is in fact
and in law an agreement between the taxpayer and the BIR. When the petitioners comptroller signed the waiver on September 22, 1997,
it was not yet complete and final because the BIR had not assented. There is compliance with the provision of RMO No. 20-90 only after
the taxpayer received a copy of the waiver accepted by the BIR. The requirement to furnish the taxpayer with a copy of the waiver is not
only to give notice of the existence of the document but of the acceptance by the BIR and the perfection of the agreement.
The waiver document is incomplete and defective and thus the three-year prescriptive period was not tolled or extended and continued to
run until April 17, 1998. Consequently, the Assessment/Demand No. 33-1-000757-94 issued on December 9, 1998 was invalid because it
was issued beyond the three (3) year period. In the same manner, Warrant of Distraint and/or Levy No. 33-06-046 which petitioner
received on March 28, 2000 is also null and void for having been issued pursuant to an invalid assessment.
WHEREFORE, premises considered, the instant petition for review is GRANTED. The Decision of the Court of Appeals dated August
5, 2003 and its Resolution dated March 31, 2004 are REVERSED and SET ASIDE. The Decision of the Court of Tax Appeals in CTA
Case No. 6108 dated May 14, 2002, declaring Warrant of Distraint and/or Levy No. 33-06-046 null and void, is REINSTATED.SO
ORDERED.
SECOND DIVISIONG.R. No. 178087 May 5, 2010
COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs.KUDOS METAL CORPORATION, Respondent.
DECISION
DEL CASTILLO, J.:
The prescriptive period on when to assess taxes benefits both the government and the taxpayer. 1 Exceptions extending the period to assess
must, therefore, be strictly construed.

This Petition for Review on Certiorari seeks to set aside the Decision 2 dated March 30, 2007 of the Court of Tax Appeals (CTA)
affirming the cancellation of the assessment notices for having been issued beyond the prescriptive period and the Resolution 3 dated May
18, 2007 denying the motion for reconsideration.
Factual Antecedents
On April 15, 1999, respondent Kudos Metal Corporation filed its Annual Income Tax Return (ITR) for the taxable year 1998.
Pursuant to a Letter of Authority dated September 7, 1999, the Bureau of Internal Revenue (BIR) served upon respondent three Notices
of Presentation of Records. Respondent failed to comply with these notices, hence, the BIR issued a Subpeona Duces Tecum dated
September 21, 2006, receipt of which was acknowledged by respondents President, Mr. Chan Ching Bio, in a letter dated October 20,
2000.
A review and audit of respondents records then ensued.
On December 10, 2001, Nelia Pasco (Pasco), respondents accountant, executed a Waiver of the Defense of Prescription, 4 which was
notarized on January 22, 2002, received by the BIR Enforcement Service on January 31, 2002 and by the BIR Tax Fraud Division on
February 4, 2002, and accepted by the Assistant Commissioner of the Enforcement Service, Percival T. Salazar (Salazar).
This was followed by a second Waiver of Defense of Prescription 5 executed by Pasco on February 18, 2003, notarized on February 19,
2003, received by the BIR Tax Fraud Division on February 28, 2003 and accepted by Assistant Commissioner Salazar.
On August 25, 2003, the BIR issued a Preliminary Assessment Notice for the taxable year 1998 against the respondent. This was
followed by a Formal Letter of Demand with Assessment Notices for taxable year 1998, dated September 26, 2003 which was received
by respondent on November 12, 2003.
Respondent challenged the assessments by filing its "Protest on Various Tax Assessments" on December 3, 2003 and its "Legal
Arguments and Documents in Support of Protests against Various Assessments" on February 2, 2004.
On June 22, 2004, the BIR rendered a final Decision 6 on the matter, requesting the immediate payment of the following tax liabilities:
Kind of Tax Amount
Income Tax P 9,693,897.85 A. For National Office cases
VAT 13,962,460.90
EWT 1,712,336.76 2. ACIR, Large Taxpayers Service For large taxpayers cases other than those cases falling under Subsection B hereof
Withholding Tax-Compensation 247,353.24 issuance/compliance of Subpoena Duces Tecum
Penalties
Total P25,624,048.76
Ruling of the Court of Tax Appeals, Second Division
Believing that the governments right to assess taxes had prescribed, respondent filed on August 27, 2004 a Petition for Review 7 with the
CTA. Petitioner in turn filed his Answer.8
Tax II Set 4 * Assessment Cases*Page 22 of 65
On April 11, 2005, respondent filed an "Urgent Motion for Preferential Resolution of the Issue on Prescription." 9
On October 4, 2005, the CTA Second Division issued a Resolution 10 canceling the assessment notices issued against respondent for
having been issued beyond the prescriptive period. It found the first Waiver of the Statute of Limitations incomplete and defective for
failure to comply with the provisions of Revenue Memorandum Order (RMO) No. 20-90. Thus:
First, the Assistant Commissioner is not the revenue official authorized to sign the waiver, as the tax case involves more
than P1,000,000.00. In this regard, only the Commissioner is authorized to enter into agreement with the petitioner in extending the
period of assessment;
Secondly, the waiver failed to indicate the date of acceptance. Such date of acceptance is necessary to determine whether the acceptance
was made within the prescriptive period;
Third, the fact of receipt by the taxpayer of his file copy was not indicated on the original copy. The requirement to furnish the taxpayer
with a copy of the waiver is not only to give notice of the existence of the document but also of the acceptance by the BIR and the
perfection of the agreement.1avvphi1
The subject waiver is therefore incomplete and defective. As such, the three-year prescriptive period was not tolled or extended and
continued to run. x x x11
Petitioner moved for reconsideration but the CTA Second Division denied the motion in a Resolution 12 dated April 18, 2006.
Ruling of the Court of Tax Appeals, En Banc
On appeal, the CTA En Banc affirmed the cancellation of the assessment notices. Although it ruled that the Assistant Commissioner was
authorized to sign the waiver pursuant to Revenue Delegation Authority Order (RDAO) No. 05-01, it found that the first waiver was still
invalid based on the second and third grounds stated by the CTA Second Division. Pertinent portions of the Decision read as follows:
While the Court En Banc agrees with the second and third grounds for invalidating the first waiver, it finds that the Assistant
Commissioner of the Enforcement Service is authorized to sign the waiver pursuant to RDAO No. 05-01, which provides in part as
follows:
Designated Revenue Official
1. Assistant Commissioner (ACIR), For tax fraud and policy Enforcement Service cases
3. ACIR, Legal Service For cases pending verification and awaiting resolution of certain legal issues prior to prescription and for
4. ACIR, Assessment Service (AS) For cases which are pending in or subject to review or approval by the ACIR, AS
8,000.00
Based on the foregoing, the Assistant Commissioner, Enforcement Service is authorized to sign waivers in tax fraud cases. A perusal of
the records reveals that the investigation of the subject deficiency taxes in this case was conducted by the National Investigation Division
of the BIR, which was formerly named the Tax Fraud Division. Thus, the subject assessment is a tax fraud case.
Nevertheless, the first waiver is still invalid based on the second and third grounds stated by the Court in Division. Hence, it did not
extend the prescriptive period to assess.
Moreover, assuming arguendo that the first waiver is valid, the second waiver is invalid for violating Section 222(b) of the 1997 Tax
Code which mandates that the period agreed upon in a waiver of the statute can still be extended by subsequent written agreement,
provided that it is executed prior to the expiration of the first period agreed upon. As previously discussed, the exceptions to the law on
prescription must be strictly construed.

In the case at bar, the period agreed upon in the subject first waiver expired on December 31, 2002. The second waiver in the instant case
which was supposed to extend the period to assess to December 31, 2003 was executed on February 18, 2003 and was notarized on
February 19, 2003. Clearly, the second waiver was executed after the expiration of the first period agreed upon. Consequently, the same
could not have tolled the 3-year prescriptive period to assess. 13
Petitioner sought reconsideration but the same was unavailing.
Issue
Hence, the present recourse where petitioner interposes that:
THE COURT OF TAX APPEALS EN BANC ERRED IN RULING THAT THE GOVERNMENTS RIGHT TO ASSESS UNPAID
TAXES OF RESPONDENT PRESCRIBED.14
Petitioners Arguments
Petitioner argues that the governments right to assess taxes is not barred by prescription as the two waivers executed by respondent,
through its accountant, effectively tolled or extended the period within which the assessment can be made. In disputing the conclusion of
the CTA that the waivers are invalid, petitioner claims that respondent is estopped from adopting a position contrary to what it has
previously taken. Petitioner insists that by acquiescing to the audit during the period specified in the waivers, respondent led the
government to believe that the "delay" in the process would not be utilized against it. Thus, respondent may no longer repudiate the
validity of the waivers and raise the issue of prescription.
Respondents Arguments
Respondent maintains that prescription had set in due to the invalidity of the waivers executed by Pasco, who executed the same without
any written authority from it, in clear violation of RDAO No. 5-01. As to the doctrine of estoppel by acquiescence relied upon by
petitioner, respondent counters that the principle of equity comes into play only when the law is doubtful, which is not present in the
instant case.
Our Ruling
The petition is bereft of merit.
15
Section 203 of the National Internal Revenue Code of 1997 (NIRC) mandates the government to assess internal revenue taxes within
three years from the last day prescribed by law for the filing of the tax return or the actual date of filing of such return, whichever comes
later. Hence, an assessment notice issued after the three-year prescriptive period is no longer valid and effective. Exceptions however are
provided under Section 22216 of the NIRC.
The waivers executed by respondents accountant did not extend the period within which the assessment can be made
Petitioner does not deny that the assessment notices were issued beyond the three-year prescriptive period, but claims that the period was
extended by the two waivers executed by respondents accountant.
We do not agree.
Section 222 (b) of the NIRC provides that the period to assess and collect taxes may only be extended upon a written agreement between
the CIR and the taxpayer executed before the expiration of the three-year period. RMO 20-90 17 issued on April 4, 1990 and RDAO 05-
0118 issued on August 2, 2001 lay down the procedure for the proper execution of the waiver, to wit:
1. The waiver must be in the proper form prescribed by RMO 20-90. The phrase "but not after ______ 19 ___", which
indicates the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of prescription,
should be filled up.
2. The waiver must be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation, the
waiver must be signed by any of its responsible officials. In case the authority is delegated by the taxpayer to a representative,
such delegation should be in writing and duly notarized.
Tax II Set 4 * Assessment Cases*Page 23 of 65
3. The waiver should be duly notarized.
4. The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has accepted and agreed to
the waiver. The date of such acceptance by the BIR should be indicated. However, before signing the waiver, the CIR or the
revenue official authorized by him must make sure that the waiver is in the prescribed form, duly notarized, and executed by
the taxpayer or his duly authorized representative.
5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of the
period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed.
6. The waiver must be executed in three copies, the original copy to be attached to the docket of the case, the second copy for
the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the taxpayer of his/her file copy
must be indicated in the original copy to show that the taxpayer was notified of the acceptance of the BIR and the perfection
of the agreement.19
A perusal of the waivers executed by respondents accountant reveals the following infirmities:
1. The waivers were executed without the notarized written authority of Pasco to sign the waiver in behalf of respondent.
2. The waivers failed to indicate the date of acceptance.
3. The fact of receipt by the respondent of its file copy was not indicated in the original copies of the waivers.
Due to the defects in the waivers, the period to assess or collect taxes was not extended. Consequently, the assessments were issued by
the BIR beyond the three-year period and are void.
Estoppel does not apply in this case
We find no merit in petitioners claim that respondent is now estopped from claiming prescription since by executing the waivers, it was
the one which asked for additional time to submit the required documents.
In Collector of Internal Revenue v. Suyoc Consolidated Mining Company,20 the doctrine of estoppel prevented the taxpayer from raising
the defense of prescription against the efforts of the government to collect the assessed tax. However, it must be stressed that in the said
case, estoppel was applied as an exception to the statute of limitations on collection of taxes and not on the assessment of taxes, as the
BIR was able to make an assessment within the prescribed period. More important, there was a finding that the taxpayer made several
requests or positive acts to convince the government to postpone the collection of taxes, viz:
It appears that the first assessment made against respondent based on its second final return filed on November 28, 1946 was made on
February 11, 1947. Upon receipt of this assessment respondent requested for at least one year within which to pay the amount assessed
although it reserved its right to question the correctness of the assessment before actual payment. Petitioner granted an extension of only
three months. When it failed to pay the tax within the period extended, petitioner sent respondent a letter on November 28, 1950
demanding payment of the tax as assessed, and upon receipt of the letter respondent asked for a reinvestigation and reconsideration of the
assessment. When this request was denied, respondent again requested for a reconsideration on April 25, 1952, which was denied on May
6, 1953, which denial was appealed to the Conference Staff. The appeal was heard by the Conference Staff from September 2, 1953 to
July 16, 1955, and as a result of these various negotiations, the assessment was finally reduced on July 26, 1955. This is the ruling which
is now being questioned after a protracted negotiation on the ground that the collection of the tax has already prescribed.
It is obvious from the foregoing that petitioner refrained from collecting the tax by distraint or levy or by proceeding in court within the
5-year period from the filing of the second amended final return due to the several requests of respondent for extension to which
petitioner yielded to give it every opportunity to prove its claim regarding the correctness of the assessment. Because of such requests,
several reinvestigations were made and a hearing was even held by the Conference Staff organized in the collection office to consider

claims of such nature which, as the record shows, lasted for several months. After inducing petitioner to delay collection as he in fact did,
it is most unfair for respondent to now take advantage of such desistance to elude his deficiency income tax liability to the prejudice of
the Government invoking the technical ground of prescription.
While we may agree with the Court of Tax Appeals that a mere request for reexamination or reinvestigation may not have the effect of
suspending the running of the period of limitation for in such case there is need of a written agreement to extend the period between the
Collector and the taxpayer, there are cases however where a taxpayer may be prevented from setting up the defense of prescription even
if he has not previously waived it in writing as when by his repeated requests or positive acts the Government has been, for good reasons,
persuaded to postpone collection to make him feel that the demand was not unreasonable or that no harassment or injustice is meant by
the Government. And when such situation comes to pass there are authorities that hold, based on weighty reasons, that such an attitude or
behavior should not be countenanced if only to protect the interest of the Government.
This case has no precedent in this jurisdiction for it is the first time that such has risen, but there are several precedents that may be
invoked in American jurisprudence. As Mr. Justice Cardozo has said: "The applicable principle is fundamental and unquestioned. He
who prevents a thing from being done may not avail himself of the nonperformance which he has himself occasioned, for the law says to
him in effect "this is your own act, and therefore you are not damnified." "(R. H. Stearns Co. vs. U.S., 78 L. ed., 647). Or, as was aptly
said, "The tax could have been collected, but the government withheld action at the specific request of the plaintiff. The plaintiff is now
estopped and should not be permitted to raise the defense of the Statute of Limitations." [Newport Co. vs. U.S., (DC-WIS), 34 F. Supp.
588].21
Conversely, in this case, the assessments were issued beyond the prescribed period. Also, there is no showing that respondent made any
request to persuade the BIR to postpone the issuance of the assessments.
The doctrine of estoppel cannot be applied in this case as an exception to the statute of limitations on the assessment of taxes considering
that there is a detailed procedure for the proper execution of the waiver, which the BIR must strictly follow. As we have often said, the
doctrine of estoppel is predicated on, and has its origin in, equity which, broadly defined, is justice according to natural law and
right.22 As such, the doctrine of estoppel cannot give validity to an act that is prohibited by law or one that is against public policy. 23 It
should be resorted to solely as a means of preventing injustice and should not be permitted to defeat the administration of the law, or to
accomplish a wrong or secure an undue advantage, or to extend beyond them requirements of the transactions in which they
originate.24 Simply put, the doctrine of estoppel must be sparingly applied.
Moreover, the BIR cannot hide behind the doctrine of estoppel to cover its failure to comply with RMO 20-90 and RDAO 05-01, which
the BIR itself issued. As stated earlier, the BIR failed to verify whether a notarized written authority was given by the respondent to its
accountant, and to indicate the date of acceptance and the receipt by the respondent of the waivers. Having caused the defects in the
waivers, the BIR must bear the consequence. It cannot shift the blame to the taxpayer. To stress, a waiver of the statute of limitations,
being a derogation of the taxpayers right to security against prolonged and unscrupulous investigations, must be carefully and strictly
construed.25
As to the alleged delay of the respondent to furnish the BIR of the required documents, this cannot be taken against respondent. Neither
can the BIR use this as an excuse for issuing the assessments beyond the three-year period because with or without the required
documents, the CIR has the power to make assessments based on the best evidence obtainable. 26WHEREFORE, the petition
is DENIED. The assailed Decision dated March 30, 2007 and Resolution dated May 18, 2007 of the Court of Tax Appeals are
hereby AFFIRMED.SO ORDERED.
THIRD DIVISION G.R. No. 115712 February 25, 1999
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF APPEALS, COURT OF TAX APPEALS and
CARNATION PHILIPPINES, INC. (now merged with Nestle Phils, Inc.), respondent.
PURISIMA, J.:
Before the Court is an appeal from the decision of the Court of Appeals 1 dated May 31, 1994, which affirmed in totothe decision of the
Court of Tax Appeals 2 dated January 26, 1993, the dispositive portion of which reads:
Tax II Set 4 * Assessment Cases*Page 24 of 65
WHEREFORE, the Court, finds the assessments for allegedly deficient income and sales taxes for petitioner's fiscal year
ending September 30, 1981 covered by Demand Letter NO. FAS-1B-81-87 and Assessment Notices Nos. FAS-1-81-87-
005824, FAS-4-81-87-005825 and FAS-4-81-87-005826 (all dated July 29, 1987) in the total amount of P19,535,183.44 to be
NULL AND VOID for having been issued beyond the five-year prescriptive period provided by law. 3
The undisputed facts of the case as recited in the Decision (Annex "A") of the Court of Appeals, are: 4
On January 15, 1982, Carnation Phils. Inc. (Carnation), filed its Corporation Annual Income Tax Return for taxable year
ending September 30, 1981; and its Manufacturers/Producers Percentage Tax Return for the quarter ending September 30,
1981. 5
On October 13, 1986, March 16, 1987 and May 18, 1987, Carnation, through its Senior Vice President Jaime O. Lardizabal,
signed three separate "waivers of the Statute of Limitations Under the National Internal Revenue Code" wherein it:
. . . waives the running of the prescriptive period provided for in sections 318 and 319 and other related
provisions of the National Internal Revenue Code and consents to the assessment and collection of the taxes
which may be found due after reinvestigation and reconsideration at anytime before or after the lapse of the
period of limitations fixed by said sections 318 and 319 and other relevant provisions of the National Internal
Revenue Code, but not after (13 April 1987 for the earlier-executed waiver, or June 14, 1987 for the later waiver,
or July 30, 1987 for the subsequent waiver, as the case may be). However, the taxpayer (petitioner herein) does
not waive any prescription already accrued in its favor.
The waivers were not signed by the BIR Commissioner or any of his agents.
On August 5, 1987, Carnation received BIR's letter of demand dated July 29, 1987 asking the said corporation to
pay P1,442,586.56 as deficiency income tax, P14,152,683.85 as deficiency sales tax and P3,939,913.03 as
deficiency sales tax on undeclared sales, all for the year 1981. This demand letter was accompanied by
assessment Notices Nos. FAS-4-81-87-005824, FAS-4-81-87-005825 and FAS-4-81-87-005826.
In a basic protest dated August 17, 1987, Carnation disputed the assessments and requested a reconsideration and
reinvestigation thereof.
On September 30, 1987, Carnation filed a supplemental protest.
These protests were denied by the BIR Commissioner in a letter dated March 15, 1988.
Whereupon, Carnation appealed to the CTA.
On January 26, 1993, the CTA issued the questioned order, the dispositive portion of which reads:
WHEREFORE, the Court finds the assessments for allegedly deficient income and sales taxes for
petitioner's fiscal year ending September 30, 1981 covered by Demand Letter No. FAS-1B-81-87 and
assessment Notices No. FAS-1-81-87-005824, FAS-4-81-87-005825, and FAS-4-81-87-005826 (all
dated July 29, 1987) in the total amount of P19,535,183.44 to be NULL AND VOID for having been
issued beyond the five-year prescriptive period provided by law.

The pivot of inquiry here is whether or not the three (3) waivers signed by the private respondent are valid and binding 6 as to toll the
running of the prescriptive period for assessment and not bar the Government from issuing subject deficiency tax assessments.
Sec. 318 (now Section 203) of the National Internal Revenue Code, the law then applicable reads:
Sec 318. Period of Limitations upon assessment and collection. Except as provided in the succeeding section, internal
revenue taxes shall be assessed within five years after the return was filed, and no proceeding in court without assessment for
the collection of such taxes shall be begun after the expiration of such period. For the purpose 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: Provided, That this
limitation shall not apply to cases already investigated prior to the approval of this Code. 7(emphasis ours)
The decision of the Court of Appeals affirming what the Court of Tax Appeals decided, established that subject assessments of July 29,
1987 were issued outside the statutory prescriptive period. Carnation filed its annual income tax and percentage tax returns for the fiscal
year ending September 30, 1981 on January 15, 1982 8 and November 20, 1981, 9 respectively. In accordance with the above-quoted
provision of law, private respondent's 1981 income and sales taxes could have been validly assessed only until January 14, 1987 and
November 19, 1986, respectively. 10 However, Carnation's income and sales taxes were assessed only on July 29, 1987, beyond the five-
year prescriptive period. 11
Petitioner BIR Commissioner contends that the waivers signed by Carnation were valid although not signed by the BIR Commissioner
because (a) when the BIR agents/examiners extended the period to audit and investigate Carnation's tax returns, the BIR gave its implied
consent to such waivers; (b) the signature of the Commissioner is a mere formality and the lack of it does not vitiate binding effect of the
waivers; and (c) that a waiver is not a contract but a unilateral act of renouncing ones right to avail of the defense of prescription and
remains binding in accordance with the terms and conditions set forth in the waiver. 12
Petitioner's submission is inaccurate. The same tax code is clear on the matter, to wit:
Sec. 319. Exceptions as to period of limitation of assessment and collection of taxes. (a) . . .
(b) Where before the expiration of the time prescribed in the preceding section for the assessment of the tax, both the
Commissioner of Internal Revenue and the taxpayer have consented in writing to its assessment after such time, the tax may
be assessed at anytime prior to the expiration of the period agreed upon. The period so agreed upon may be extended by
subsequent agreement in writing made before the expiration of the period previously agreed upon.
The Court of Appeals itself also passed upon the validity of the waivers executed by Carnation, observing thus:
We cannot go along with the petitioner's theory. Section 319 of the Tax code earlier quoted is clear and explicit that the
waiver of the five-year prescriptive period must be in writing and signed by both the BIR Commissioner and the taxpayer.
Here, the three waivers signed by Carnation do not bear the written consent of the BIR Commissioner as required by law.
We agree with the CTA in holding "these "waivers" to be invalid and without any binding effect on petitioner (Carnation) for
the reason that there was no consent by the respondent (Commissioner of Internal Revenue)."
The ruling of the Supreme Court in Collector of Internal Revenue vs. Solano 13 is in point, thus:
Tax II Set 4 * Assessment Cases*Page 25 of 65
. . . The only agreement that could have suspended the running of the prescriptive period the collection of the tax
in question is, as correctly pointed out by the Court of Tax Appeals, a written agreement between Solano and the
Collector, entered into before the expiration of the of the five-year prescriptive period, extending the limitation
prescribed by law.
For sure, no such written agreement concerning the said three waivers exists between the petitioner and private respondent
Carnation. 14
Verily, we discern no basis for overruling the aforesaid conclusions arrived at by the Court of Appeals. In fact, there is every reason to
leave undisturbed the said conclusions, having in mind the precept that all doubts as to the correctness of such conclusions will be
resolved in favor of the Court of Appeals. 15 Besides being a reiteration of the holding of the Court of Tax Appeals, such decision should
be accorded respect. Thus, the Court held in Philippine Refining Co. vs. Court of Appeals, 16 that the Court of Tax Appeals is a highly
specialized body specifically created for the purpose of reviewing tax cases. As a matter of principle, this Court will not set aside the
conclusion reached by an agency such as the Court of Tax Appeals which is, by the very nature of its function, dedicated exclusively to
the study and consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or
improvident exercise of authority. 17 This point becomes more evident in the case under consideration where the findings and conclusions
of bath the Court of Tax Appeals and the Court of Appeals appear untainted by any abuse of authority, much less grave abuse of
discretion. Indeed, we find the decision of the latter affirming that of the former free from any palpable error. 18
What is more, the waivers in question reveal that they are in no wise unequivocal, and therefore necessitates for its binding effect the
concurrence of the Commissioner of Internal Revenue. In fact, in his reply dated April 18, 1995, the Solicitor General, representing the
Commissioner of Internal Revenue, admitted that subject waivers executed by Carnation were "for end in consideration of the approval
by the Commissioner of Internal Revenue of its request for reinvestigation and/or reconsideration of its internal revenue case involving
tax assessments for the fiscal year ended September 30, 1981 which were all pending at the time". On this basis neither implied consent
can be presumed nor can it be contended that the waiver required under Sec. 319 of the Tax Code is one which is unilateral nor can it be
said that concurrence to such an agreements a mere formality because it is the very signatures of both the Commissioner of Internal
Revenue and the taxpayer which give birth to such a valid agreement.WHEREFORE, the decision of the Court of Appeals is hereby
AFFIRMED. No pronouncement as to costs.SO ORDERED.
THIRD DIVISIONG.R. No. 170257 September 7, 2011
RIZAL COMMERCIAL BANKING CORPORATION, Petitioner, vs.COMMISSIONER OF INTERNAL
REVENUE, Respondent.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 seeking to set aside the July 27, 2005 Decision 1 and October 26, 2005
Resolution2 of the Court of Tax Appeals En Banc (CTA-En Banc) in C.T.A. E.B. No. 83 entitled "Rizal Commercial Banking
Corporation v. Commissioner of Internal Revenue."
THE FACTS
Petitioner Rizal Commercial Banking Corporation (RCBC) is a corporation engaged in general banking operations. It seasonably filed its
Corporation Annual Income Tax Returns for Foreign Currency Deposit Unit for the calendar years 1994 and 1995. 3
On August 15, 1996, RCBC received Letter of Authority No. 133959 issued by then Commissioner of Internal Revenue(CIR) Liwayway
Vinzons-Chato, authorizing a special audit team to examine the books of accounts and other accounting records for all internal revenue
taxes from January 1, 1994 to December 31, 1995.4
On January 23, 1997, RCBC executed two Waivers of the Defense of Prescription Under the Statute of Limitations of the National
Internal Revenue Code covering the internal revenue taxes due for the years 1994 and 1995, effectively extending the period of the
Bureau of Internal Revenue (BIR) to assess up to December 31, 2000.5
Subsequently, on January 27, 2000, RCBC received a Formal Letter of Demand together with Assessment Notices from the BIR for the
following deficiency tax assessments:6
 Tax II Set 4 * Assessment Cases*Page 26 of 65

Particulars Basic Tax Interest Compromise Penalties 1994 (DST-94-000005) 905,064.74 226,266
1994 (DST2-94-000001) 17,040,104.84 4,260,026
Deficiency Income Tax
1995 (ST-INC-95-0199-2000) P 252,150,988.01 P 191,496,585.96 P 25,000.00TOTALS P 164,712,903.44 P 126,155,645.38 P 12,291,947
1994 (ST-INC-94-0200-2000) 216,478,397.90 207,819,261.99 25,000.00
Deficiency Gross Receipts Tax
1995 (ST-GRT-95-0201-2000) 13,697,083.68 12,428,696.21 2,819,745.52
9
1994 (ST-GRT-94-0202-2000) 2,488,462.38 2,755,716.42 25,000.00On the same day, RCBC paid the following deficiency taxes as assessed by the BIR:
Deficiency Final Withholding Tax
1995 (ST-EWT-95-0203-2000) 64,365,610.12 58,757,866.78 25,000.00
Particulars 1994 1995 Total
1994 (ST-EWT-94-0204-2000) 53,058,075.25 59,047,096.34 25,000.00
Deficiency Final Tax on FCDU Onshore Income Deficiency Income Tax P 2,965,549.44 P 722,236.11 P 3,687,78
1995 (ST-OT-95-0205-2000) 81,508,718.20 61,901,963,.52 25,000.00
1994 (ST-OT-94-0206-2000) 34,429,503.10 33,052,322.98 Deficiency Gross Receipts Tax
25,000.00 300,695.84 6,701,893.17 7,002,58
Deficiency Expanded Withholding Tax Deficiency Final Withholding Tax 410,174.44 714,682.02 1,124,85
1995 (ST-EWT-95-0207-2000) 5,051,415.22 4,583,640.33 113,000.00
1994 (ST-EWT-94-0208-2000) 4,482,740.35 4,067,626.31 Deficiency Expanded Withholding Tax
78,200.00 672,490.14 1,052,753.48 1,725,24
Deficiency Documentary Stamp Tax
Deficiency Documentary Stamp Tax 1,131,330.92 749,863.40 1,881,19
1995 (ST-DST1-95-0209-2000) 351,900,539.39 315,804,946.26 250,000.00
1995 (ST-DST2-95-0210-2000) 367,207,105.29 331,535,844.68 300,000.00 P 5,480,240.78 P 9,941,428.18 P 15,421,66
1994 (ST-DST3-94-0211-2000) 460,370,640.05 512,193,460.02 300,000.00
1994 (ST-DST4-94-0212-2000) 223,037,675.89 240,050,706.09 300,000.00
RCBC, however, refused to pay the following assessments for deficiency onshore tax and documentary stamp tax which remained to be
the subjects of its petition for review: 10
TOTALS P2,130,226,954.83 P2,035,495,733.89 P4,335,945.52

Particulars 1994 1995 Total

Disagreeing with the said deficiency tax assessment, RCBC filed a protest on February 24, 2000 and later submitted the relevant
documentary evidence to support it. Much later on November 20, 2000, it filed a petition for review before the CTA, pursuant to Section
Deficiency Final Tax on FCDU Onshore Income
228 of the 1997 Tax Code.7
On December 6, 2000, RCBC received another Formal Letter of Demand with Assessment Notices dated October 20, 2000, following the P 34,429,503.10 P 81,508,718.20 P 115,938,22
reinvestigation it requested, which drastically reduced the original amount of deficiency taxes to the following: 8
Particulars Basic Tax Interest Compromise Penalties 40,277,802.26 79,052,291.08 119,330,09

P 74,707,305.36 P 160,561,009.28 P 235,268,31

Deficiency Income Tax
1995 (INC-95-000003) P 374,348.45 P 346,656.92 Deficiency Documentary Stamp Tax
1994 (INC-94-000002) 1,392,366.28 1,568,605.52 P 17,040,104.84 P 24,953,842.46 P 41,993,94
Deficiency Gross Receipts Tax
1995 (GRT-95-000004) 2,000,926.96 3,322,589.63 Surcharge
P 1,367,222.04 4,260,026.21 6,238,460.62 10,498,48
1994 (GRT-94-000003) 138,368.61 161,872.32
P 21,300,131.05 P 31,192,303.08 P 52,492,43
Deficiency Final Withholding Tax
1995 (FT-95-000005) 362,203.47 351,287.75 P 96,007,436.41 P 191,753,312.36 P 287,760,74
1994 (FT-94-000004) 188,746.43 220,807.47 RCBC argued that the waivers of the Statute of Limitations which it executed on January 23, 1997 were not valid because the same were
Deficiency Final Tax on FCDU Onshore Income not signed or conformed to by the respondent CIR as required under Section 222(b) of the Tax Code. 11 As regards the deficiency FCDU
1995 (OT-95-000006) 81,508,718.20 79,052,291.08 onshore tax, RCBC contended that because the onshore tax was collected in the form of a final withholding tax, it was the borrower,
1994 (OT-94-000005) 34,429,503.10 40,277,802.26 constituted by law as the withholding agent, that was primarily liable for the remittance of the said tax. 12
Deficiency Expanded Withholding Tax
1995 (EWT-95-000004) 520,869.72 505,171.80 25,000.00
On December 15, 2004, the First Division of the Court of Tax Appeals (CTA-First Division) promulgated its Decision13which partially
1994 (EWT-94-000003) 297,949.95 348,560.63 granted the petition for review. It considered as closed and terminated the assessments for deficiency income tax, deficiency gross
25,000.00
Deficiency Documentary Stamp Tax receipts tax, deficiency final withholding tax, deficiency expanded withholding tax, and deficiency documentary stamp tax (not an
1995 (DST-95-000006) 599,890.72 industry issue) for 1994 and 1995.14 It, however, upheld the assessment for deficiency final tax on FCDU onshore income and deficiency
149,972.68
documentary stamp tax for 1994 and 1995 and ordered RCBC to pay the following amounts plus 20% delinquency tax: 15
1995 (DST2-95-000002) 24,953,842.46 6,238,460.62
 Tax II Set 4 * Assessment Cases*Page 27 of 65

In its November 17, 2009 Comment to the Manifestation, the CIR pointed out that the only remaining issues raised in the present petition
Particulars 1994 1995 Total
were those pertaining to RCBCs deficiency tax on FCDU Onshore Income for taxable years 1994 and 1995 in the aggregate amount
ciency Final Tax on FCDU Onshore Income of P 80,161,827.56 plus 20% delinquency interest per annum. The CIR prayed that RCBC be considered to have withdrawn its appeal
with respect to the CTA-En Banc ruling on its DST on SSA deficiency for taxable years 1994 and 1995 and that the questioned CTA
c P 22,356,324.43 P 16,067,952.86 decision regarding RCBCs deficiency tax on FCDU Onshore Income for the same period be affirmed. 25
P 115,938, 221.30

est 26,153,837.08 15,583,713.19 119,330,093.34

THE ISSUES
Total 48,510,161.51 31,651,666.05 Thus, only the following issues remain to be resolved by this Court:
119,330,093.34
Whether petitioner, by paying the other tax assessment covered by the waivers of the statute of limitations, is rendered estopped
ciency Documentary Stamp Tax (Industry Issue) from questioning the validity of the said waivers with respect to the assessment of deficiency onshore tax. 26
and
c P 17,040,104.84 P 24,953,842.46 Whether petitioner, as payee-bank, can be held liable for deficiency onshore tax, which is mandated by law to be collected at
P 41,993,947.30
27
source in the form of a final withholding tax.
harge 4,260,026.21 6,238,460.62 10,498,486.83 THE COURTS RULING
Petitioner is estopped from
Total 21,300,131.05 31,192,303.08 52,492,434.13
questioning the validity of the waivers
RCBC assails the validity of the waivers of the statute of limitations on the ground that the said waivers were merely attested to by Sixto
ALS P 69,810,292.56 P 62,843,969.13 P 171,822,527.47
Esquivias, then Coordinator for the CIR, and that he failed to indicate acceptance or agreement of the CIR, as required under Section 223
(b) of the 1977 Tax Code. 28 RCBC further argues that the principle of estoppel cannot be applied against it because its payment of the
other tax assessments does not signify a clear intention on its part to give up its right to question the validity of the waivers. 29
Unsatisfied, RCBC filed its Motion for Reconsideration on January 21, 2005, arguing that: (1) the CTA erred in its addition of the total
amount of deficiency taxes and the correct amount should only be P 132,654,261.69 and not P171,822,527.47; (2) the CTA erred in
holding that RCBC was estopped from questioning the validity of the waivers; (3) it was the payor-borrower as withholding tax agent, The Court disagrees.
and not RCBC, who was liable to pay the final tax on FCDU, and (4) RCBCs special savings account was not subject to documentary
stamp tax.16
Under Article 1431 of the Civil Code, the doctrine of estoppel is anchored on the rule that "an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon." A party is precluded
In its Resolution17 dated April 11, 2005, the CTA-First Division substantially upheld its earlier ruling, except for its inadvertence in the from denying his own acts, admissions or representations to the prejudice of the other party in order to prevent fraud and falsehood. 30
addition of the total amount of deficiency taxes. As such, it modified its earlier decision and ordered RCBC to pay the amount
of P 132,654,261.69 plus 20% delinquency tax.18
Estoppel is clearly applicable to the case at bench. RCBC, through its partial payment of the revised assessments issued within the
extended period as provided for in the questioned waivers, impliedly admitted the validity of those waivers. Had petitioner truly believed
RCBC elevated the case to the CTA-En Banc where it raised the following issues: that the waivers were invalid and that the assessments were issued beyond the prescriptive period, then it should not have paid the
I. reduced amount of taxes in the revised assessment. RCBCs subsequent action effectively belies its insistence that the waivers are invalid.
Whether or not the right of the respondent to assess deficiency onshore tax and documentary stamp tax for taxable year 1994 and The records show that on December 6, 2000, upon receipt of the revised assessment, RCBC immediately made payment on the
1995 had already prescribed when it issued the formal letter of demand and assessment notices for the said taxable years. uncontested taxes. Thus, RCBC is estopped from questioning the validity of the waivers. To hold otherwise and allow a party to gainsay
II. its own act or deny rights which it had previously recognized would run counter to the principle of equity which this institution holds
Whether or not petitioner is liable for deficiency onshore tax for taxable year 1994 and 1995. dear.31
III.
Whether or not petitioners special savings account is subject to documentary stamp tax under then Section 180 of the 1993 Tax
19 Liability for Deficiency
Code.
Onshore Withholding Tax

The CTA-En Banc, in its assailed Decision, denied the petition for lack of merit. It ruled that by receiving, accepting and paying portions
RCBC is convinced that it is the payor-borrower, as withholding agent, who is directly liable for the payment of onshore tax, citing
of the reduced assessment, RCBC bound itself to the new assessment, implying that it recognized the validity of the waivers. 20 RCBC
Section 2.57(A) of Revenue Regulations No. 2-98 which states:
could not assail the validity of the waivers after it had received and accepted certain benefits as a result of the execution of the said
waivers.21 As to the deficiency onshore tax, it held that because the payor-borrower was merely designated by law to withhold and remit
the said tax, it would then follow that the tax should be imposed on RCBC as the payee-bank. 22 Finally, in relation to the assessment of (A) Final Withholding Tax. Under the final withholding tax system the amount of income tax withheld by the withholding agent is
the deficiency documentary stamp tax on petitioners special savings account, it held that petitioners special savings account was a constituted as a full and final payment of the income tax due from the payee on the said income. The liability for payment of the tax
certificate of deposit and, as such, was subject to documentary stamp tax. 23 rests primarily on the payor as a withholding agent. Thus, in case of his failure to withhold the tax or in case of under
withholding, the deficiency tax shall be collected from the payor/withholding agent. The payee is not required to file an income tax
return for the particular income. (Emphasis supplied)
Hence, this petition.

The petitioner is mistaken.

While awaiting the decision of this Court, RCBC filed its Manifestation dated July 22, 2009, informing the Court that this petition,
relative to the DST deficiency assessment, had been rendered moot and academic by its payment of the tax deficiencies on Documentary
Stamp Tax (DST) on Special Savings Account (SSA) for taxable years 1994 and 1995 after the BIR approved its applications for tax
abatement.24
Before any further discussion, it should be pointed out that RCBC erred in citing the abovementioned Revenue Regulations No. 2-98
because the same governs collection at source on income paid only on or after January 1, 1998. The deficiency withholding tax subject of
this petition was supposed to have been withheld on income paid during the taxable years of 1994 and 1995. Hence, Revenue Regulations
No. 2-98 obviously does not apply in this case.

In Chamber of Real Estate and Builders Associations, Inc. v. The Executive Secretary,32 the Court has explained that the purpose of the
withholding tax system is three-fold: (1) to provide the taxpayer with a convenient way of paying his tax liability; (2) to ensure the
collection of tax, and (3) to improve the governments cashflow. Under the withholding tax system, the payor is the taxpayer upon whom
the tax is imposed, while the withholding agent simply acts as an agent or a collector of the government to ensure the collection of
taxes.33 1avvphi1
It is, therefore, indisputable that the withholding agent is merely a tax collector and not a taxpayer, as elucidated by this Court in the case
of Commissioner of Internal Revenue v. Court of Appeals,34 to wit:
In the operation of the withholding tax system, the withholding agent is the payor, a separate entity acting no more than an agent of the
government for the collection of the tax in order to ensure its payments; the payer is the taxpayer he is the person subject to tax imposed
by law; and the payee is the taxing authority. In other words, the withholding agent is merely a tax collector, not a taxpayer. Under the
withholding system, however, the agent-payor becomes a payee by fiction of law. His (agent) liability is direct and independent from
the taxpayer, because the income tax is still imposed on and due from the latter. The agent is not liable for the tax as no wealth
flowed into him he earned no income. The Tax Code only makes the agent personally liable for the tax arising from the breach of its
legal duty to withhold as distinguished from its duty to pay tax since:
"the governments cause of action against the withholding agent is not for the collection of income tax, but for the enforcement of
the withholding provision of Section 53 of the Tax Code, compliance with which is imposed on the withholding agent and not upon the
taxpayer."35 (Emphases supplied)
Based on the foregoing, the liability of the withholding agent is independent from that of the taxpayer. 1wphi1 The former cannot be
made liable for the tax due because it is the latter who earned the income subject to withholding tax. The withholding agent is liable only
insofar as he failed to perform his duty to withhold the tax and remit the same to the government. The liability for the tax, however,
remains with the taxpayer because the gain was realized and received by him.
While the payor-borrower can be held accountable for its negligence in performing its duty to withhold the amount of tax due on the
transaction, RCBC, as the taxpayer and the one which earned income on the transaction, remains liable for the payment of tax as the
taxpayer shares the responsibility of making certain that the tax is properly withheld by the withholding agent, so as to avoid any penalty
that may arise from the non-payment of the withholding tax due.
RCBC cannot evade its liability for FCDU Onshore Tax by shifting the blame on the payor-borrower as the withholding agent. As such, it
is liable for payment of deficiency onshore tax on interest income derived from foreign currency loans, pursuant to Section 24(e)(3) of
the National Internal Revenue Code of 1993:
Sec. 24. Rates of tax on domestic corporations.
xxxx
(e) Tax on certain incomes derived by domestic corporations
xxxx
(3) Tax on income derived under the Expanded Foreign Currency Deposit System. Income derived by a depository bank under the
expanded foreign currency deposit system from foreign currency transactions with nonresidents, offshore banking units in the
Philippines, local commercial banks including branches of foreign banks that may be authorized by the Central Bank to transact business
with foreign currency depository system units and other depository banks under the expanded foreign currency deposit system shall be
exempt from all taxes, except taxable income from such transactions as may be specified by the Secretary of Finance, upon
recommendation of the Monetary Board to be subject to the usual income tax payable by banks: Provided, That interest income from
foreign currency loans granted by such depository banks under said expanded system to residents (other than offshore banking
units in the Philippines or other depository banks under the expanded system) shall be subject to a 10% tax.(Emphasis supplied)
As a final note, this Court has consistently held that findings and conclusions of the CTA shall be accorded the highest respect and shall
be presumed valid, in the absence of any clear and convincing proof to the contrary. 36 The CTA, as a specialized court dedicated
exclusively to the study and resolution of tax problems, has developed an expertise on the subject of taxation. 37 As such, its decisions
shall not be lightly set aside on appeal, unless this Court finds that the questioned decision is not supported by substantial evidence or
there is a showing of abuse or improvident exercise of authority on the part of the Tax Court. 38WHEREFORE, the petition
is DENIED.SO ORDERED.
Tax II Set 4 * Assessment Cases*Page 28 of 65
THIRD DIVISION G.R. No. 197515 July 2, 2014
COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs.UNITED SALVAGE AND TOWAGE (PHILS.), INC., Respondent.
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Revised Rules of Court which seeks to review, reverse and set
aside the Decision1 of the Court of Tax Appeals En Banc (CTA En Banc), dated June 27, 2011, in the case entitled Commissioner of
Internal Revenue v. United Salvage and Towage (Phils.), Inc. (USTP), docketed as C.T.A. EB No. 662. The facts as culled from the
records:
Respondent is engaged in the business of sub-contracting work for service contractors engaged in petroleum operations in the
Philippines.2 During the taxable years in question, it had entered into various contracts and/or sub-contracts with several petroleum
service contractors, such as Shell Philippines Exploration, B.V. and Alorn Production Philippines for the supply of service vessels. 3
In the course of respondents operations, petitioner found respondent liable for deficiency income tax, withholding tax, value-added tax
(VAT) and documentary stamp tax (DST) for taxable years 1992,1994, 1997 and 1998. 4Particularly, petitioner, through BIR officials,
issued demand letters with attached assessment notices for withholding tax on compensation (WTC) and expanded withholding tax
(EWT) for taxable years 1992, 1994 and 1998,5 detailed as follows:
Assessment Notice No. Tax Covered Period Amount
25-1-000545-92 WTC 1992 P50,429.18
25-1-000546-92 EWT 1992 P14,079.45
034-14-000029-94 EWT 1994 P48,461.76
034-1-000080-98 EWT 1998 P22,437.016
On January 29, 1998 and October 24, 2001, USTP filed administrative protests against the 1994 and 1998 EWT assessments,
respectively.7
On February 21, 2003, USTP appealed by way of Petition for Review before the Court in action (which was thereafter raffled to the
CTA-Special First Division) alleging, among others, 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. 8
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. 9 Having complied with all the requirements therefor, the CTA-Special First
Division partially granted the Motion to Withdraw and declared the issues on income tax, VAT and DST deficiencies closed and
terminated in accordance with our pronouncement in Philippine Banking Corporation v. Commissioner of Internal
Revenue.10 Consequently, the case was submitted for decision covering the remaining issue on deficiency EWT and WTC, respectively,
for taxable years 1992, 1994 and 1998.11
The CTA-Special First Division held that the Preliminary Assessment Notices (PANs) for deficiency EWT for taxable years 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.12 As regards the Final Assessment Notices (FANs) for deficiency EWT for taxable years
1994 and 1998, the CTA-Special First Division held that the same do not show the law and the facts on which the assessments were
based.13 Said assessments were, therefore, declared void for failure to comply with Section 228 of the 1997 National Internal Revenue
Code (Tax Code).14 From the foregoing, the only remaining valid assessment is for taxable year 1992. 15
Nevertheless, the CTA-Special First Division declared that the right of petitioner to collect the deficiency EWT and WTC, respectively,
for taxable year 1992 had already lapsed pursuant to Section 203 of the Tax Code. 16 Thus, in ruling for USTP, the CTA-Special First
Division cancelled Assessment Notice Nos. 25-1-00546-92 and 25-1-000545-92, both dated January 9, 1996 and covering the period of
1992, as declared in its Decision17 dated March 12, 2010, the dispositive portion of which provides:

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.SO ORDERED. 18
Dissatisfied, petitioner moved to reconsider the aforesaid ruling. However, in a Resolution 19 dated July 15, 2010, the CTA-Special First
Division denied the same for lack of merit.
On August 18, 2010, petitioner filed a Petition for Review with the CTA En Banc praying that the Decision of the CTA-Special First
Division, dated March 12, 2010,be set aside.20
On June 27, 2011, the CTA En Banc promulgated a Decision which affirmed with modification the Decision dated March 12, 2010 and
the Resolution dated July 15, 2010 of the CTA-Special First Division, the dispositive portion of which reads:
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 P14,496.79, 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.SO ORDERED. 21
Hence, the instant petition raising the following issues:
1. Whether or not the Court of Tax Appeals is governed strictly by the technical rules of evidence;
2. Whether or not the Expanded Withholding Tax Assessments issued by petitioner against the respondent for taxable year 1994 was
without any factual and legal basis; and
3. Whether or not petitioners right to collect the creditable withholding tax and expanded withholding tax for taxable year 1992 has
already prescribed.22
After careful review of the records and evidence presented before us, we find no basis to overturn the decision of the CTA En Banc.
On this score, our ruling in Compagnie Financiere Sucres Et Denrees v. CIR, 23 is enlightening, to wit:
We reiterate the well-established doctrine that as a matter of practice and principle, [we] will not set aside the conclusion reached by an
agency, like the CTA, especially if affirmed by the [CA]. By the very nature of its function, it has dedicated itself to the study and
consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident
exercise of authority on its part, which is not present here. 24
Now, to the first issue.
Petitioner implores unto this Court that technical rules of evidence should not be strictly applied in the interest of substantial justice,
considering that the mandate of the CTA explicitly provides that its proceedings shall not be governed by the technical rules of
evidence.25 Relying thereon, petitioner avers that while it failed to formally offer the PANs of EWTs for taxable years 1994and 1998,
their existence and due execution were duly tackled during the presentation of petitioners witnesses, Ruleo Badilles and Carmelita Lynne
de Guzman (for taxable year 1994) and Susan Salcedo-De Castro and Edna A. Ortalla (for taxable year 1998). 26 Petitioner further claims
that although the PANs were not marked as exhibits, their existence and value were properly established, since the BIR records for
taxable years 1994 and 1998 were forwarded by petitioner to the CTA in compliance with the latters directive and were, in fact, made
part of the CTA records.27
Under Section 828 of Republic Act (R.A.) No. 1125, the CTA is categorically described as a court of record. 29 As such, it shall have the
power to promulgate rules and regulations for the conduct of its business, and as may be needed, for the uniformity of decisions within its
jurisdiction.30 Moreover, as cases filed before it are litigated de novo, party-litigants shall prove every minute aspect of their
cases.31 Thus, no evidentiary value can be given the pieces of evidence submitted by the BIR, as the rules on documentary evidence
require that these documents must be formally offered before the CTA. 32 Pertinent is Section 34, Rule 132 of the Revised Rules on
Evidence which reads:
Tax II Set 4 * Assessment Cases*Page 29 of 65
SEC. 34. Offer of evidence. The court shall consider no evidence which has not been formally offered. The purpose for which the
evidence is offered must be specified.
Although in a long line of cases, we have relaxed the foregoing rule and allowed evidence not formally offered to be admitted and
considered by the trial court, we exercised extreme caution in applying the exceptions to the rule, as pronounced in Vda. de Oate v.
Court of Appeals,33 thus:
From the foregoing provision, it is clear that for evidence to be considered, the same must be formally offered. Corollarily, the mere fact
that a particular document is identified and marked as an exhibit does not mean that it has already been offered as part of the evidence of
a party. In Interpacific Transit, Inc. v. Aviles[186 SCRA 385, 388-389 (1990)], we had the occasion to make a distinction between
identification of documentary evidence and its formal offer as an exhibit. We said that the first is done in the course of the trial and is
accompanied by the marking of the evidence as an exhibit while the second is done only when the party rests its case and not before. A
party, therefore, may opt to formally offer his evidence if he believes that it will advance his cause or not to do so at all. In the event he
chooses to do the latter, the trial court is not authorized by the Rules to consider the same.
However, in People v. Napat-a[179 SCRA 403 (1989)] citing People v. Mate[103 SCRA 484 (1980)], we relaxed the foregoing rule and
allowed evidence not formally offered to be admitted and considered by the trial court provided the following requirements are present,
viz.: first, the same must have been duly identified by testimony duly recorded and, second, the same must have been incorporated in the
records of the case.34
The evidence may, therefore, be admitted provided the following requirements are present: (1) the same must have been duly identified
by testimony duly recorded; and (2) the same must have been incorporated in the records of the case. Being an exception, the same may
only be applied when there is strict compliance with the requisites mentioned above; otherwise, the general rule in Section 34 of Rule 132
of the Rules of Court should prevail.35
In the case at bar, petitioner categorically admitted that it failed to formally offer the PANs as evidence. Worse, it advanced no justifiable
reason for such fatal omission. Instead, it merely alleged that the existence and due execution of the PANs were duly tackled by
petitioners witnesses. We hold that such is not sufficient to seek exception from the general rule requiring a formal offer of evidence,
since no evidence of positive identification of such PANs by petitioners witnesses was presented. Hence, we agree with the CTA En
Bancs observation that the 1994 and 1998 PANs for EWT deficiencies were not duly identified by testimony and were not incorporated
in the records of the case, as required by jurisprudence.
While we concur with petitioner that the CTA is not governed strictly by technical rules of evidence, as rules of procedure are not ends in
themselves but are primarily intended as tools in the administration of justice, 36 the presentation of PANs as evidence of the taxpayers
liability is not mere procedural technicality. It is a means by which a taxpayer is informed of his liability for deficiency taxes. It serves as
basis for the taxpayer to answer the notices, present his case and adduce supporting evidence. 37 More so, the same is the only means by
which the CTA may ascertain and verify the truth of respondent's claims. We are, therefore, constrained to apply our ruling in Heirs of
Pedro Pasag v. Spouses Parocha,38 viz.:
x x x. A formal offer is necessary because judges are mandated to rest their findings of facts and their judgment only and strictly upon the
evidence offered by the parties at the trial. Its function is to enable the trial judge to know the purpose or purposes for which the
proponent is presenting the evidence. On the other hand, this allows opposing parties to examine the evidence and object to its
admissibility. Moreover, it facilitates review as the appellate court will not be required to review documents not previously scrutinized by
the trial court.
Strict adherence to the said rule is not a trivial matter. The Court in Constantino v. Court of Appeals ruled that the formal offer of one's
evidence is deemed waived after failing to submit it within a considerable period of time. It explained that the court cannot admit an offer
of evidence made after a lapse of three (3) months because to do so would "condone an inexcusable laxity if not non-compliance with a
court order which, in effect, would encourage needless delays and derail the speedy administration of justice."
Applying the aforementioned principle in this case, we find that the trial court had reasonable ground to consider that petitioners had
waived their right to make a formal offer of documentary or object evidence. Despite several extensions of time to make their formal
offer, petitioners failed to comply with their commitment and allowed almost five months to lapse before finally submitting it. Petitioners'

failure to comply with the rule on admissibility of evidence is anathema to the efficient, effective, and expeditious dispensation of justice.
x x x.39
Anent the second issue, petitioner claims that the EWT assessment issued for taxable year 1994 has factual and legal basis because at the
time the PAN and FAN were issued by petitioner to respondent on January 19, 1998, the provisions of Revenue Regulation No. 12-
9940 which governs the issuance of assessments was not yet operative. Hence, its compliance with Revenue Regulation No. 12-85 41 was
sufficient. In any case, petitioner argues that a scrutiny of the BIR records of respondent for taxable year 1994 would show that the details
of the factual finding of EWT were itemized from the PAN issued by petitioner.42
In order 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, respectively, were issued on January 19, 1998, when the Tax Code was already in
effect, as correctly found by the CTA En Banc:
The date of issuance of the notice of assessment determines which law applies- the 1997 NIRC or the old Tax Code. The case of
Commissioner of Internal Revenue v. Bank of Philippine Islands is instructive:
In merely notifying BPI of his findings, the CIR relied on the provisions of the former Section 270 prior to its amendment by RA 8424
(also known as the Tax Reform Act of 1997). In CIR v. Reyes, we held that:
In the present case, Reyes was not informed in writing of the law and the facts on which the assessment of estate taxes had been made.
She was merely notified of the findings by the CIR, who had simply relied upon the provisions of former Section 229 prior to its
amendment by [RA] 8424, otherwise known as the Tax Reform Act of 1997.
First, 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 1998to 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.
It was on February 12, 1998, that a preliminary assessment notice was issued against the estate. On April 22, 1998, the final estate tax
assessment notice, as well as demand letter, was also issued. During those dates, RA 8424 was already in effect. The notice required
under the old law was no longer sufficient under the new law.(Emphasis ours.)
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, at the time of the effectivity of the 1997 NIRC. Clearly, the assessments are governed by the law. 43
Indeed, Section 228 of the Tax Code provides that the taxpayer shall be informed in writing of the law and the facts on which the
assessment is made. Otherwise, the assessment is void. To implement the aforesaid provision, Revenue Regulation No. 12-99was enacted
by the BIR, of which Section 3.1.4 thereof 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 taxpayers 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
x44
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.
In the present case, a mere perusal of the FAN for the deficiency EWT for taxable year 1994will 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.45 Petitioner should have at least attached a detailed notice of discrepancy or stated an
explanation why the amount of P48,461.76 is collectible against respondent46 and how the same was arrived at. Any short-cuts to the
Tax II Set 4 * Assessment Cases*Page 30 of 65
prescribed content of the assessment or the process thereof should not be countenanced, in consonance with the ruling in Commissioner
of Internal Revenue v. Enron Subic Power Corporation 47 to wit:
The CIR insists that an examination of the facts shows that Enron was properly apprised of its tax deficiency. During the pre-assessment
stage, the CIR advised Enrons representative of the tax deficiency, informed it of the proposed tax deficiency assessment through a
preliminary five-day letter and furnished Enron a copy of the audit working paper allegedly showing in detail the legal and factual bases
of the assessment. The CIR argues that these steps sufficed to inform Enron of the laws and facts on which the deficiency tax assessment
was based.
We disagree. 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 CIRs duties incorrectly assessing a taxpayer. The requirement for issuing a preliminary or final notice, as the case may
be, informing a taxpayer of the existence of a deficiency tax assessment is markedly different from the requirement of what such notice
must contain. Just because the CIR issued an advice, a preliminary letter during the pre-assessment stage and a final notice, in the order
required by law, does not necessarily mean that Enron was informed of the law and facts on which the deficiency tax assessment was
made.
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.
We note that the old law merely required that the taxpayer be notified of the assessment made by the CIR. This was changed in 1998 and
the taxpayer must now be informed not only of the law but also of the facts on which the assessment is made. Such amendment is in
keeping with the constitutional principle that no person shall be deprived of property without due process. In view of the absence of a fair
opportunity for Enron to be informed of the legal and factual bases of the assessment against it, the assessment in question was void. x x
x.48
In the same vein, we have held in Commissioner of Internal Revenue v. Reyes, 49 that:
Even a cursory review of the preliminary assessment notice, as well as the demand letter sent, reveals the lack of basis for -- not to
mention the insufficiency of -- the gross figures and details of the itemized deductions indicated in the notice and the letter. This Court
cannot countenance an assessment based on estimates that appear to have been arbitrarily or capriciously arrived at. Although taxes are
the lifeblood of the government, their assessment and collection "should be made in accordance with law as any arbitrariness will negate
the very reason for government itself."50
Applying the aforequoted rulings to the case at bar, it is clear that the assailed deficiency tax assessment for the EWT in 1994disregarded
the provisions of Section 228 of the Tax Code, as amended, as well as Section 3.1.4 of Revenue Regulations No. 12-99 by not providing
the legal and factual bases of the assessment. Hence, the formal letter of demand and the notice of assessment issued relative thereto are
void.
In any case, we find no basis in petitioners claim that Revenue Regulation No. 12-99 is not applicable at the time the PAN and FAN for
the deficiency EWT for taxable year 1994 were issued. Considering that such regulation merely implements the law, and does not create
or take away vested rights, the same may be applied retroactively, as held in Reyes:
x x x x.
Second, the non-retroactive application of Revenue Regulation (RR) No. 12-99 is of no moment, considering that it merely implements
the law.
A tax regulation is promulgated by the finance secretary to implement the provisions of the Tax Code. While it is desirable for the
government authority or administrative agency to have one immediately issued after a law is passed, the absence of the regulation does
not automatically mean that the law itself would become inoperative.

At the time the pre-assessment notice was issued to Reyes, RA 8424 already stated that the taxpayer must be informed of both the law
and facts on which the assessment was based. Thus, the CIR should have required the assessment officers of the Bureau of Internal
Revenue (BIR) to follow the clear mandate of the new law. The old regulation governing the issuance of estate tax assessment notices ran
afoul of the rule that tax regulations-- old as they were -- should be in harmony with, and not supplant or modify, the law.
It may be argued that the Tax Code provisions are not self- executory. It would be too wide a stretch of the imagination, though, to still
issue a regulation that would simply require tax officials to inform the taxpayer, in any manner, of the law and the facts on which an
assessment was based. That requirement is neither difficult to make nor its desired results hard to achieve. Moreover, an administrative
rule interpretive of a statute, and not declarative of certain rights and corresponding obligations, is given retroactive effect as of the date
of the effectivity of the statute. RR 12-99 is one such rule. Being interpretive of the provisions of the Tax Code, even if it was issued only
on September 6, 1999, this regulation was to retroact to January 1, 1998 -- a date prior to the issuance of the preliminary assessment
notice and demand letter.51
Indubitably, the disputed assessments for taxable year 1994 should have already complied with the requirements laid down under
Revenue Regulation No. 12-99. Having failed so, the same produces no legal effect.
Notwithstanding the foregoing findings, we sustain the CTA En Bancs findings on the deficiency EWT for taxable year 1998 considering
that it complies with Section 228 of the Tax Code as well as Revenue Regulation No. 12-99, thus:
On the other hand, the 1998 EWT FAN reflected the following: a detailed factual account why the basic EWT is P14,496.79 and the legal
basis, Section 57 B of the 1997 NIRC supporting findings of EWT liability ofP22,437.01. Thus, the EWT FAN for 1998 is duly issued in
accordance with the law.52
As to the last issue, petitioner avers that its right to collect the EWT for taxable year 1992 has not yet prescribed. It argues that while the
final assessment notice and demand letter on EWT for taxable year 1992 were all issued on January 9, 1996, the five (5)-year prescriptive
period to collect was interrupted when respondent filed its request for reinvestigation on March 14, 1997 which was granted by petitioner
on January 22, 2001 through the issuance of Tax Verification Notice No. 00165498 on even date. 53 Thus, the period for tax collection
should have begun to run from the date of the reconsidered or modified assessment. 54
This argument fails to persuade us.
The statute of limitations on assessment and collection of national internal revenue taxes was shortened from five (5) years to three (3)
years by virtue of Batas Pambansa Blg. 700. 55 Thus, petitioner has three (3) years from the date of actual filing of the tax return to assess
a national internal revenue tax or to commence court proceedings for the collection thereof without an assessment. 56 However, when it
validly issues an assessment within the three (3)-year period, it has another three (3) years within which to collect the tax due by distraint,
levy, or court proceeding. 57 The assessment of the tax is deemed made and the three (3)-year period for collection of the assessed tax
begins to run on the date the assessment notice had been released, mailed or sent to the taxpayer.58
On this matter, we note the findings of the CTA-Special First Division that no evidence was formally offered to prove when respondent
filed its returns and paid the corresponding EWT and WTC for taxable year 1992. 59
Nevertheless, as correctly held by the CTA En Banc, the Preliminary Collection Letter for deficiency taxes for taxable year 1992 was
only issued on February 21, 2002, despite the fact that the FANs for the deficiency EWT and WTC for taxable year 1992 was issued as
early as January 9, 1996. Clearly, five (5) long years had already lapsed, beyond the three (3)-year prescriptive period, before collection
was pursued by petitioner.
Further, while the request for reinvestigation was made on March 14, 1997, the same was only acted upon by petitioner on January22,
2001, also beyond the three (3) year statute of limitations reckoned from January 9, 1996, notwithstanding the lack of impediment to rule
upon such issue. We cannot countenance such inaction by petitioner to the prejudice of respondent pursuant to our ruling in
Commissioner of Internal Revenue v. Philippine Global Communication, Inc., 60 to wit:
Tax II Set 4 * Assessment Cases*Page 31 of 65
The assessment, in this case, was presumably issued on 14 April 1994 since the respondent did not dispute the CIRs claim. Therefore,
the BIR had until 13 April 1997. However, as there was no Warrant of Distraint and/or Levy served on the respondents nor any judicial
proceedings initiated by the BIR, the earliest attempt of the BIR to collect the tax due based on this assessment was when it filed its
Answer in CTA Case No. 6568 on 9 January 2003, which was several years beyond the three-year prescriptive period. Thus, the CIR is
now prescribed from collecting the assessed tax.61
Here, petitioner had ample time to make a factually and legally well-founded assessment and implement collection pursuant
thereto.1wphi1 Whatever examination that petitioner may have conducted cannot possibly outlast the entire three (3)-year prescriptive
period provided by law to collect the assessed tax. Thus, there is no reason to suspend the running of the statute of limitations in this case.
Moreover, in Bank of the Philippine Islands, citing earlier jurisprudence, we held that the request for reinvestigation should be granted or
at least acted upon in due course before the suspension of the statute of limitations may set in, thus:
In BPI v. Commissioner of Internal Revenue, the Court emphasized the rule that the CIR must first grant the request for reinvestigation as
a requirement for the suspension of the statute of limitations. The Court said:
In the case of Republic of the Philippines v. Gancayco, taxpayer Gancayco requested for a thorough reinvestigation of the assessment
against him and placed at the disposal of the Collector of Internal Revenue all the evidences he had for such purpose; yet, the Collector
ignored the request, and the records and documents were not at all examined. Considering the given facts, this Court pronounced that
x x x The act of requesting a reinvestigation alone does not suspend the period. The request should first be granted, in order to effect
suspension. (Collector v. Suyoc Consolidated, supra; also Republic v. Ablaza, supra). Moreover, the Collector gave appellee until April 1,
1949, within which to submit his evidence, which the latter did one day before. There were no impediments on the part of the Collector to
file the collection case from April 1, 1949
In Republic of the Philippines v. Acebedo, this Court similarly found that
x x x T]he defendant, after receiving the assessment notice of September 24, 1949, asked for a reinvestigation thereof on October 11,
1949 (Exh. "A"). There is no evidence that this request was considered or acted upon. In fact, on October 23, 1950 the then Collector of
Internal Revenue issued a warrant of distraint and levy for the full amount of the assessment (Exh. "D"), but there was follow-up of this
warrant. Consequently, the request for reinvestigation did not suspend the running of the period for filing an action for collection.
[Emphasis in the original]62 With respect to petitioners argument that respondents act of elevating its protest to the CTA has fortified the
continuing interruption of petitioners prescriptive period to collect under Section 223 of the Tax Code, 63 the same is flawed at best
because respondent was merely exercising its right to resort to the proper Court, and does not in any way deter petitioners right to collect
taxes from respondent under existing laws.
On the strength of the foregoing observations, we ought to reiterate our earlier teachings that "in balancing the scales between the power
of the State to tax and its inherent right to prosecute perceived transgressors of the law on one side, and the constitutional rights of a
citizen to due process of law and the equal protection of the laws on the other, the scales must tilt in favor of the individual, for a citizens
right is amply protected by the Bill of Rights under the Constitution." 64 Thus, while "taxes are the lifeblood of the government," the
power to tax has its limits, in spite of all its plenitude. 65 Even as we concede the inevitability and indispensability of taxation, it is a
requirement in all democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. 66
After all, the statute of limitations on the collection of taxes was also enacted to benefit and protect the taxpayers, as elucidated in the
case of Philippine Global Communication, Inc.,67 thus:
x x x The report submitted by the tax commission clearly states that these provisions on prescription should be enacted to benefit and
protect taxpayers:
Under the former law, the right of the Government to collect the tax does not prescribe. 1wphi1 However, in fairness to the taxpayer, the
Government should be estopped from collecting the tax where it failed to make the necessary investigation and assessment within 5 years
after the filing of the return and where it failed to collect the tax within 5 years from the date of assessment thereof. Just as the

government is interested in the stability of its collections, so also are the taxpayers entitled to an assurance that they will not be subjected
to further investigation for tax purposes after the expiration of a reasonable period of time. (Vol. II, Report of the Tax Commission of the
Philippines, pp. 321-322).68WHEREFORE, 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.SO ORDERED.
Instances where the Running of The prescriptive period is Suspended
SECOND DIVISION
G.R. No. 130430 December 13, 1999
REPUBLIC OF THE PHILIPPINES, represented by the Commissioner of the Bureau of Internal Revenue
(BIR), petitioner, vs.SALUD V. HIZON, respondent.
MENDOZA, J.:
This is a petition for review of the decision 1 of the Regional Trial Court, Branch 44, San Fernando, Pampanga, dismissing the suit filed
by the Bureau of Internal Revenue for collection of tax.
The facts are as follows:
On July 18, 1986, the BIR issued to respondent Salud V. Hizon a deficiency income tax assessment of P1,113,359.68 covering the fiscal
year 1981-1982. Respondent not having contested the assessment, petitioner, on January 12, 1989, served warrants of distraint and levy
to collect the tax deficiency. However, for reasons not known, it did not proceed to dispose of the attached properties.
More than three years later, or on November 3, 1992, respondent wrote the BIR requesting a reconsideration of her tax deficiency
assessment. The BIR, in a letter dated August 11, 1994, denied the request. On January 1, 1997, it filed a case with the Regional Trial
Court, Branch 44, San Fernando, Pampanga to collect the tax deficiency. The complaint was signed by Norberto Salud, Chief of the
Legal Division, BIR Region 4, and verified by Amancio Saga, the Bureau's Regional Director in Pampanga.
Respondent moved to dismiss the case on two grounds: (1) that the complaint was not filed upon authority of the BIR Commissioner as
required by 221 2 of the National Internal Revenue Code, and (2) that the action had already prescribed. Over petitioner's objection, the
trial court, on August 28, 1997, granted the motion and dismissed the complaint. Hence, this petition. Petitioner raises the following
issues: 3
I. WHETHER OR NOT THE INSTITUTION OF THE CIVIL CASE FOR COLLECTION OF TAXES WAS
WITHOUT THE APPROVAL OF THE COMMISSIONER IN VIOLATION OF SECTION 221 OF THE
NATIONAL INTERNAL REVENUE CODE.
II. WHETHER OR NOT THE ACTION FOR COLLECTION OF TAXES FILED AGAINST RESPONDENT
HAD ALREADY BEEN BARRED BY THE STATUTE OF LIMITATIONS.
First. In sustaining respondent's contention that petitioner's complaint was filed without the authority of the BIR Commissioner, the trial
court stated: 4
Tax II Set 4 * Assessment Cases*Page 32 of 65
There is no question that the National Internal Revenue Code explicitly provides that in the matter of filing cases
in Court, civil or criminal, for the collection of taxes, etc., the approval of the commissioner must first be secured.
. . . [A]n action will not prosper in the absence of the commissioner's approval. Thus, in the instant case, the
absence of the approval of the commissioner in the institution of the action is fatal to the cause of the
plaintiff . . . .
The trial court arrived at this conclusion because the complaint filed by the BIR was not signed by then Commissioner
Liwayway Chato.
Sec. 221 of the NIRC provides:
Form and mode of proceeding in actions arising under this Code. Civil and criminal actions and proceedings
instituted in behalf of the Government under the authority of this Code or other law enforced by the Bureau of
Internal Revenue shall be brought in the name of the Government of the Philippines and shall be conducted by
the provincial or city fiscal, or the Solicitor General, or by the legal officers of the Bureau of Internal Revenue
deputized by the Secretary of Justice, but no civil and criminal actions for the recovery of taxes or the
enforcement of any fine, penalty or forfeiture under this Code shall begun without the approval of the
Commissioner. (Emphasis supplied)
To implement this provision Revenue Administrative Order No. 5-83 of the BIR provides in pertinent portions:
The following civil and criminal cases are to be handled by Special Attorneys and Special Counsels assigned in
the Legal Branches of Revenues Regions:
xxx xxx xxx
II. Civil Cases
1. Complaints for collection on cases falling within the jurisdiction of the Region . . . .
In all the abovementioned cases, the Regional Director is authorized to sign all pleadings
filed in connection therewith which, otherwise, requires the signature of the
Commissioner.
xxx xxx xxx
Revenue Administrative Order No. 10-95 specifically authorizes the Litigation and Prosecution Section of the Legal Division of regional
district offices to institute the necessary civil and criminal actions for tax collection. As the complaint filed in this case was signed by the
BIR's Chief of Legal Division for Region 4 and verified by the Regional Director, there was, therefore, compliance with the law.
However, the lower court refused to recognize RAO No. 10-95 and, by implication, RAO No. 5-83. It held:
[M]emorand[a], circulars and orders emanating from bureaus and agencies whether in the purely public or quasi-
public corporations are mere guidelines for the internal functioning of the said offices. They are not laws which
courts can take judicial notice of. As such, they have no binding effect upon the courts for such memorand[a] and
circulars are not the official acts of the legislative, executive and judicial departments of the Philippines. . . . 5

This is erroneous. The rule is that as long as administrative issuances relate solely to carrying into effect the provisions of the law, they
are valid and have the force of law. 6 The governing statutory provision in this case is 4(d) of the NIRC which provides:
Specific provisions to be contained in regulations. The regulations of the Bureau of Internal Revenue shall,
among other things, contain provisions specifying, prescribing, or defining:
xxx xxx xxx
(d) The conditions to be observed by revenue officers, provincial fiscals and other officials respecting the
institution and conduct of legal actions and proceedings.
RAO Nos. 5-83 and 10-95 are in harmony with this statutory mandate.
As amended by R.A. No. 8424, the NIRC is now even more categorical. Sec. 7 of the present Code authorizes the BIR Commissioner to
delegate the powers vested in him under the pertinent provisions of the Code to any subordinate official with the rank equivalent to a
division chief or higher, except the following:
(a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance;
(b) The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the
Bureau;
(c) The power to compromise or abate under 204 (A) and (B) of this Code, any tax
deficiency:Provided, however, that assessment issued by the Regional Offices involving basic deficiency taxes of
five hundred thousand pesos (P500,000.00) or less, and minor criminal violations as may be determined by rules
and regulations to be promulgated by the Secretary of Finance, upon the recommendation of the Commissioner,
discovered by regional and district officials, may be compromised by a regional evaluation board which shall be
composed of the Regional Director as Chairman, the Assistant Regional Director, heads of the Legal, Assessment
and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer, as members; and
(d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax
are produced or kept.
None of the exceptions relates to the Commissioner's power to approve the filing of tax collection cases.
Second. With regard to the issue that the case filed by petitioner for the collection of respondent's tax deficiency is barred by prescription,
223(c) of the NIRC provides:
Any internal revenue tax which has been assessed within the period of limitation above-prescribed may be
collected by distraint or levy or by a proceeding in court within three years 7 following the assessment of the tax.
The running of the three-year prescriptive period is suspended 8
for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or
levy or a proceeding in court and for sixty days thereafter; when the taxpayer requests for a reinvestigation which
is granted by the Commissioner; when the taxpayer cannot be located in the address given by him in the return
filed upon which the tax is being assessed or collected; provided, that, if the taxpayer informs the Commissioner
of any change in address, the running of the statute of limitations will not be suspended; when the warrant of
Tax II Set 4 * Assessment Cases*Page 33 of 65
distraint or levy is duly served upon the taxpayer, his authorized representative or a member of his household
with sufficient discretion, and no property could be located; and when the taxpayer is out of the Philippines.
Petitioner argues that, in accordance with this provision, respondent's request for reinvestigation of her tax deficiency
assessment on November 3, 1992 effectively suspended the running of the period of prescription such that the government
could still file a case for tax collection. 9
The contention has no merit. Sec. 229 10 of the Code mandates that a request for reconsideration must be made within 30 days from the
taxpayer's receipt of the tax deficiency assessment, otherwise the assessment becomes final, unappealable and, therefore,
demandable. 11 The notice of assessment for respondent's tax deficiency was issued by petitioner on July 18, 1986. On the other hand,
respondent made her request for reconsideration thereof only on November 3, 1992, without stating when she received the notice of tax
assessment. She explained that she was constrained to ask for a reconsideration in order to avoid the harassment of BIR collectors. 12 In
all likelihood, she must have been referring to the distraint and levy of her properties by petitioner's agents which took place on January
12, 1989. Even assuming that she first learned of the deficiency assessment on this date, her request for reconsideration was nonetheless
filed late since she made it more than 30 days thereafter. Hence, her request for reconsideration did not suspend the running of the
prescriptive period provided under 223(c). Although the Commissioner acted on her request by eventually denying it on August 11,
1994, this is of no moment and does not detract from the fact that the assessment had long become demandable.
Nonetheless, it is contended that the running of the prescriptive period under 223(c) was suspended when the BIR timely served the
warrants of distraint and levy on respondent on January 12, 1989. 13 Petitioner cites for this purpose our ruling in Advertising Associates
Inc., v. Court of Appeals. 14 Because of the suspension, it is argued that the BIR could still avail of the other remedy under 223(c) of
filing a case in court for collection of the tax deficiency, as the BIR in fact did on January 1, 1997.
Petitioner's reliance on the Court's ruling in Advertising Associates Inc. v. Court of Appeals is misplaced. What the Court stated in that
case and, indeed, in the earlier case of Palanca v. Commissioner of Internal Revenue, 15 is that the timely service of a warrant of distraint
or levy suspends the running of the period to collect the tax deficiency in the sense that the disposition of the attached properties might
well take time to accomplish, extending even after the lapse of the statutory period for collection. In those cases, the BIR did not file any
collection case but merely relied on the summary remedy of distraint and levy to collect the tax deficiency. The importance of this fact
was not lost on the Court. Thus, in Advertising Associates, it was held: 16 "It should be noted that the Commissioner did not institute any
judicial proceeding to collect the tax. He relied on the warrants of distraint and levy to interrupt the running of the statute of limitations.
Moreover, if, as petitioner in effect says, the prescriptive period was suspended twice, i.e., when the warrants of distraint and levy were
served on respondent on January 12, 1989 and then when respondent made her request for reinvestigation of the tax deficiency
assessment on November 3, 1992, the three-year prescriptive period must have commenced running again sometime after the service of
the warrants of distraint and levy. Petitioner, however, does not state when or why this took place and, indeed, there appears to be no
reason for such. It is noteworthy that petitioner raised this point before the lower court apparently as an alternative theory, which,
however, is untenable.
For the foregoing reasons, we hold that petitioner's contention that the action in this case had not prescribed when filed has no merit. Our
holding, however, is without prejudice to the disposition of the properties covered by the warrants of distraint and levy which petitioner
served on respondent, as such would be a mere continuation of the summary remedy it had timely begun. Although considerable time has
passed since then, as held inAdvertising Associates Inc. v. Court of Appeals 17 and Palanca v. Commissioner of Internal Revenue, 18 the
enforcement of tax collection through summary proceedings may be carried out beyond the statutory period considering that such remedy
was seasonably availed of.
WHEREFORE, the petition is DENIED.
SECOND DIVISION
G.R. No. 139736 October 17, 2005
 Tax II Set 4 * Assessment Cases*Page 34 of 65

BANK OF THE PHILIPPINE ISLANDS, Petitioner, Petitioner BPI, through its counsel, protested the Assessment in a letter dated 16 November 1989, and filed with the BIR on 17 November
vs. 1989. The said protest letter is reproduced in full below
COMMISSIONER OF INTERNAL REVENUE, Respondent.
November 16, 1989
DECISION
The Commissioner of Internal Revenue
CHICO-NAZARIO, J.:
Quezon City
This Petition for Review on Certiorari, under Rule 45 of the 1997 Rules of Civil Procedure, assails the Decision of the Court of Appeals
in CA-G.R. SP No. 51271, dated 11 August 1999,1 which reversed and set aside the Decision of the Court of Tax Appeals (CTA), dated
02 February 1999,2 and which reinstated Assessment No. FAS-5-85-89-002054 requiring petitioner Bank of the Philippine Islands (BPI) Attention of: Mr. Pedro C. Aguillon
to pay the amount of P28,020.00 as deficiency documentary stamp tax (DST) for the taxable year 1985, inclusive of the compromise
penalty. Asst. Commissioner for Collection

There is hardly any controversy as to the factual antecedents of this Petition. Sir:

Petitioner BPI is a commercial banking corporation organized and existing under the laws of the Philippines. On two separate occasions, On behalf of our client, Bank of the Philippine Islands (BPI), we have the honor to protest your assessment against it for deficiency
particularly on 06 June 1985 and 14 June 1985, it sold United States (US) $500,000.00 to the Central Bank of the Philippines (Central documentary stamp tax for the year 1985 in the amount of P28,020.00, arising from its sale to the Central Bank of U.S. $500,000.00 on
Bank), for the total sales amount of US$1,000,000.00. June 6, 1985 and another U.S. $500,000.00 on June 14, 1985.

On 10 October 1989, the Bureau of Internal Revenue (BIR) issued Assessment No. FAS-5-85-89-002054, 3 finding petitioner BPI liable 1. Under established market practice, the documentary stamp tax on telegraphic transfers or sales of foreign exchange is paid by the
for deficiency DST on its afore-mentioned sales of foreign bills of exchange to the Central Bank, computed as follows buyer. Thus, when BPI sells to any party, the cost of documentary stamp tax is added to the total price or charge to the buyer and the
seller affixes the corresponding documentary stamp on the document. Similarly, when the Central Bank sells foreign exchange to BPI, it
charges BPI for the cost of the documentary stamp on the transaction.

1985 Deficiency Documentary Stamp Tax

2. In the two transactions subject of your assessment, no documentary stamps were affixed because the buyer,
Central Bank of the Philippines, was exempt from such tax. And while it is true that under P.D. 1994, a proviso was added to sec. 222
(now sec. 186) of the Tax Code "that whenever one party to a taxable document enjoys exemption from the tax herein imposed, the other
party thereto who is not exempt shall be the one directly liable for the tax," this proviso (and the other amendments of P.D. 1994) took
Foreign Bills of Exchange.. P 18,480,000.00 effect only on January 1, 1986, according to sec. 49 of P.D. 1994. Hence, the liability for the documentary stamp tax could not be shifted
to the seller.

In view of the foregoing, we request that the assessment be revoked and cancelled.
Tax Due Thereon:

Very truly yours,

P18,480,000.00 x P0.30 (Sec. 182 NIRC).

PADILLA LAW OFFICE

P200.00

By:

Add: Suggested compromise penalty. (signed)

SABINO PADILLA, JR.5

TOTAL AMOUNT DUE AND COLLECTIBLE. P 28,020.00
Petitioner BPI did not receive any immediate reply to its protest letter. However, on 15 October 1992, the BIR issued a Warrant of
Distraint and/or Levy6 against petitioner BPI for the assessed deficiency DST for taxable year 1985, in the amount of P27,720.00
(excluding the compromise penalty of P300.00). It served the Warrant on petitioner BPI only on 23 October 1992. 7
Petitioner BPI received the Assessment, together with the attached Assessment Notice, 4 on 20 October 1989.

Then again, petitioner BPI did not hear from the BIR until 11 September 1997, when its counsel received a letter, dated 13 August 1997,
signed by then BIR Commissioner Liwayway Vinzons-Chato, denying its "request for reconsideration," and addressing the points raised
by petitioner BPI in its protest letter, dated 16 November 1989, thus
In reply, please be informed that after a thorough and careful study of the facts of the case as well as the law and jurisprudence pertinent
thereto, this Office finds the above argument to be legally untenable. It is admitted that while industry practice or market convention has
the force of law between the members of a particular industry, it is not binding with the BIR since it is not a party thereto. The same
should, therefore, not be allowed to prejudice the Bureau of its lawful task of collecting revenues necessary to defray the expenses of the
government. (Art. 11 in relation to Art. 1306 of the New Civil Code.)
Moreover, let it be stated that even before the amendment of Sec. 222 (now Sec. 173) of the Tax Code, as amended, the same was already
interpreted to hold that the other party who is not exempt from the payment of documentary stamp tax liable from the tax. This
interpretation was further strengthened by the following BIR Rulings which in substance state:
1. BIR Unnumbered Ruling dated May 30, 1977
"x x x Documentary stamp taxes are payable by either person, signing, issuing, accepting, or transferring the instrument, document or
paper. It is now settled that where one party to the instrument is exempt from said taxes, the other party who is not exempt should be
liable."
2. BIR Ruling No. 144-84 dated September 3, 1984
"x x x Thus, where one party to the contract is exempt from said tax, the other party, who is not exempt, shall be liable therefore.
Accordingly, since A.J.L. Construction Corporation, the other party to the contract and the one assuming the payment of the expenses
incidental to the registration in the vendees name of the property sold, is not exempt from said tax, then it is the one liable therefore,
pursuant to Sec. 245 (now Sec. 196), in relation to Sec. 222 (now Sec. 173), both of the Tax Code of 1977, as amended."
Premised on all the foregoing considerations, your request for reconsideration is hereby DENIED. 8
Upon receipt of the above-cited letter from the BIR, petitioner BPI proceeded to file a Petition for Review with the CTA on 10 October
1997;9 to which respondent BIR Commissioner, represented by the Office of the Solicitor General, filed an Answer on 08 December
1997.10
Petitioner BPI raised in its Petition for Review before the CTA, in addition to the arguments presented in its protest letter, dated 16
November 1989, the defense of prescription of the right of respondent BIR Commissioner to enforce collection of the assessed amount. It
alleged that respondent BIR Commissioner only had three years to collect on Assessment No. FAS-5-85-89-002054, but she waited for
seven years and nine months to deny the protest. In her Answer and subsequent Memorandum, respondent BIR Commissioner merely
reiterated her position, as stated in her letter to petitioner BPI, dated 13 August 1997, which denied the latters protest; and remained
silent as to the expiration of the prescriptive period for collection of the assessed deficiency DST.
After due trial, the CTA rendered a Decision on 02 February 1999, in which it identified two primary issues in the controversy between
petitioner BPI and respondent BIR Commissioner: (1) whether or not the right of respondent BIR Commissioner to collect from
petitioner BPI the alleged deficiency DST for taxable year 1985 had prescribed; and (2) whether or not the sales of US$1,000,000.00 on
06 June 1985 and 14 June 1985 by petitioner BPI to the Central Bank were subject to DST.
The CTA answered the first issue in the negative and held that the statute of limitations for respondent BIR Commissioner to collect on
the Assessment had not yet prescribed. In resolving the issue of prescription, the CTA reasoned that
In the case of Commissioner of Internal Revenue vs. Wyeth Suaco Laboratories, Inc., G.R. No. 76281, September 30, 1991, 202
SCRA 125, the Supreme Court laid to rest the first issue. It categorically ruled that a "protest" is to be treated as request for
reinvestigation or reconsideration and a mere request for reexamination or reinvestigation tolls the prescriptive period of the
Commissioner to collect on an assessment. . .
Tax II Set 4 * Assessment Cases*Page 35 of 65
...
In the case at bar, there being no dispute that petitioner filed its protest on the subject assessment on November 17, 1989, there can be no
conclusion other than that said protest stopped the running of the prescriptive period of the Commissioner to collect.
Section 320 (now 223) of the Tax Code, clearly states that a request for reinvestigation which is granted by the Commissioner, shall
suspend the prescriptive period to collect. The underscored portion above does not mean that the Commissioner will cancel the subject
assessment but should be construed as when the same was entertainedby the Commissioner by not issuing any warrant of distraint or levy
on the properties of the taxpayer or any action prejudicial to the latter unless and until the request for reinvestigation is finally given due
course. Taking into consideration this provision of law and the aforementioned ruling of the Supreme Court in Wyeth Suaco which
specifically and categorically states that a protest could be considered as a request for reinvestigation, We rule that prescription has not
set in against the government.11
The CTA had likewise resolved the second issue in the negative. Referring to its own decision in an earlier case,Consolidated Bank &
Trust Co. v. The Commissioner of Internal Revenue,12 the CTA reached the conclusion that the sales of foreign currency by petitioner BPI
to the Central Bank in taxable year 1985 were not subject to DST
From the abovementioned decision of this Court, it can be gleaned that the Central Bank, during the period June 11, 1984 to March 9,
1987 enjoyed tax exemption privilege, including the payment of documentary stamp tax (DST) pursuant to Resolution No. 35-85 dated
May 3, 1985 of the Fiscal Incentive Review Board. As such, the Central Bank, as buyer of the foreign currency, is exempt from paying
the documentary stamp tax for the period above-mentioned. This Court further expounded that said tax exemption of the Central Bank
was modified beginning January 1, 1986 when Presidential Decree (P.D.) 1994 took effect. Under this decree, the liability for DST on
sales of foreign currency to the Central Bank is shifted to the seller.
Applying the above decision to the case at bar, petitioner cannot be held liable for DST on its 1985 sales of foreign currencies to the
Central Bank, as the latter who is the purchaser of the subject currencies is the one liable thereof. However, since the Central Bank is
exempt from all taxes during 1985 by virtue of Resolution No. 35-85 of the Fiscal Incentive Review Board dated March 3, 1985, neither
the petitioner nor the Central Bank is liable for the payment of the documentary stamp tax for the formers 1985 sales of foreign
currencies to the latter. This aforecited case of Consolidated Bank vs. Commissioner of Internal Revenue was affirmed by the Court of
Appeals in its decision dated March 31, 1995, CA-GR Sp. No. 35930. Said decision was in turn affirmed by the Supreme Court in its
resolution denying the petition filed by Consolidated Bank dated November 20, 1995 with the Supreme Court under Entry of Judgment
dated March 1, 1996.13
In sum, the CTA decided that the statute of limitations for respondent BIR Commissioner to collect on Assessment No. FAS-5-85-89-
002054 had not yet prescribed; nonetheless, it still ordered the cancellation of the said Assessment because the sales of foreign currency
by petitioner BPI to the Central Bank in taxable year 1985 were tax-exempt.
Herein respondent BIR Commissioner appealed the Decision of the CTA to the Court of Appeals. In its Decision dated 11 August
1999,14 the Court of Appeals sustained the finding of the CTA on the first issue, that the running of the prescriptive period for collection
on Assessment No. FAS-5-85-89-002054 was suspended when herein petitioner BPI filed a protest on 17 November 1989 and, therefore,
the prescriptive period for collection on the Assessment had not yet lapsed. In the same Decision, however, the Court of Appeals reversed
the CTA on the second issue and basically adopted the position of the respondent BIR Commissioner that the sales of foreign currency by
petitioner BPI to the Central Bank in taxable year 1985 were subject to DST. The Court of Appeals, thus, ordered the reinstatement of
Assessment No. FAS-5-85-89-002054 which required petitioner BPI to pay the amount of P28,020.00 as deficiency DST for taxable year
1985, inclusive of the compromise penalty.
Comes now petitioner BPI before this Court in this Petition for Review on Certiorari, seeking resolution of the same two legal issues
raised and discussed in the courts below, to reiterate: (1) whether or not the right of respondent BIR Commissioner to collect from
petitioner BPI the alleged deficiency DST for taxable year 1985 had prescribed; and (2) whether or not the sales of US$1,000,000.00 on
06 June 1985 and 14 June 1985 by petitioner BPI to the Central Bank were subject to DST.
I

The efforts of respondent Commissioner to collect on Assessment No. FAS-5-85-89-002054 were already barred by prescription.
Anent the question of prescription, this Court disagrees in the Decisions of the CTA and the Court of Appeals, and herein determines the
statute of limitations on collection of the deficiency DST in Assessment No. FAS-5-85-89-002054 had already prescribed.
The period for the BIR to assess and collect an internal revenue tax is limited to three years by Section 203 of the Tax Code of 1977, as
amended,15 which provides that
SEC. 203. Period of limitation upon assessment and collection. Except as provided in the succeeding section, internal revenue taxes
shall be assessed within three 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-year period shall be counted from the day the return was filed. For the 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. 16
The three-year period of limitations on the assessment and collection of national internal revenue taxes set by Section 203 of the Tax
Code of 1977, as amended, can be affected, adjusted, or suspended, in accordance with the following provisions of the same Code
SEC. 223. 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 begun without assessment, at any time within ten 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 the preceding section 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 above-prescribed may be collected by distraint or
levy or by a proceeding in court within three 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 three-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 returns filed in accordance with the provisions of any tax amnesty law or decree. 17
SEC. 224. Suspension of running of statute. The running of the statute of limitation provided in Section[s] 203 and 223 on the making
of assessment and the beginning of distraint or levy or a proceeding in court for collection, in respect of any deficiency, shall be
suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a
proceeding in court and for sixty days thereafter; when the taxpayer requests for a reinvestigation which is granted by the Commissioner;
when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or
collected: Provided,That, if the taxpayer informs the Commissioner of any change in address, the running of the statute of limitations will
not be suspended; when the warrant of distraint and levy is duly served upon the taxpayer, his authorized representative, or a member of
his household with sufficient discretion, and no property could be located; and when the taxpayer is out of the Philippines. 18
As enunciated in these statutory provisions, the BIR has three years, counted from the date of actual filing of the return or from the last
date prescribed by law for the filing of such return, whichever comes later, to assess a national internal revenue tax or to begin a court
proceeding for the collection thereof without an assessment. In case of a false or fraudulent return with intent to evade tax or the failure to
file any return at all, the prescriptive period for assessment of the tax due shall be 10 years from discovery by the BIR of the falsity,
fraud, or omission. When the BIR validly issues an assessment, within either the three-year or ten-year period, whichever is appropriate,
Tax II Set 4 * Assessment Cases*Page 36 of 65
then the BIR has another three years19 after the assessment within which to collect the national internal revenue tax due thereon by
distraint, levy, and/or court proceeding. The assessment of the tax is deemed made and the three-year period for collection of the assessed
tax begins to run on the date the assessment notice had been released, mailed or sent by the BIR to the taxpayer. 20
In the present Petition, there is no controversy on the timeliness of the issuance of the Assessment, only on the prescription of the period
to collect the deficiency DST following its Assessment. While Assessment No. FAS-5-85-89-002054 and its corresponding Assessment
Notice were both dated 10 October 1989 and were received by petitioner BPI on 20 October 1989, there was no showing as to when the
said Assessment and Assessment Notice were released, mailed or sent by the BIR. Still, it can be granted that the latest date the BIR
could have released, mailed or sent the Assessment and Assessment Notice to petitioner BPI was on the same date they were received by
the latter, on 20 October 1989. Counting the three-year prescriptive period, for a total of 1,095 days, 21 from 20 October 1989, then the
BIR only had until 19 October 1992 within which to collect the assessed deficiency DST.
The earliest attempt of the BIR to collect on Assessment No. FAS-5-85-89-002054 was its issuance and service of a Warrant of Distraint
and/or Levy on petitioner BPI. Although the Warrant was issued on 15 October 1992, previous to the expiration of the period for
collection on 19 October 1992, the same was served on petitioner BPI only on 23 October 1992.
Under Section 223(c) of the Tax Code of 1977, as amended, it is not essential that the Warrant of Distraint and/or Levy be fully executed
so that it can suspend the running of the statute of limitations on the collection of the tax. It is enough that the proceedings have validly
began or commenced and that their execution has not been suspended by reason of the voluntary desistance of the respondent BIR
Commissioner. Existing jurisprudence establishes that distraint and levy proceedings are validly begun or commenced by the issuance of
the Warrantand service thereof on the taxpayer.22 It is only logical to require that the Warrant of Distraint and/or Levy be, at the very
least, served upon the taxpayer in order to suspend the running of the prescriptive period for collection of an assessed tax, because it may
only be upon the service of the Warrant that the taxpayer is informed of the denial by the BIR of any pending protest of the said taxpayer,
and the resolute intention of the BIR to collect the tax assessed.
If the service of the Warrant of Distraint and/or Levy on petitioner BPI on 23 October 1992 was already beyond the prescriptive period
for collection of the deficiency DST, which had expired on 19 October 1992, then what more the letter of respondent BIR Commissioner,
dated 13 August 1997 and received by the counsel of the petitioner BPI only on 11 September 1997, denying the protest of petitioner BPI
and requesting payment of the deficiency DST? Even later and more unequivocally barred by prescription on collection was the demand
made by respondent BIR Commissioner for payment of the deficiency DST in her Answer to the Petition for Review of petitioner BPI
before the CTA, filed on 08 December 1997.23
II
There is no valid ground for the suspension of the running of the prescriptive period for collection of the assessed DST under the Tax
Code of 1977, as amended.
In their Decisions, both the CTA and the Court of Appeals found that the filing by petitioner BPI of a protest letter suspended the running
of the prescriptive period for collecting the assessed DST. This Court, however, takes the opposing view, and, based on the succeeding
discussion, concludes that there is no valid ground for suspending the running of the prescriptive period for collection of the deficiency
DST assessed against petitioner BPI.
A. The statute of limitations on assessment and collection of taxes is for the protection of the taxpayer and, thus, shall be construed
liberally in his favor.
Though the statute of limitations on assessment and collection of national internal revenue taxes benefits both the Government and the
taxpayer, it principally intends to afford protection to the taxpayer against unreasonable investigation. The indefinite extension of the
period for assessment is unreasonable because it deprives the said taxpayer of the assurance that he will no longer be subjected to further
investigation for taxes after the expiration of a reasonable period of time. 24 As aptly explained in Republic of the Philippines v. Ablaza25
The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and to its citizens; to
the Government because tax officers would be obliged to act promptly in the making of assessment, and to citizens because after the
lapse of the period of prescription citizens would have a feeling of security against unscrupulous tax agents who will always find an

excuse to inspect the books of taxpayers, not to determine the latters real liability, but to take advantage of every opportunity to molest
peaceful, law-abiding citizens. Without such a legal defense taxpayers would furthermore be under obligation to always keep their books
and keep them open for inspection subject to harassment by unscrupulous tax agents. The law on prescription being a remedial measure
should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the
contemplation of the Commission which recommend the approval of the law.
In order to provide even better protection to the taxpayer against unreasonable investigation, the Tax Code of 1977, as amended,
identifies specifically in Sections 223 and 22426 thereof the circumstances when the prescriptive periods for assessing and collecting taxes
could be suspended or interrupted.
To give effect to the legislative intent, these provisions on the statute of limitations on assessment and collection of taxes shall be
construed and applied liberally in favor of the taxpayer and strictly against the Government.
B. The statute of limitations on assessment and collection of national internal revenue taxes may be waived, subject to certain conditions,
under paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended, respectively. Petitioner BPI, however, did not execute
any such waiver in the case at bar.
According to paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended, the prescriptive periods for assessment and
collection of national internal revenue taxes, respectively, could be waived by agreement, to wit
SEC. 223. Exceptions as to period of limitation of assessment and collection of taxes.
...
(b) If before the expiration of the time prescribed in the preceding section 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.
...
(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 three-year
period. The period so agreed upon may be extended by subsequent written agreements made before the expiration of the period
previously agreed upon.27
The agreements so described in the afore-quoted provisions are often referred to as waivers of the statute of limitations. The waiver of the
statute of limitations, whether on assessment or collection, should not be construed as a waiver of the right to invoke the defense of
prescription but, rather, an agreement between the taxpayer and the BIR to extend the period to a date certain, within which the latter
could still assess or collect taxes due. The waiver does not mean that the taxpayer relinquishes the right to invoke prescription
unequivocally.28
A valid waiver of the statute of limitations under paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended, must be: (1)
in writing; (2) agreed to by both the Commissioner and the taxpayer; (3) before the expiration of the ordinary prescriptive periods for
assessment and collection; and (4) for a definite period beyond the ordinary prescriptive periods for assessment and collection. The
period agreed upon can still be extended by subsequent written agreement, provided that it is executed prior to the expiration of the first
period agreed upon. The BIR had issued Revenue Memorandum Order (RMO) No. 20-90 on 04 April 1990 to lay down an even more
detailed procedure for the proper execution of such a waiver. RMO No. 20-90 mandates that the procedure for execution of the waiver
shall be strictly followed, and any revenue official who fails to comply therewith resulting in the prescription of the right to assess and
collect shall be administratively dealt with.
Tax II Set 4 * Assessment Cases*Page 37 of 65
This Court had consistently ruled in a number of cases that a request for reconsideration or reinvestigation by the taxpayer, without a
valid waiver of the prescriptive periods for the assessment and collection of tax, as required by the Tax Code and implementing rules, will
not suspend the running thereof. 29
In the Petition at bar, petitioner BPI executed no such waiver of the statute of limitations on the collection of the deficiency DST per
Assessment No. FAS-5-85-89-002054. In fact, an internal memorandum of the Chief of the Legislative, Ruling & Research Division of
the BIR to her counterpart in the Collection Enforcement Division, dated 15 October 1992, expressly noted that, "The taxpayer fails to
execute a Waiver of the Statute of Limitations extending the period of collection of the said tax up to December 31, 1993 pending
reconsideration of its protest. . ."30 Without a valid waiver, the statute of limitations on collection by the BIR of the deficiency DST could
not have been suspended under paragraph (d) of Section 223 of the Tax Code of 1977, as amended.
C. The protest filed by petitioner BPI did not constitute a request for reinvestigation, granted by the respondent BIR Commissioner, which
could have suspended the running of the statute of limitations on collection of the assessed deficiency DST under Section 224 of the Tax
Code of 1977, as amended.
The Tax Code of 1977, as amended, also recognizes instances when the running of the statute of limitations on the assessment and
collection of national internal revenue taxes could be suspended, even in the absence of a waiver, under Section 224 thereof, which reads
SEC. 224. Suspension of running of statute. The running of the statute of limitation provided in Section[s] 203 and 223 on the making
of assessment and the beginning of distraint or levy or a proceeding in court for collection, in respect of any deficiency, shall be
suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a
proceeding in court and for sixty days thereafter; when the taxpayer requests for a reinvestigation which is granted by the Commissioner;
when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or
collected: Provided,That, if the taxpayer informs the Commissioner of any change in address, the running of the statute of limitations will
not be suspended; when the warrant of distraint and levy is duly served upon the taxpayer, his authorized representative, or a member of
his household with sufficient discretion, and no property could be located; and when the taxpayer is out of the Philippines. 31
Of particular importance to the present case is one of the circumstances enumerated in Section 224 of the Tax Code of 1977, as amended,
wherein the running of the statute of limitations on assessment and collection of taxes is considered suspended "when the taxpayer
requests for a reinvestigation which is granted by the Commissioner."
This Court gives credence to the argument of petitioner BPI that there is a distinction between a request for reconsideration and a request
for reinvestigation. Revenue Regulations (RR) No. 12-85, issued on 27 November 1985 by the Secretary of Finance, upon the
recommendation of the BIR Commissioner, governs the procedure for protesting an assessment and distinguishes between the two types
of protest, as follows
PROTEST TO ASSESSMENT
SEC. 6. Protest. The taxpayer may protest administratively an assessment by filing a written request for reconsideration or
reinvestigation. . .
...
For the purpose of the protest herein
(a) Request for reconsideration. refers to a plea for a re-evaluation of an assessment on the basis of existing records without need of
additional evidence. It may involve both a question of fact or of law or both.
(b) Request for reinvestigation. refers to a plea for re-evaluation of an assessment on the basis of newly-discovered or additional
evidence that a taxpayer intends to present in the reinvestigation. It may also involve a question of fact or law or both.

With the issuance of RR No. 12-85 on 27 November 1985 providing the above-quoted distinctions between a request for reconsideration
and a request for reinvestigation, the two types of protest can no longer be used interchangeably and their differences so lightly brushed
aside. It bears to emphasize that under Section 224 of the Tax Code of 1977, as amended, the running of the prescriptive period for
collection of taxes can only be suspended by a request for reinvestigation, not a request for reconsideration. Undoubtedly, a
reinvestigation, which entails the reception and evaluation of additional evidence, will take more time than a reconsideration of a tax
assessment, which will be limited to the evidence already at hand; this justifies why the former can suspend the running of the statute of
limitations on collection of the assessed tax, while the latter can not.
The protest letter of petitioner BPI, dated 16 November 1989 and filed with the BIR the next day, on 17 November 1989, did not
specifically request for either a reconsideration or reinvestigation. A close review of the contents thereof would reveal, however, that it
protested Assessment No. FAS-5-85-89-002054 based on a question of law, in particular, whether or not petitioner BPI was liable for
DST on its sales of foreign currency to the Central Bank in taxable year 1985. The same protest letter did not raise any question of fact;
neither did it offer to present any new evidence. In its own letter to petitioner BPI, dated 10 September 1992, the BIR itself referred to the
protest of petitioner BPI as a request for reconsideration.32 These considerations would lead this Court to deduce that the protest letter of
petitioner BPI was in the nature of a request for reconsideration, rather than a request for reinvestigation and, consequently, Section 224
of the Tax Code of 1977, as amended, on the suspension of the running of the statute of limitations should not apply.
Even if, for the sake of argument, this Court glosses over the distinction between a request for reconsideration and a request for
reinvestigation, and considers the protest of petitioner BPI as a request for reinvestigation, the filing thereof could not have suspended at
once the running of the statute of limitations. Article 224 of the Tax Code of 1977, as amended, very plainly requires that the request for
reinvestigation had been granted by the BIR Commissioner to suspend the running of the prescriptive periods for assessment and
collection.
That the BIR Commissioner must first grant the request for reinvestigation as a requirement for suspension of the statute of limitations is
even supported by existing jurisprudence.
In the case of Republic of the Philippines v. Gancayco,33 taxpayer Gancayco requested for a thorough reinvestigation of the assessment
against him and placed at the disposal of the Collector of Internal Revenue all the evidences he had for such purpose; yet, the Collector
ignored the request, and the records and documents were not at all examined. Considering the given facts, this Court pronounced that
. . .The act of requesting a reinvestigation alone does not suspend the period. The request should first be granted, in order to effect
suspension. (Collector vs. Suyoc Consolidated, supra; also Republic vs. Ablaza, supra). Moreover, the Collector gave appellee until April
1, 1949, within which to submit his evidence, which the latter did one day before. There were no impediments on the part of the Collector
to file the collection case from April 1, 1949. . . . 34
In Republic of the Philippines v. Acebedo,35 this Court similarly found that
. . . [T]he defendant, after receiving the assessment notice of September 24, 1949, asked for a reinvestigation thereof on October 11, 1949
(Exh. A). There is no evidence that this request was considered or acted upon.In fact, on October 23, 1950 the then Collector of Internal
Revenue issued a warrant of distraint and levy for the full amount of the assessment (Exh. D), but there was no follow-up of this warrant.
Consequently, the request for reinvestigation did not suspend the running of the period for filing an action for collection.
The burden of proof that the taxpayers request for reinvestigation had been actually granted shall be on respondent BIR Commissioner.
The grant may be expressed in communications with the taxpayer or implied from the actions of the respondent BIR Commissioner or his
authorized BIR representatives in response to the request for reinvestigation.
In Querol v. Collector of Internal Revenue,36 the BIR, after receiving the protest letters of taxpayer Querol, sent a tax examiner to San
Fernando, Pampanga, to conduct the reinvestigation; as a result of which, the original assessment against taxpayer Querol was revised by
permitting him to deduct reasonable depreciation. In another case, Republic of the Philippines v. Lopez,37 taxpayer Lopez filed a total of
four petitions for reconsideration and reinvestigation. The first petition was denied by the BIR. The second and third petitions were
granted by the BIR and after each reinvestigation, the assessed amount was reduced. The fourth petition was again denied and, thereafter,
the BIR filed a collection suit against taxpayer Lopez. When the taxpayers spouses Sison, inCommissioner of Internal Revenue v.
Sison,38 contested the assessment against them and asked for a reinvestigation, the BIR ordered the reinvestigation resulting in the
issuance of an amended assessment. Lastly, inRepublic of the Philippines v. Oquias,39 the BIR granted taxpayer Oquiass request for
Tax II Set 4 * Assessment Cases*Page 38 of 65
reinvestigation and duly notified him of the date when such reinvestigation would be held; only, neither taxpayer Oquias nor his counsel
appeared on the given date.
In all these cases, the request for reinvestigation of the assessment filed by the taxpayer was evidently granted and actual reinvestigation
was conducted by the BIR, which eventually resulted in the issuance of an amended assessment. On the basis of these facts, this Court
ruled in the same cases that the period between the request for reinvestigation and the revised assessment should be subtracted from the
total prescriptive period for the assessment of the tax; and, once the assessment had been reconsidered at the taxpayers instance, the
period for collection should begin to run from the date of the reconsidered or modified assessment. 40
The rulings of the foregoing cases do not apply to the present Petition because: (1) the protest filed by petitioner BPI was a request for
reconsideration, not a reinvestigation, of the assessment against it; and (2) even granting that the protest of petitioner BPI was a request
for reinvestigation, there was no showing that it was granted by respondent BIR Commissioner and that actual reinvestigation had been
conducted.
Going back to the administrative records of the present case, it would seem that the BIR, after receiving a copy of the protest letter of
petitioner BPI on 17 November 1989, did not attempt to communicate at all with the latter until 10 September 1992, less than a month
before the prescriptive period for collection on Assessment No. FAS-5-85-89-002054 was due to expire. There were internal
communications, mostly indorsements of the docket of the case from one BIR division to another; but these hardly fall within the same
sort of acts in the previously discussed cases that satisfactorily demonstrated the grant of the taxpayers request for reinvestigation.
Petitioner BPI, in the meantime, was left in the dark as to the status of its protest in the absence of any word from the BIR. Besides, in its
letter to petitioner BPI, dated 10 September 1992, the BIR unwittingly admitted that it had not yet acted on the protest of the former
This refers to your protest against and/or request for reconsideration of the assessment/s of this Office against you involving the amount
of P28,020.00 under FAS-5-85-89-002054 dated October 23, 1989 as deficiency documentary stamp tax inclusive of compromise penalty
for the year 1985.
In this connection, it is requested that the enclosed waiver of the statute of limitations extending the period of collection of the said tax/es
to December 31, 1993 be executed by you as a condition precedent of our giving due course to your protest41
When the BIR stated in its letter, dated 10 September 1992, that the waiver of the statute of limitations on collection was a condition
precedent to its giving due course to the request for reconsideration of petitioner BPI, then it was understood that the grant of such
request for reconsideration was being held off until compliance with the given condition. When petitioner BPI failed to comply with the
condition precedent, which was the execution of the waiver, the logical inference would be that the request was not granted and was not
given due course at all.
III
The suspension of the statute of limitations on collection of the assessed deficiency DST from petitioner BPI does not find support in
jurisprudence.
It is the position of respondent BIR Commissioner, affirmed by the CTA and the Court of Appeals, that the three-year prescriptive period
for collecting on Assessment No. FAS-5-85-89-002054 had not yet prescribed, because the said prescriptive period was suspended,
invoking the case of Commissioner of Internal Revenue v. Wyeth Suaco Laboratories, Inc. 42 It was in this case in which this Court ruled
that the prescriptive period provided by law to make a collection is interrupted once a taxpayer requests for reinvestigation or
reconsideration of the assessment.
Petitioner BPI, on the other hand, is requesting this Court to revisit the Wyeth Suaco case contending that it had unjustifiably expanded
the grounds for suspending the prescriptive period for collection of national internal revenue taxes.
This Court finds that although there is no compelling reason to abandon its decision in the Wyeth Suaco case, the said case cannot be
applied to the particular facts of the Petition at bar.

A. The only exception to the statute of limitations on collection of taxes, other than those already provided in the Tax Code, was
recognized in the Suyoc case.
As had been previously discussed herein, the statute of limitations on assessment and collection of national internal revenue taxes may be
suspended if the taxpayer executes a valid waiver thereof, as provided in paragraphs (b) and (d) of Section 223 of the Tax Code of 1977,
as amended; and in specific instances enumerated in Section 224 of the same Code, which include a request for reinvestigation granted by
the BIR Commissioner. Outside of these statutory provisions, however, this Court also recognized one other exception to the statute of
limitations on collection of taxes in the case of Collector of Internal Revenue v. Suyoc Consolidated Mining Co. 43
In the said case, the Collector of Internal Revenue issued an assessment against taxpayer Suyoc Consolidated Mining Co. on 11 February
1947 for deficiency income tax for the taxable year 1941. Taxpayer Suyoc requested for at least a year within which to pay the amount
assessed, but at the same time, reserving its right to question the correctness of the assessment before actual payment. The Collector
granted taxpayer Suyoc an extension of only three months to pay the assessed tax. When taxpayer Suyoc failed to pay the assessed tax
within the extended period, the Collector sent it a demand letter, dated 28 November 1950. Upon receipt of the demand letter, taxpayer
Suyoc asked for a reinvestigation and reconsideration of the assessment, but the Collector denied the request. Taxpayer Suyoc reiterated
its request for reconsideration on 25 April 1952, which was denied again by the Collector on 06 May 1953. Taxpayer Suyoc then
appealed the denial to the Conference Staff. The Conference Staff heard the appeal from 02 September 1952 to 16 July 1955, and the
negotiations resulted in the reduction of the assessment on 26 July 1955. It was the collection of the reduced assessment that was
questioned before this Court for being enforced beyond the prescriptive period. 44
In resolving the issue on prescription, this Court ratiocinated thus
It is obvious from the foregoing that petitioner refrained from collecting the tax by distraint or levy or by proceeding in court within the
5-year period from the filing of the second amended final return due to the several requests of respondent for extension to which
petitioner yielded to give it every opportunity to prove its claim regarding the correctness of the assessment. Because of such requests,
several reinvestigations were made and a hearing was even held by the Conference Staff organized in the collection office to consider
claims of such nature which, as the record shows, lasted for several months. After inducing petitioner to delay collection as he in fact did,
it is most unfair for respondent to now take advantage of such desistance to elude his deficiency income tax liability to the prejudice of
the Government invoking the technical ground of prescription.
While we may agree with the Court of Tax Appeals that a mere request for reexamination or reinvestigation may not have the effect of
suspending the running of the period of limitation for in such case there is need of a written agreement to extend the period between the
Collector and the taxpayer, there are cases however where a taxpayer may be prevented from setting up the defense of prescription even
if he has not previously waived it in writing as when by his repeated requests or positive acts the Government has been, for good
reasons, persuaded to postpone collection to make him feel that the demand was not unreasonable or that no harassment or injustice
is meant by the Government. And when such situation comes to pass there are authorities that hold, based on weighty reasons, that such
an attitude or behavior should not be countenanced if only to protect the interest of the Government. 45
By the principle of estoppel, taxpayer Suyoc was not allowed to raise the defense of prescription against the efforts of the Government to
collect the tax assessed against it. This Court adopted the following principle from American jurisprudence: "He who prevents a thing
from being done may not avail himself of the nonperformance which he has himself occasioned, for the law says to him in effect this is
your own act, and therefore you are not damnified."46
In the Suyoc case, this Court expressly conceded that a mere request for reconsideration or reinvestigation of an assessment may not
suspend the running of the statute of limitations. It affirmed the need for a waiver of the prescriptive period in order to effect suspension
thereof. However, even without such waiver, the taxpayer may be estopped from raising the defense of prescription because by his
repeated requests or positive acts, he had induced Government authorities to delay collection of the assessed tax.
Based on the foregoing, petitioner BPI contends that the declaration made in the later case of Wyeth Suaco, that the statute of limitations
on collection is suspended once the taxpayer files a request for reconsideration or reinvestigation, runs counter to the ruling made by this
Court in the Suyoc case.
B. Although this Court is not compelled to abandon its decision in the Wyeth Suaco case, it finds that Wyeth Suaco is not applicable to the
Petition at bar because of the distinct facts involved herein.
Tax II Set 4 * Assessment Cases*Page 39 of 65
In the case of Wyeth Suaco, taxpayer Wyeth Suaco was assessed for failing to remit withholding taxes on royalties and dividend
declarations, as well as, for deficiency sales tax. The BIR issued two assessments, dated 16 December 1974 and 17 December 1974, both
received by taxpayer Wyeth Suaco on 19 December 1974. Taxpayer Wyeth Suaco, through its tax consultant, SGV & Co., sent to the BIR
two letters, dated 17 January 1975 and 08 February 1975, protesting the assessments and requesting their cancellation or withdrawal on
the ground that said assessments lacked factual or legal basis. On 12 September 1975, the BIR Commissioner advised taxpayer Wyeth
Suaco to avail itself of the compromise settlement being offered under Letter of Instruction No. 308. Taxpayer Wyeth Suaco manifested
its conformity to paying a compromise amount, but subject to certain conditions; though, apparently, the said compromise amount was
never paid. On 10 December 1979, the BIR Commissioner rendered a decision reducing the assessment for deficiency withholding tax
against taxpayer Wyeth Suaco, but maintaining the assessment for deficiency sales tax. It was at this point when taxpayer Wyeth Suaco
brought its case before the CTA to enjoin the BIR from enforcing the assessments by reason of prescription. Although the CTA decided in
favor of taxpayer Wyeth Suaco, it was reversed by this Court when the case was brought before it on appeal. According to the decision of
this Court
Settled is the rule that the prescriptive period provided by law to make a collection by distraint or levy or by a proceeding in court is
interrupted once a taxpayer requests for reinvestigation or reconsideration of the assessment. . .
...
Although the protest letters prepared by SGV & Co. in behalf of private respondent did not categorically state or use the words
"reinvestigation" and "reconsideration," the same are to be treated as letters of reinvestigation and reconsideration
These letters of Wyeth Suaco interrupted the running of the five-year prescriptive period to collect the deficiency taxes. The Bureau of
Internal Revenue, after having reviewed the records of Wyeth Suaco, in accordance with its request for reinvestigation, rendered a
final assessment It was only upon receipt by Wyeth Suaco of this final assessment that the five-year prescriptive period started to run
again.47
The foremost criticism of petitioner BPI of the Wyeth Suaco decision is directed at the statement made therein that, "settled is the rule that
the prescriptive period provided by law to make a collection by distraint or levy or by a proceeding in court is interrupted once a taxpayer
requests for reinvestigation or reconsideration of the assessment."48 It would seem that both petitioner BPI and respondent BIR
Commissioner, as well as, the CTA and Court of Appeals, take the statement to mean that the filing alone of the request for
reconsideration or reinvestigation can already interrupt or suspend the running of the prescriptive period on collection. This Court
therefore takes this opportunity to clarify and qualify this statement made in the Wyeth Suaco case. While it is true that, by itself, such
statement would appear to be a generalization of the exceptions to the statute of limitations on collection, it is best interpreted in
consideration of the particular facts of the Wyeth Suaco case and previous jurisprudence.
The Wyeth Suaco case cannot be in conflict with the Suyoc case because there are substantial differences in the factual backgrounds of the
two cases. The Suyoc case refers to a situation where there were repeated requests or positive acts performed by the taxpayer that
convinced the BIR to delay collection of the assessed tax. This Court pronounced therein that the repeated requests or positive acts of the
taxpayer prevented or estopped it from setting up the defense of prescription against the Government when the latter attempted to collect
the assessed tax. In the Wyeth Suaco case, taxpayer Wyeth Suaco filed a request for reinvestigation, which was apparently granted by the
BIR and, consequently, the prescriptive period was indeed suspended as provided under Section 224 of the Tax Code of 1977, as
amended.49
To reiterate, Section 224 of the Tax Code of 1977, as amended, identifies specific circumstances when the statute of limitations on
assessment and collection may be interrupted or suspended, among which is a request for reinvestigation that is granted by the BIR
Commissioner. The act of filing a request for reinvestigation alone does not suspend the period; such request must be granted. 50 The grant
need not be express, but may be implied from the acts of the BIR Commissioner or authorized BIR officials in response to the request for
reinvestigation.51

This Court found in the Wyeth Suaco case that the BIR actually conducted a reinvestigation, in accordance with the request of the
taxpayer Wyeth Suaco, which resulted in the reduction of the assessment originally issued against it. Taxpayer Wyeth Suaco was also
aware that its request for reinvestigation was granted, as written by its Finance Manager in a letter dated 01 July 1975, addressed to the
Chief of the Tax Accounts Division, wherein he admitted that, "[a]s we understand, the matter is now undergoing review and
consideration by your Manufacturing Audit Division" The statute of limitations on collection, then, started to run only upon the
issuance and release of the reduced assessment.
The Wyeth Suaco case, therefore, is correct in declaring that the prescriptive period for collection is interrupted or suspended when the
taxpayer files a request for reinvestigation, provided that, as clarified and qualified herein, such request is granted by the BIR
Commissioner.
Thus, this Court finds no compelling reason to abandon its decision in the Wyeth Suaco case. It also now rules that the said case is not
applicable to the Petition at bar because of the distinct facts involved herein. As already heretofore determined by this Court, the protest
filed by petitioner BPI was a request for reconsideration, which merely required a review of existing evidence and the legal basis for the
assessment. Respondent BIR Commissioner did not require, neither did petitioner BPI offer, additional evidence on the matter. After
petitioner BPI filed its request for reconsideration, there was no other communication between it and respondent BIR Commissioner or
any of the authorized representatives of the latter. There was no showing that petitioner BPI was informed or aware that its request for
reconsideration was granted or acted upon by the BIR.
IV
Conclusion
To summarize all the foregoing discussion, this Court lays down the following rules on the exceptions to the statute of limitations on
collection.
The statute of limitations on collection may only be interrupted or suspended by a valid waiver executed in accordance with paragraph
(d) of Section 223 of the Tax Code of 1977, as amended, and the existence of the circumstances enumerated in Section 224 of the same
Code, which include a request for reinvestigation granted by the BIR Commissioner.
Even when the request for reconsideration or reinvestigation is not accompanied by a valid waiver or there is no request for
reinvestigation that had been granted by the BIR Commissioner, the taxpayer may still be held in estoppel and be prevented from setting
up the defense of prescription of the statute of limitations on collection when, by his own repeated requests or positive acts, the
Government had been, for good reasons, persuaded to postpone collection to make the taxpayer feel that the demand is not unreasonable
or that no harassment or injustice is meant by the Government, as laid down by this Court in the Suyoc case.
Applying the given rules to the present Petition, this Court finds that
(a) The statute of limitations for collection of the deficiency DST in Assessment No. FAS-5-85-89-002054, issued against petitioner BPI,
had already expired; and
(b) None of the conditions and requirements for exception from the statute of limitations on collection exists herein: Petitioner BPI did
not execute any waiver of the prescriptive period on collection as mandated by paragraph (d) of Section 223 of the Tax Code of 1977, as
amended; the protest filed by petitioner BPI was a request for reconsideration, not a request for reinvestigation that was granted by
respondent BIR Commissioner which could have suspended the prescriptive period for collection under Section 224 of the Tax Code of
1977, as amended; and, petitioner BPI, other than filing a request for reconsideration of Assessment No. FAS-5-85-89-002054, did not
make repeated requests or performed positive acts that could have persuaded the respondent BIR Commissioner to delay collection, and
that would have prevented or estopped petitioner BPI from setting up the defense of prescription against collection of the tax assessed, as
required in the Suyoc case.
This is a simple case wherein respondent BIR Commissioner and other BIR officials failed to act promptly in resolving and denying the
request for reconsideration filed by petitioner BPI and in enforcing collection on the assessment. They presented no reason or explanation
Tax II Set 4 * Assessment Cases*Page 40 of 65
as to why it took them almost eight years to address the protest of petitioner BPI. The statute on limitations imposed by the Tax Code
precisely intends to protect the taxpayer from such prolonged and unreasonable assessment and investigation by the BIR.
Considering that the right of the respondent BIR Commissioner to collect from petitioner BPI the deficiency DST in Assessment No.
FAS-5-85-89-002054 had already prescribed, then, there is no more need for this Court to make a determination on the validity and
correctness of the said Assessment for the latter would only be unenforceable.
Wherefore, based on the foregoing, the instant Petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. SP No. 51271,
dated 11 August 1999, which reinstated Assessment No. FAS-5-85-89-002054 requiring petitioner BPI to pay the amount of P28,020.00
as deficiency documentary stamp tax for the taxable year 1985, inclusive of the compromise penalty, is REVERSED and SET ASIDE.
Assessment No. FAS-5-85-89-002054 is hereby ordered CANCELED.
SO ORDERED.
SECOND DIVISION
G.R. No. 174942 March 7, 2008
BANK OF THE PHILIPPINE ISLANDS (Formerly: Far East Bank and Trust Company), petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
TINGA, J.:
The Bank of the Philippine Islands (BPI) seeks a review of the Decision 1dated 15 August 2006 and the Resolution2dated 5 October 2006,
both of the Court of Tax Appeals (CTA or tax court), which ruled that BPI is liable for the deficiency documentary stamp tax (DST) on its
cabled instructions to its foreign correspondent bank and that prescription had not yet set in against the government.
The following undisputed facts are culled from the CTA decision:
Petitioner, the surviving bank after its merger with Far East Bank and Trust Company, is a corporation duly created and
existing under the laws of the Republic of the Philippines with principal office at Ayala Avenue corner Paseo de Roxas Ave.,
Makati City.
Respondent thru then Revenue Service Chief Cesar M. Valdez, issued to the petitioner a pre-assessment notice (PAN) dated
November 26, 1986.
Petitioner, in a letter dated November 29, 1986, requested for the details of the amounts alleged as 1982-1986 deficiency
taxes mentioned in the November 26, 1986 PAN.
On April 7, 1989, respondent issued to the petitioner, assessment/demand notices FAS-1-82 to 86/89-000 and FAS 5-82 to
86/89-000 for deficiency withholding tax at source (Swap Transactions) and DST involving the amounts of P190,752,860.82
and P24,587,174.63, respectively, for the years 1982 to 1986.
On April 20, 1989, petitioner filed a protest on the demand/assessment notices. On May 8, 1989, petitioner filed a
supplemental protest.

On March 12, 1993, petitioner requested for an opportunity to present or submit additional documentation on the Swap
Transactions with the then Central Bank (page 240, BIR Records). Attached to the letter dated June 17, 1994, in connection
with the reinvestigation of the abovementioned assessment, petitioner submitted to the BIR, Swap Contracts with the Central
Bank.
Petitioner executed several Waivers of the Statutes of Limitations, the last of which was effective until December 31, 1994.
On August 9, 2002, respondent issued a final decision on petitioners protest ordering the withdrawal and cancellation of the
deficiency withholding tax assessment in the amount of P190,752,860.82 and considered the same as closed and terminated.
On the other hand, the deficiency DST assessment in the amount ofP24,587,174.63 was reiterated and the petitioner was
ordered to pay the said amount within thirty (30) days from receipt of such order. Petitioner received a copy of the said
decision on January 15, 2003. Thereafter, on January 24, 2003, petitioner filed a Petition for Review before the Court.
On August 31, 2004, the Court rendered a Decision denying the petitioners Petition for Review, the dispositive portion of
which is quoted hereunder:
IN VIEW OF ALL THE FOREGOING, the petition is hereby DENIED for lack of merit. Accordingly,
petitioner is ORDERED to PAY the respondent the amount of P24,587,174.63 representing deficiency
documentary stamp tax for the period 1982-1986, plus 20% interest starting February 14, 2003 until the amount
is fully paid pursuant to Section 249 of the Tax Code.
SO ORDERED.
On September 21, 2004, petitioner filed a Motion for Reconsideration of the abovementioned Decision which was denied for
lack of merit in a Resolution dated February 14, 2005.
On March 9, 2005, petitioner filed with the Court En Banc a Motion for Extension of Time to File Petition for Review
praying for an extension of fifteen (15) days from March 10, 2005 or until March 25, 2005. Petitioners motion was granted
in a Resolution dated March 16, 2005.
On March 28, 2005, (March 25 was Good Friday), petitioner filed the instant Petition for Review, advancing the following
assignment of errors.
I. THIS HONORABLE COURT OVERLOOKED THE SIGNIFICANCE OF THE WAIVER DULY AND
VALIDLY AGREED UPON BY THE PARTIES AND EFFECTIVE UNTIL DECEMBER 31, 1994;
II. THIS TAX COURT ERRED IN HOLDING THAT THE COLLECTION OF ALLEGED DEFICIENCY
TAX HAS NOT PRESCRIBED.
III. THIS HONORABLE COURT ERRED IN HOLDING THAT RESPONDENT DID NOT VIOLATE
PROCEDURAL DUE PROCESS IN THE ISSUANCE OF ASSESSMENT NOTICE RELATIVE TO
DOCUMENTARY STAMP DEFICIENCY.
IV. THIS HONORABLE COURT ERRED IN HOLDING THAT THE 4 MARCH 1987 MEMORANDUM OF
THE LEGAL SERVICE CHIEF DULY APPROVED BY THE BIR COMMISISONER VESTS NO RIGHTS TO
PETITIONER.
V. THIS HONORABLE COURT ERRED IN HOLDING THAT PETITIONER IS LIABLE FOR
DOCUMENTARY STAMP TAX ON SWAP LOANS TRANSACTIONS FROM 1982 TO 1986.3
Tax II Set 4 * Assessment Cases*Page 41 of 65
The CTA synthesized the foregoing issues into whether the collection of the deficiency DST is barred by prescription and whether BPI is
liable for DST on its SWAP loan transactions.
On the first issue, the tax court, applying the case of Commissioner of Internal Revenue v. Wyeth Suaco Laboratories, Inc., 4(Wyeth
Suaco case), ruled that BPIs protest and supplemental protest should be considered requests for reinvestigation which tolled the
prescriptive period provided by law to collect a tax deficiency by distraint, levy, or court proceeding. It further held, as regards the second
issue, that BPIs cabled instructions to its foreign correspondent bank to remit a specific sum in dollars to the Federal Reserve Bank, the
same to be credited to the account of the Central Bank, are in the nature of a telegraphic transfer subject to DST under Section 195 of the
Tax Code.
In its Petition for Review5 dated 24 November 2006, BPI argues that the governments right to collect the DST had already prescribed
because the Commissioner of Internal Revenue (CIR) failed to issue any reply granting BPIs request for reinvestigation manifested in
the protest letters dated 20 April and 8 May 1989. It was only through the 9 August 2002 Decision ordering BPI to pay deficiency DST,
or after the lapse of more than thirteen (13) years, that the CIR acted on the request for reinvestigation, warranting the conclusion that
prescription had already set in. It further claims that the CIR was not precluded from collecting the deficiency within three (3) years from
the time the notice of assessment was issued on 7 April 1989, or even until the expiration on 31 December 1994 of the last waiver of the
statute of limitations signed by BPI.
Moreover, BPI avers that the cabled instructions to its correspondent bank are not subject to DST because the National Internal Revenue
Code of 1977 (Tax Code of 1977) does not contain a specific provision that cabled instructions on SWAP transactions are subject to DST.
The Office of the Solicitor General (OSG) filed a Comment 6 dated 1 June 2007, on behalf of the CIR, asserting that the prescriptive
period was tolled by the protest letters filed by BPI which were granted and acted upon by the CIR. Such action was allegedly
communicated to BPI as, in fact, the latter submitted additional documents pertaining to its SWAP transactions in support of its request
for reinvestigation. Thus, it was only upon BPIs receipt on 13 January 2003 of the 9 August 2002 Decision that the period to collect
commenced to run again.
The OSG cites the case of Collector of Internal Revenue v. Suyoc Consolidated Mining Company, et al. 7(Suyoccase) in support of its
argument that BPI is already estopped from raising the defense of prescription in view of its repeated requests for reinvestigation which
allegedly induced the CIR to delay the collection of the assessed tax.
In its Reply8dated 30 August 2007, BPI argues against the application of the Suyoc case on two points: first, it never induced the CIR to
postpone tax collection; second, its request for reinvestigation was not categorically acted upon by the CIR within the three-year
collection period after assessment. BPI maintains that it did not receive any communication from the CIR in reply to its protest letters.
We grant the petition.
Section 3189 of the Tax Code of 1977 provides:
Sec. 318. Period of limitation upon assessment and collection.Except as provided in the succeeding section, internal
revenue taxes shall be assessed within five years after the return was filed, and no proceeding in court without assessment for
the collection of such taxes shall be begun after the expiration of such period. For the 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: Provided, That this
limitation shall not apply to cases already investigated prior to the approval of this Code.
The statute of limitations on assessment and collection of national internal revenue taxes was shortened from five (5) years to three (3)
years by Batas Pambansa Blg. 700.10 Thus, the CIR has three (3) years from the date of actual filing of the tax return to assess a national
internal revenue tax or to commence court proceedings for the collection thereof without an assessment.

When it validly issues an assessment within the three (3)-year period, it has another three (3) years within which to collect the tax due by
distraint, levy, or court proceeding. The assessment of the tax is deemed made and the three (3)-year period for collection of the assessed
tax begins to run on the date the assessment notice had been released, mailed or sent to the taxpayer. 11
As applied to the present case, the CIR had three (3) years from the time he issued assessment notices to BPI on 7 April 1989 or until 6
April 1992 within which to collect the deficiency DST. However, it was only on 9 August 2002 that the CIR ordered BPI to pay the
deficiency.
In order to determine whether the prescriptive period for collecting the tax deficiency was effectively tolled by BPIs filing of the protest
letters dated 20 April and 8 May 1989 as claimed by the CIR, we need to examine Section 320 12 of the Tax Code of 1977, which states:
Sec. 320. Suspension of running of statute.The running of the statute of limitations provided in Sections 318 or 319 on the
making of assessment and the beginning of distraint or levy or a proceeding in court for collection, in respect of any
deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or
beginning distraint or levy or a proceeding in court and for sixty days thereafter; when the taxpayer requests for a re-
investigation which is granted by the Commissioner; when the taxpayer cannot be located in the address given by him in
the return filed upon which a tax is being assessed or collected: Provided, That if the taxpayer informs the Commissioner of
any change in address, the running of the statute of limitations will not be suspended; when the warrant of distraint and levy
is duly served upon the taxpayer, his authorized representative, or a member of his household with sufficient discretion, and
no property could be located; and when the taxpayer is out of the Philippines. (Emphasis supplied)
The above section is plainly worded. In order to suspend the running of the prescriptive periods for assessment and collection, the request
for reinvestigation must be granted by the CIR.
In BPI v. Commissioner of Internal Revenue,13the Court emphasized the rule that the CIR must first grant the request for reinvestigation
as a requirement for the suspension of the statute of limitations. The Court said:
In the case of Republic of the Philippines v. Gancayco, taxpayer Gancayco requested for a thorough reinvestigation of the
assessment against him and placed at the disposal of the Collector of Internal Revenue all the evidences he had for such
purpose; yet, the Collector ignored the request, and the records and documents were not at all examined. Considering the
given facts, this Court pronounced that
x x x The act of requesting a reinvestigation alone does not suspend the period. The request should first be granted, in
order to effect suspension. (Collector v. Suyoc Consolidated, supra; alsoRepublic v. Ablaza, supra). Moreover, the Collector
gave appellee until April 1, 1949, within which to submit his evidence, which the latter did one day before. There were no
impediments on the part of the Collector to file the collection case from April 1, 1949
In Republic of the Philippines v. Acebedo, this Court similarly found that
x x x T]he defendant, after receiving the assessment notice of September 24, 1949, asked for a reinvestigation thereof on
October 11, 1949 (Exh. "A"). There is no evidence that this request was considered or acted upon. In fact, on October 23,
1950 the then Collector of Internal Revenue issued a warrant of distraint and levy for the full amount of the assessment (Exh.
"D"), but there was follow-up of this warrant. Consequently, the request for reinvestigation did not suspend the running of
the period for filing an action for collection. [Emphasis in the original]14
The Court went on to declare that the burden of proof that the request for reinvestigation had been actually granted shall be on the CIR.
Such grant may be expressed in its communications with the taxpayer or implied from the action of the CIR or his authorized
representative in response to the request for reinvestigation.
Tax II Set 4 * Assessment Cases*Page 42 of 65
There is nothing in the records of this case which indicates, expressly or impliedly, that the CIR had granted the request for
reinvestigation filed by BPI. What is reflected in the records is the piercing silence and inaction of the CIR on the request for
reinvestigation, as he considered BPIs letters of protest to be.
In fact, it was only in his comment to the present petition that the CIR, through the OSG, argued for the first time that he had granted the
request for reinvestigation. His consistent stance invoking the Wyeth Suaco case, as reflected in the records, is that the prescriptive period
was tolled by BPIs request for reinvestigation, without any assertion that the same had been granted or at least acted upon. 15
In the Wyeth Suaco case, private respondent Wyeth Suaco Laboratories, Inc. sent letters seeking the reinvestigation or reconsideration of
the deficiency tax assessments issued by the BIR. The records of the case showed that as a result of these protest letters, the BIR
Manufacturing Audit Division conducted a review and reinvestigation of the assessments. The records further showed that the company,
thru its finance manager, communicated its inability to settle the tax deficiency assessment and admitted that it knew of the ongoing
review and consideration of its protest.
As differentiated from the Wyeth Suaco case, however, there is no evidence in this case that the CIR actually conducted a reinvestigation
upon the request of BPI or that the latter was made aware of the action taken on its request. Hence, there is no basis for the tax courts
ruling that the filing of the request for reinvestigation tolled the running of the prescriptive period for collecting the tax deficiency.
Neither did the waiver of the statute of limitations signed by BPI supposedly effective until 31 December 1994 suspend the prescriptive
period. The CIR himself contends that the waiver is void as it shows no date of acceptance in violation of RMO No. 20-90. 16 At any rate,
the records of this case do not disclose any effort on the part of the Bureau of Internal Revenue to collect the deficiency tax after the
expiration of the waiver until eight (8) years thereafter when it finally issued a decision on the protest.
We also find the Suyoc case inapplicable. In that case, several requests for reinvestigation and reconsideration were filed by Suyoc
Consolidated Mining Company purporting to question the correctness of tax assessments against it. As a result, the Collector of Internal
Revenue refrained from collecting the tax by distraint, levy or court proceeding in order to give the company every opportunity to prove
its claim. The Collector also conducted several reinvestigations which eventually led to a reduced assessment. The company, however,
filed a petition with the CTA claiming that the right of the government to collect the tax had already prescribed.
When the case reached this Court, we ruled that Suyoc could not set up the defense of prescription since, by its own action, the
government was induced to delay the collection of taxes to make the company feel that the demand was not unreasonable or that no
harassment or injustice was meant by the government.
In this case, BPIs letters of protest and submission of additional documents pertaining to its SWAP transactions, which were never even
acted upon, much less granted, cannot be said to have persuaded the CIR to postpone the collection of the deficiency DST.
The inordinate delay of the CIR in acting upon and resolving the request for reinvestigation filed by BPI and in collecting the DST
allegedly due from the latter had resulted in the prescription of the governments right to collect the deficiency. As this Court declared
in Republic of the Philippines v. Ablaza:17
The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and to its
citizens; to the Government because tax officers would be obliged to act promptly in the making of assessment, and to
citizens because after the lapse of the period of prescription citizens would have a feeling of security against unscrupulous tax
agents who will always find an excuse to inspect the books of taxpayers, not to determine the latters real liability, but to take
advantage of every opportunity to molest peaceful, law-abiding citizens. Without such a legal defense taxpayers would
furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by
unscrupulous tax agents. The law on prescription being a remedial measure should be interpreted in a way conducive to
bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission
which recommend the approval of the law.18

Given the prescription of the governments claim, we no longer deem it necessary to pass upon the validity of the assessment.
WHEREFORE, the petition is GRANTED. The Decisionof the Court of Tax Appeals dated 15 August 2006 and its Resolution dated 5
October 2006, are hereby REVERSED and SET ASIDE. No pronouncement as to costs.
SO ORDERED.
The Process of Assessment
FIRST DIVISION
G.R. No. 155541 January 27, 2004
ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari assails the decision of the Court of Appeals in CA-G.R. CV No. 09107, dated September 30,
2002,1 which reversed the November 19, 1995 Order of Regional Trial Court of Manila, Branch XXXVIII, in Sp. Proc. No. R-82-6994,
entitled "Testate Estate of Juliana Diez Vda. De Gabriel". The petition was filed by the Estate of the Late Juliana Diez Vda. De Gabriel,
represented by Prudential Bank as its duly appointed and qualified Administrator.
As correctly summarized by the Court of Appeals, the relevant facts are as follows:
During the lifetime of the decedent, Juliana Vda. De Gabriel, her business affairs were managed by the Philippine Trust
Company (Philtrust). The decedent died on April 3, 1979. Two days after her death, Philtrust, through its Trust Officer, Atty.
Antonio M. Nuyles, filed her Income Tax Return for 1978. The return did not indicate that the decedent had died.
On May 22, 1979, Philtrust also filed a verified petition for appointment as Special Administrator with the Regional Trial Court of
Manila, Branch XXXVIII, docketed as Sp. Proc. No. R-82-6994. The court a quo appointed one of the heirs as Special Administrator.
Philtrusts motion for reconsideration was denied by the probate court.
On January 26, 1981, the court a quo issued an Order relieving Mr. Diez of his appointment, and appointed Antonio Lantin to take over as
Special Administrator. Subsequently, on July 30, 1981, Mr. Lantin was also relieved of his appointment, and Atty. Vicente Onosa was
appointed in his stead.
In the meantime, the Bureau of Internal Revenue conducted an administrative investigation on the decedents tax liability and found a
deficiency income tax for the year 1977 in the amount of P318,233.93. Thus, on November 18, 1982, the BIR sent by registered mail a
demand letter and Assessment Notice No. NARD-78-82-00501 addressed to the decedent "c/o Philippine Trust Company, Sta. Cruz,
Manila" which was the address stated in her 1978 Income Tax Return. No response was made by Philtrust. The BIR was not informed
that the decedent had actually passed away.
Tax II Set 4 * Assessment Cases*Page 43 of 65
In an Order dated September 5, 1983, the court a quo appointed Antonio Ambrosio as the Commissioner and Auditor Tax Consultant of
the Estate of the decedent.
On June 18, 1984, respondent Commissioner of Internal Revenue issued warrants of distraint and levy to enforce collection of the
decedents deficiency income tax liability, which were served upon her heir, Francisco Gabriel. On November 22, 1984, respondent filed
a "Motion for Allowance of Claim and for an Order of Payment of Taxes" with the court a quo. On January 7, 1985, Mr. Ambrosio filed a
letter of protest with the Litigation Division of the BIR, which was not acted upon because the assessment notice had allegedly become
final, executory and incontestable.
On May 16, 1985, petitioner, the Estate of the decedent, through Mr. Ambrosio, filed a formal opposition to the BIRs Motion for
Allowance of Claim based on the ground that there was no proper service of the assessment and that the filing of the aforesaid claim had
already prescribed. The BIR filed its Reply, contending that service to Philippine Trust Company was sufficient service, and that the
filing of the claim against the Estate on November 22, 1984 was within the five-year prescriptive period for assessment and collection of
taxes under Section 318 of the 1977 National Internal Revenue Code (NIRC).
On November 19, 1985, the court a quo issued an Order denying respondents claim against the Estate, 2 after finding that there was no
notice of its tax assessment on the proper party.3
On July 2, 1986, respondent filed an appeal with the Court of Appeals, docketed as CA-G.R. CV No. 09107, 4assailing the Order of the
probate court dated November 19, 1985. It was claimed that Philtrust, in filing the decedents 1978 income tax return on April 5, 1979,
two days after the taxpayers death, had "constituted itself as the administrator of the estate of the deceased at least insofar as said return
is concerned."5 Citing Basilan Estate Inc. v. Commissioner of Internal Revenue, 6 respondent argued that the legal requirement of notice
with respect to tax assessments7 requires merely that the Commissioner of Internal Revenue release, mail and send the notice of the
assessment to the taxpayer at the address stated in the return filed, but not that the taxpayer actually receive said assessment within the
five-year prescriptive period.8 Claiming that Philtrust had been remiss in not notifying respondent of the decedents death, respondent
therefore argued that the deficiency tax assessment had already become final, executory and incontestable, and that petitioner Estate was
liable therefor.
On September 30, 2002, the Court of Appeals rendered a decision in favor of the respondent. Although acknowledging that the bond of
agency between Philtrust and the decedent was severed upon the latters death, it was ruled that the administrator of the Estate had failed
in its legal duty to inform respondent of the decedents death, pursuant to Section 104 of the National Internal Revenue Code of 1977.
Consequently, the BIRs service to Philtrust of the demand letter and Notice of Assessment was binding upon the Estate, and, upon the
lapse of the statutory thirty-day period to question this claim, the assessment became final, executory and incontestable. The dispositive
portion of said decision reads:
WHEREFORE, finding merit in the appeal, the appealed decision is REVERSED AND SET ASIDE. Another one is entered
ordering the Administrator of the Estate to pay the Commissioner of Internal Revenue the following:
a. The amount of P318,223.93, representing the deficiency income tax liability for the year 1978, plus 20%
interest per annum from November 2, 1982 up to November 2, 1985 and in addition thereto 10% surcharge on the
basic tax of P169,155.34 pursuant to Section 51(e)(2) and (3) of the Tax Code as amended by PD 69 and 1705;
and
b. The costs of the suit.
SO ORDERED.9
Hence, the instant petition, raising the following issues:
 Tax II Set 4 * Assessment Cases*Page 44 of 65

1. Whether or not the Court of Appeals erred in holding that the service of deficiency tax assessment against Juliana Diez
Vda. de Gabriel through the Philippine Trust Company was a valid service in order to bind the Estate;
2. Whether or not the Court of Appeals erred in holding that the deficiency tax assessment and final demand was already
final, executory and incontestable.
The foregoing provision falls in Title III, Chapter I of the National Internal Revenue Code of 1977, or the chapter on Estate
Tax, and pertains to "all cases of transfers subject to tax" or where the "gross value of the estate exceeds three thousand
pesos". It has absolutely no applicability to a case for deficiency income tax, such as the case at bar. It further lacks
applicability since Philtrust was never the executor, administrator of the decedents estate, and, as such, never had the legal
obligation, based on the above provision, to inform respondent of her death.

Although the administrator of the estate may have been remiss in his legal obligation to inform respondent of the decedents
Petitioner Estate denies that Philtrust had any legal personality to represent the decedent after her death. As such, petitioner argues that
death, the consequences thereof, as provided in Section 119 of the National Internal Revenue Code of 1977, merely refer to
there was no proper notice of the assessment which, therefore, never became final, executory and incontestable.10 Petitioner further
the imposition of certain penal sanctions on the administrator. These do not include the indefinite tolling of the prescriptive
contends that respondents failure to file its claim against the Estate within the proper period prescribed by the Rules of Court is a fatal
period for making deficiency tax assessments, or the waiver of the notice requirement for such assessments.
error, which forever bars its claim against the Estate.11

Respondent, on the other hand, claims that because Philtrust filed the decedents income tax return subsequent to her death, Philtrust was
the de facto administrator of her Estate.12 Consequently, when the Assessment Notice and demand letter dated November 18, 1982 were
sent to Philtrust, there was proper service on the Estate. 13Respondent further asserts that Philtrust had the legal obligation to inform
petitioner of the decedents death, which requirement is found in Section 104 of the NIRC of 1977. 14 Since Philtrust did not, respondent
contends that petitioner Estate should not be allowed to profit from this omission. 15 Respondent further argues that Philtrusts failure to
protest the aforementioned assessment within the 30-day period provided in Section 319-A of the NIRC of 1977 meant that the
assessment had already become final, executory and incontestable. 16
The resolution of this case hinges on the legal relationship between Philtrust and the decedent, and, by extension, between Philtrust and
petitioner Estate. Subsumed under this primary issue is the sub-issue of whether or not service on Philtrust of the demand letter and
Assessment Notice No. NARD-78-82-00501 was valid service on petitioner, and the issue of whether Philtrusts inaction thereon could
bind petitioner. If both sub-issues are answered in the affirmative, respondents contention as to the finality of Assessment Notice No.
NARD-78-82-00501 must be answered in the affirmative. This is because Section 319-A of the NIRC of 1977 provides a clear 30-day
period within which to protest an assessment. Failure to file such a protest within said period means that the assessment ipso jure
becomes final and unappealable, as a consequence of which legal proceedings may then be initiated for collection thereof.
Thus, as of November 18, 1982, the date of the demand letter and Assessment Notice No. NARD-78-82-00501, there
was absolutely no legal obligation on the part of Philtrust to either (1) respond to the demand letter and assessment notice, (2)
inform respondent of the decedents death, or (3) inform petitioner that it had received said demand letter and assessment
notice. This lack of legal obligation was implicitly recognized by the Court of Appeals, which, in fact, rendered its assailed
decision on grounds of "equity". 17
Since there was never any valid notice of this assessment, it could not have become final, executory and incontestable, and, for failure to
make the assessment within the five-year period provided in Section 318 of the National Internal Revenue Code of 1977, respondents
claim against the petitioner Estate is barred. Said Section 18 reads:
SEC. 318. Period of limitation upon assessment and collection. Except as provided in the succeeding section, internal
revenue taxes shall be assessed within five years after the return was filed, and no proceeding in court without assessment for
the collection of such taxes shall be begun after the expiration of such period. For the purpose 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: Provided, That this
limitation shall not apply to cases already investigated prior to the approval of this Code.

We find in favor of the petitioner. Respondent argues that an assessment is deemed made for the purpose of giving effect to such assessment when the notice is released,
mailed or sent to the taxpayer to effectuate the assessment, and there is no legal requirement that the taxpayer actually receive said notice
within the five-year period.18 It must be noted, however, that the foregoing rule requires that the notice be sent to the taxpayer, and not
The first point to be considered is that the relationship between the decedent and Philtrust was one of agency, which is a personal
merely to a disinterested party. Although there is no specific requirement that the taxpayer should receive the notice within the said
relationship between agent and principal. Under Article 1919 (3) of the Civil Code, death of the agent or principal automatically
period, due process requires at the very least that such notice actually be received. In Commissioner of Internal Revenue v. Pascor Realty
terminates the agency. In this instance, the death of the decedent on April 3, 1979 automatically severed the legal relationship between
and Development Corporation,19 we had occasion to say:
her and Philtrust, and such could not be revived by the mere fact that Philtrust continued to act as her agent when, on April 5, 1979, it
filed her Income Tax Return for the year 1978.
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
Since the relationship between Philtrust and the decedent was automatically severed at the moment of the Taxpayers death, none of
his remedies thereon, due process requires that it must be served on and received by the taxpayer.
Philtrusts acts or omissions could bind the estate of the Taxpayer. Service on Philtrust of the demand letter and Assessment Notice No.
NARD-78-82-00501 was improperly done.
In Republic v. De le Rama, 20 we clarified that, when an estate is under administration, notice must be sent to the administrator of the
estate, since it is the said administrator, as representative of the estate, who has the legal obligation to pay and discharge all debts of the
It must be noted that Philtrust was never appointed as the administrator of the Estate of the decedent, and, indeed, that the court a quo
estate and to perform all orders of the court. In that case, legal notice of the assessment was sent to two heirs, neither one of whom had
twice rejected Philtrusts motion to be thus appointed. As of November 18, 1982, the date of the demand letter and Assessment Notice,
any authority to represent the estate. We said:
the legal relationship between the decedent and Philtrust had already been non-existent for three years.

The notice was not sent to the taxpayer for the purpose of giving effect to the assessment, and said notice could not produce
Respondent claims that Section 104 of the National Internal Revenue Code of 1977 imposed the legal obligation on Philtrust to inform
any effect. In the case of Bautista and Corrales Tan v. Collector of Internal Revenue this Court had occasion to state that
respondent of the decedents death. The said Section reads:
"the assessment is deemed made when the notice to this effect is released, mailed or sent to the taxpayer for the purpose of
giving effect to said assessment." It appearing that the person liable for the payment of the tax did not receive the assessment,
SEC. 104. Notice of death to be filed. In all cases of transfers subject to tax or where, though exempt from tax, the gross the assessment could not become final and executory. (Citations omitted, emphasis supplied.)
value of the estate exceeds three thousand pesos, the executor, administrator, or any of the legal heirs, as the case may be,
within two months after the decedents death, or within a like period after qualifying as such executor or administrator, shall
In this case, the assessment was served not even on an heir of the Estate, but on a completely disinterested third party. This improper
give written notice thereof to the Commissioner of Internal Revenue.
service was clearly not binding on the petitioner.

By arguing that (1) the demand letter and assessment notice were served on Philtrust, (2) Philtrust was remiss in its obligation to respond
to the demand letter and assessment notice, (3) Philtrust was remiss in its obligation to inform respondent of the decedents death, and (4)
the assessment notice is therefore binding on the Estate, respondent is arguing in circles. The most crucial point to be remembered is that
Philtrust had absolutely no legal relationship to the deceased, or to her Estate. There was therefore no assessment served on the Estate as
to the alleged underpayment of tax. Absent this assessment, no proceedings could be initiated in court for the collection of said tax, 21 and
respondents claim for collection, filed with the probate court only on November 22, 1984, was barred for having been made beyond the
five-year prescriptive period set by law.
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No. 09107, dated September 30,
2002, is REVERSED and SET ASIDE. The Order of the Regional Trial Court of Manila, Branch XXXVIII, in Sp. Proc. No. R-82-6994,
dated November 19, 1985, which denied the claim of the Bureau of Internal Revenue against the Estate of Juliana Diez Vda. De Gabriel
for the deficiency income tax of the decedent for the year 1977 in the amount of P318,223.93, is AFFIRMED.
No pronouncement as to costs.SO ORDERED.
CIR V Reyes ( Repeated)
In 1993, Maria Tancino died leaving behind an estate worth P32 million. In 1997, a tax audit was conducted on the estate. Meanwhile, the
National Internal Revenue Code (NIRC) of 1997 was passed. Eventually in 1998, the estate was issued a final assessment notice (FAN)
demanding the estate to pay P14.9 million in taxes inclusive of surcharge and interest; the estates liability was based on Section 229 of
the [old] Tax Code. Azucena Reyes, one of the heirs, protested the FAN. The Commissioner of Internal Revenue (CIR) nevertheless
issued a warrant of distraint and/or levy. Reyes again protested the warrant but in March 1999, she offered a compromise and was willing
to pay P1 million in taxes. Her offer was denied. She continued to work on another compromise but was eventually denied. The case
reached the Court of Tax Appeals where Reyes was also denied. In the Court of Appeals, Reyes received a favorable judgment.
ISSUE: Whether or not the formal assessment notice is valid.
HELD: No. The NIRC of 1997 was already in effect when the FAN was issued. Under Section 228 of the NIRC, taxpayers shall be
informed in writing of the law and the facts on which the assessment is made: otherwise, the assessment shall be void. In the case at
bar, the FAN merely stated the amount of liability to be shouldered by the estate and the law upon which such liability is based. However,
the estate was not informed in writing of the facts on which the assessment of estate taxes had been made. The estate was merely
informed of the findings of the CIR. Section 228 of the NIRC being remedial in nature can be applied retroactively even though the tax
investigation was conducted prior to the laws passage. Consequently, the invalid FAN cannot be a basis of a compromise, any
proceeding emanating from the invalid FAN is void including the issuance of the warrant of distraint and/or levy.
EN BANC
G.R. No. 109976 April 26, 2005
PHILIPPINE NATIONAL OIL COMPANY, Petitioner,
vs.
THE HON. COURT OF APPEALS, THE COMMISSIONER OF INTERNAL REVENUE and TIRSO
SAVELLANO,Respondents.
x--------------------x
G.R. No. 112800 April 26, 2005
Tax II Set 4 * Assessment Cases*Page 45 of 65
PHILIPPINE NATIONAL BANK, Petitioner,
vs.
THE HON. COURT OF APPEALS, COURT OF TAX APPEALS, TIRSO B. SAVELLANO and COMMISSIONER OF
INTERNAL REVENUE, Respondents.
DECISION
CHICO-NAZARIO, J.:
This is a consolidation of two Petitions for Review on Certiorari filed by the Philippine National Oil Company (PNOC) 1 and the
Philippine National Bank (PNB),<2 assailing the decisions of the Court of Appeals in CA-G.R. SP No. 29583 3 and CA-G.R. SP No.
29526,4 respectively, which both affirmed the decision of the Court of Tax Appeals (CTA) in CTA Case No. 4249. 5
The Petitions before this Court originated from a sworn statement submitted by private respondent Tirso B. Savellano (Savellano) to the
Bureau of Internal Revenue (BIR) on 24 June 1986. Through his sworn statement, private respondent Savellano informed the BIR that
PNB had failed to withhold the 15% final tax on interest earnings and/or yields from the money placements of PNOC with the said bank,
in violation of Presidential Decree (P.D.) No. 1931. P.D. No. 1931, which took effect on 11 June 1984, withdrew all tax exemptions of
government-owned and controlled corporations.
In a letter, dated 08 August 1986, the BIR requested PNOC to settle its liability for taxes on the interests earned by its money placements
with PNB and which PNB did not withhold.6 PNOC wrote the BIR on 25 September 1986, and made an offer to compromise its tax
liability, which it estimated to be in the sum of P304,419,396.83, excluding interest and surcharges, as of 31 July 1986. PNOC proposed
to set-off its tax liability against a claim for tax refund/credit of the National Power Corporation (NAPOCOR), then pending with the
BIR, in the amount ofP335,259,450.21. The amount of the claim for tax refund/credit was supposedly a receivable account of PNOC
from NAPOCOR.7
On 08 October 1986, the BIR sent a demand letter to PNB, as withholding agent, for the payment of the final tax on the interest earnings
and/or yields from PNOC's money placements with the bank, from 15 October 1984 to 15 October 1986, in the total amount
of P376,301,133.33.8 On the same date, the BIR also mailed a letter to PNOC informing it of the demand letter sent to PNB. 9
PNOC, in another letter, dated 14 October 1986, reiterated its proposal to settle its tax liability through the set-off of the said tax liability
against NAPOCOR'S pending claim for tax refund/credit. 10 The BIR replied on 11 November 1986 that the proposal for set-off was
premature since NAPOCOR's claim was still under process. Once more, BIR requested PNOC to settle its tax liability in the total
amount of P385,961,580.82, consisting ofP303,343,765.32 final tax, plus P82,617,815.50 interest computed until 15 November 1986. 11
On 09 June 1987, PNOC made another offer to the BIR to settle its tax liability. This time, however, PNOC proposed a compromise by
paying P91,003,129.89, representing 30% of the P303,343,766.29 basic tax, in accordance with the provisions of Executive Order (E.O.)
No. 44.12
Then BIR Commissioner Bienvenido A. Tan, in a letter, dated 22 June 1987, accepted the compromise. The BIR received a total tax
payment on the interest earnings and/or yields from PNOC's money placements with PNB in the amount of P93,955,479.12, broken
down as follows:
Previous payment made by PNB P 2,952,349.23
Add: Payment made by PNOC pursuant to the compromise agreement of P 91,003,129.89
June 22, 1987

13
Total tax payment P 93,955,479.12
Private respondent Savellano, through four installments, was paid the informer's reward in the total amount ofP14,093,321.89,
representing 15% of the P93,955,479.12 tax collected by the BIR from PNOC and PNB. He received the last installment on 01
December 1987.14
On 07 January 1988, private respondent Savellano, through his legal counsel, wrote the BIR to demand payment of the balance of his
informer's reward, computed as follows:
BIR tax assessment P 385,961,580.82
Final tax rate 0.15
Informer's reward due (BIR deficiency tax assessment x Final tax rate) P 57,894,237.12
Less: Payment received by private respondent Savellano P 14,093,321.89
Outstanding balance P 43,800,915.2515
BIR Commissioner Tan replied through a letter, dated 08 March 1988, that private respondent Savellano was already fully paid the
informer's reward equivalent to 15% of the amount of tax actually collected by the BIR pursuant to its compromise agreement with
PNOC. BIR Commissioner Tan further explained that the compromise was in accordance with the provisions of E.O. No. 44, Revenue
Memorandum Order (RMO) No. 39-86, and RMO No. 4-87. 16
Private respondent Savellano submitted another letter, dated 24 March 1988, to BIR Commissioner Tan, seeking reconsideration of his
decision to compromise the tax liability of PNOC. In the same letter, private respondent Savellano questioned the legality of the
compromise agreement entered into by the BIR and PNOC and claimed that the tax liability should have been collected in full. 17
On 08 April 1988, while the aforesaid Motion for Reconsideration was still pending with the BIR, private respondent Savellano filed a
Petition for Review ad cautelam with the CTA, docketed as CTA Case No. 4249. He claimed therein that BIR Commissioner Tan acted
"with grave abuse of discretion and/or whimsical exercise of jurisdiction" in entering into a compromise agreement that resulted in "a
gross and unconscionable diminution" of his reward. Private respondent Savellano prayed for the enforcement and collection of the total
tax assessment against taxpayer PNOC and/or withholding agent PNB; and the payment to him by the BIR Commissioner of the 15%
informer's reward on the total tax collected.18 He would later amend his Petition to implead PNOC and PNB as necessary and
indispensable parties since they were parties to the compromise agreement. 19
Tax II Set 4 * Assessment Cases*Page 46 of 65
In his Answer filed with the CTA, BIR Commissioner Tan asserted that the Petition stated no cause of action against him, and that private
respondent Savellano was already paid the informer's reward due him. Alleging that the Petition was baseless and malicious, BIR
Commissioner Tan filed a counterclaim for exemplary damages against private respondent Savellano. 20
PNOC and PNB filed separate Motions to Dismiss, both arguing that the CTA lacked jurisdiction to decide the case. 21 In its Resolution,
dated 28 November 1988, the CTA denied the Motions to Dismiss since the question of lack of jurisdiction and/or cause of action do not
appear to be indubitable.22
After their Motions to Dismiss were denied by the CTA, PNOC and PNB filed their respective Answers to the amended Petition. PNOC
averred, among other things, that (1) it had no privity with private respondent Savellano; (2) the BIR Commissioner's discretionary act in
entering into the compromise agreement had legal basis under E.O. No. 44 and RMO No. 39-86 and RMO No. 4-87; and (3) the CTA had
no jurisdiction to resolve the case against it.23 On the other hand, PNB asserted that (1) the CTA lacked jurisdiction over the case; and (2)
the BIR Commissioner's decision to accept the compromise was discretionary on his part and, therefore, cannot be reviewed or interfered
with by the courts.24 PNOC and PNB later filed their amended Answer invoking an opinion of the Commission on Audit (COA)
disallowing the payment by the BIR of informer's reward to private respondent Savellano. 25
The CTA, thereafter, ordered the parties to submit their evidence, 26 to be followed by their respective Memoranda.27
On 23 November 1990, private respondent Savellano, filed a Manifestation with Motion for Suspension of Proceedings, claiming that his
pending Motion for Reconsideration with the BIR Commissioner may soon be resolved. 28 Both PNOC and PNB opposed the said
Motion.29
Subsequently, the new BIR Commissioner, Jose U. Ong, in a letter to PNB, dated 16 January 1991, demanded that PNB pay deficiency
withholding tax on the interest earnings and/or yields from PNOC's money placements, in the amount of P294,958,450.73, computed as
follows:
Withholding tax, plus interest under the letter of demand dated November P 385,961,580.82
11, 1986
Less: Amount paid under E.O. No. 44 P 91,003,129.89
Amount still due and collectible P 294,958,450.7330
This BIR letter was received by PNB on 06 February 1991,31 and was protested by it through a letter, dated 11 April 1991.32 The BIR
denied PNB's protest on the ground that it was filed out of time and, thus, the assessment had already become final. 33
Private respondent Savellano, on 22 February 1991, filed an Omnibus Motion moving to withdraw his previous Motion for Suspension of
Proceeding since BIR Commissioner Ong had finally resolved his Motion for Reconsideration, and submitting by way of supplemental
offer of evidence (1) the letter of BIR Commissioner Ong, dated 13 February 1991, informing private respondent Savellano of the action
on his Motion for Reconsideration; and (2) the demand-letter of BIR Commissioner Ong to PNB, dated 16 January 1991. 34
Despite the oppositions of PNOC and PNB, the CTA, in a Resolution, dated 02 May 1991, resolved to allow private respondent
Savellano to withdraw his previous Motion for Suspension of Proceeding and to admit the supplementary evidence being offered by the
same party.35

In its Order, dated 03 June 1991, the CTA considered the case submitted for decision as of the following day, 04 June 1991. 36
On 11 June 1991, PNB appealed to the Department of Justice (DOJ) the BIR assessment, dated 16 January 1991, for deficiency
withholding tax in the sum of P294,958,450.73. PNB alleged that its appeal to the DOJ was sanctioned under P.D. No. 242, which
provided for the administrative settlement of disputes between government offices, agencies, and instrumentalities, including
government-owned and controlled corporations.37
Three days later, on 14 June 1991, PNB filed a Motion to Suspend Proceedings before the CTA since it had a pending appeal before the
DOJ.38 On 04 July 1991, PNB filed with the CTA a Motion for Reconsideration of its Order, dated 03 June 1991, submitting the case for
decision as of 04 June 1991, and prayed that the CTA hold its resolution of the case in view of PNB's appeal pending before the DOJ. 39
On 17 July 1991, PNB filed a Motion to Suspend the Collection of Tax by the BIR. It alleged that despite its request for reconsideration
of the deficiency withholding tax assessment, dated 16 January 1991, BIR Commissioner Ong sent another letter, dated 23 April 1991,
demanding payment of the P294,958,450.73 deficiency withholding tax on the interest earnings and/or yields from PNOC's money
placements. The same letter informed PNB that this was the BIR Commissioner's final decision on the matter and that the BIR
Commissioner was set to issue a warrant of distraint and/or levy against PNB's deposits with the Central Bank of the Philippines. PNB
further alleged that the levy and distraint of PNB's deposits, unless restrained by the CTA, would cause great and irreparable prejudice
not only to PNB, a government-owned and controlled corporation, but also to the Government itself. 40
Pursuant to the Order of the CTA, during the hearing on 19 July 1991,41 the parties submitted their respective Memoranda on PNB's
Motion to Suspend Proceedings.42
On 20 September 1991, private respondent Savellano filed another Omnibus Motion calling the attention of the CTA to the fact that the
BIR already issued, on 12 August 1991, a warrant of garnishment addressed to the Central Bank Governor and against PNB. In
compliance with the said warrant, the Central Bank issued, on 23 August 1991, a debit advice against the demand deposit account of PNB
with the Central Bank for the amount ofP294,958,450.73, with a corresponding transfer of the same amount to the demand deposit-in-
trust of BIR with the Central Bank. Since the assessment had already been enforced, PNB's Motion to Suspend Proceedings became
moot and academic. Private respondent Savellano, thus, moved for the denial of PNB's Motion to Suspend Proceedings and for an order
requiring BIR to deposit with the CTA the amount of P44,243,767.00 as his informer's reward, representing 15% of the deficiency
withholding tax collected.43
Both PNOC and PNB opposed private respondent Savellano's Omnibus Motion, dated 20 September 1991, arguing that the DOJ already
ordered the suspension of the collection of the tax deficiency. There was therefore no basis for private respondent Savellano's Motion as
the same was premised on the erroneous assumption that the tax deficiency had been collected. When the DOJ denied the BIR
Commissioner's Motion to Dismiss and required him to file his answer, the DOJ assumed jurisdiction over PNB's appeal, and the CTA
should first suspend its proceedings to give the DOJ the opportunity to decide the validity and propriety of the tax assessment against
PNB.44
The CTA, on 28 May 1992, rendered its decision, wherein it upheld its jurisdiction and disposed of the case as follows:
WHEREFORE, judgment is rendered declaring the COMPROMISE AGREEMENT between the Bureau of Internal Revenue,
on the one hand, and the Philippine National Oil Company and Philippine National Bank, on the other, as WITHOUT
FORCE AND EFFECT;
The Commissioner of Internal Revenue is hereby ordered to ENFORCE the ASSESSMENT of January 16, 1991 against
Philippine National Bank which has become final and unappealable by collecting from Philippine National Bank the
deficiency withholding tax, plus interest totalling (sic) P294,958,450.73;
Petitioner may be paid, upon collection of the deficiency withholding tax, the balance of his entitlement to informer's reward
based on fifteen percent (15%) of the deficiency withholding total tax collected in this case or P44,243.767.00 subject to
existing rules and regulations governing payment of reward to informers. 45
Tax II Set 4 * Assessment Cases*Page 47 of 65
In a Resolution, dated 16 November 1992, the CTA denied the Motions for Reconsideration filed by PNOC and PNB since they
substantially raised the same issues in their previous pleadings and which had already been passed upon and resolved adversely against
them.46
PNOC and PNB filed separate appeals with the Court of Appeals seeking the reversal of the CTA decision in CTA Case No. 4249, dated
28 May 1992, and the CTA Resolution in the same case, dated 16 November 1992. PNOC's appeal was docketed as CA-G.R. SP No.
29583, while PNB's appeal was CA-G.R. SP No. 29526. In both cases, the Court of Appeals affirmed the decision of the CTA.
In the meantime, the Central Bank again issued on 02 September 1992 a debit advice against the demand deposit account of PNB with
the Central Bank for the amount of P294,958,450.73,47 and on 15 September 1992, credited the same amount to the demand deposit
account of the Treasurer of the Republic of the Philippines. 48 On 04 November 1992, the Treasurer of the Republic issued a journal
voucher transferring P294,958,450.73 to the account of the BIR.49 PNB, in turn, debited P294,958,450.73 from the deposit account of
PNOC with PNB.50
PNOC and PNB then filed separate Petitions for Review on Certiorari with this Court, praying that the decisions of the Court of Appeals
in CA-G.R. SP No. 29583 and CA-G.R. SP No. 29526, respectively, both affirming the decision of the CTA in CTA Case No. 4249, be
reversed and set aside. These two Petitions were consolidated since they involved identical parties and factual background, and the
resolution of related, if not exactly, the same issues.
In its Petition for Review, PNOC alleged the following errors committed by the Court of Appeals in CA-G.R. SP No. 29583:
1. The Court of Appeals erred in holding that the deficiency taxes of PNOC could not be the subject of a compromise under
Executive Order No. 44; and
2. The Court of Appeals erred in holding that Savellano is entitled to additional informer's reward. 51
PNB, in its own Petition for Review, assailed the decision of the Court of Appeals in CA-G.R. SP No. 29526, assigning the following
errors:
1. Respondent Court erred in not finding that the Court of Tax Appeals lacks jurisdiction on the controversy involving BIR
and PNB (both government instrumentalities) regarding the new assessment of BIR against PNB;
2. The respondent Court erred in not finding that the Court of Tax Appeals has no jurisdiction to question the compromise
agreement entered into by the Commissioner of Internal Revenue; and
3. The respondent Court erred in not ruling that the Commissioner of Internal Revenue cannot unilaterally annul tax
compromises validly entered into by his predecessor.52
The decisions of the Court of Appeals in CA-GR SP No. 29583 and CA-G.R. SP No. 29526, affirmed the decision of the CTA in CTA
Case No. 4249. The resolution, therefore, of the assigned errors in the Court of Appeals' decisions essentially requires a review of the
CTA decision itself.
In consolidating the present Petitions, this Court finds that PNOC and PNB are basically questioning the (1) Jurisdiction of the CTA in
CTA Case No. 4249; (2) Declaration by the CTA that the compromise agreement was without force and effect; (3) Finding of the CTA
that the deficiency withholding tax assessment against PNB had already become final and unappealable and, thus, enforceable; and (4)
Order of the CTA directing payment of additional informer's reward to private respondent Savellano.
I
Jurisdiction of the CTA

A. The demand letter, dated 16 January 1991 did not constitute a new assessment against PNB.
The main argument of PNB in assailing the jurisdiction of the CTA in CTA Case No. 4249 is that the BIR demand letter, dated 16 January
1991,53 should be considered as a new assessment against PNB. As a new assessment, it gave rise to a new dispute and controversy
solely between the BIR and PNB that should be administratively settled or adjudicated, as provided in P.D. No. 242.
This argument is without merit. The issuance by the BIR of the demand letter, dated 16 January 1991, was merely a development in the
continuing effort of the BIR to collect the tax assessed against PNOC and PNB way back in 1986.
BIR's first letter, dated 08 August 1986, was addressed to PNOC, requesting it to settle its tax liability. The BIR subsequently sent
another letter, dated 08 October 1986, to PNB, as withholding agent, demanding payment of the tax it had failed to withhold on the
interest earnings and/or yields from PNOC's money placements. PNOC wrote the BIR three succeeding letters offering to compromise
its tax liability; PNB, on the other hand, did not act on the demand letter it received, dated 08 October 1986. The BIR and PNOC
eventually reached a compromise agreement on 22 June 1987. Private respondent Savellano questioned the validity of the compromise
agreement because the reduced amount of tax collected from PNOC, by virtue of the compromise agreement, also proportionately
reduced his informer's reward. Private respondent Savellano then requested the BIR Commissioner to review and reconsider the
compromise agreement. Acting on the request of private respondent Savellano, the new BIR Commissioner declared the compromise
agreement to be without basis and issued the demand letter, dated 16 January 1991, against PNB, as the withholding agent for PNOC.
It is clear from the foregoing that the BIR demand letter, dated 16 January 1991, could not stand alone as a new assessment. It should
always be considered in the factual context summarized above.
In fact, the demand letter, dated 16 January 1991, actually referred to the withholding tax assessment first issued in 1986 and its eventual
settlement through a compromise agreement. In addition, the computation of the deficiency withholding tax was based on the figures
from the 1986 assessments against PNOC and PNB, and BIR no longer conducted a new audit or investigation of either PNOC and PNB
before it issued the demand letter on 16 January 1991.
These constant references to past events and circumstances demonstrate that the demand letter, dated 16 January 1991, was not a new
assessment, but rather, the latest action taken by the BIR to collect on the tax assessments issued against PNOC and PNB in 1986.
PNB argues that the demand letter, dated 16 January 1991, introduced a new controversy. We see it differently as the said demand letter
presented the resolution by BIR Commissioner Ong of the previous controversy involving the compromise of the 1986 tax assessments.
BIR Commissioner Ong explicitly declared therein that the compromise agreement was without legal basis, and requested PNB, as the
withholding agent, to pay the amount of withholding tax still due.
B. The CTA correctly retained jurisdiction over CTA Case No. 4249 by virtue of Republic Act No. 1125.
Having established that the BIR demand letter, dated 16 January 1991, did not constitute a new assessment, then, there could be no basis
for PNB's claim that any dispute arising from the new assessment should only be between BIR and PNB.
Still proceeding from the argument that there was a new dispute between PNB and BIR, PNB sought the suspension of the proceedings in
CTA Case No. 4249, after it contested the deficiency withholding tax assessment against it and the demand for payment thereof before
the DOJ, pursuant to P.D. No. 242. The CTA, however, correctly sustained its jurisdiction and continued the proceedings in CTA Case
No. 4249; and, in effect, rejected DOJ's claim of jurisdiction to administratively settle or adjudicate BIR's assessment against PNB.
The CTA assumed jurisdiction over the Petition for Review filed by private respondent Savellano based on the following provision of
Rep. Act No. 1125, the Act creating the Court of Tax Appeals:
SECTION 7. Jurisdiction. The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by appeal, as
herein provided -
Tax II Set 4 * Assessment Cases*Page 48 of 65
(1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the
National Internal Revenue Code or other law or part of law administered by the Bureau of Internal
Revenue; . . . (Underscoring ours.)
In his Petition before the CTA, private respondent Savellano requested a review of the decisions of then BIR Commissioner Tan to enter
into a compromise agreement with PNOC and to reject his claim for additional informer's reward. He submitted before the CTA
questions of law involving the interpretation and application of (1) E.O. No. 44, and its implementing rules and regulations, which
authorized the BIR Commissioner to compromise delinquent accounts and disputed assessments pending as of 31 December 1985; and
(2) Section 316(1) of the National Internal Revenue Code of 1977 (NIRC of 1977), as amended, which granted to the informer a reward
equivalent to 15% of the actual amount recovered or collected by the BIR. 54 These should undoubtedly be considered as matters arising
from the NIRC and other laws being administered by the BIR, thus, appealable to the CTA under Section 7(1) of Rep. Act No. 1125.
PNB, however, insists on the jurisdiction of the DOJ over its appeal of the deficiency withholding tax assessment by virtue of P.D. No.
242. Provisions on jurisdiction of P.D. No. 242 read:
SECTION 1. Provisions of law to the contrary notwithstanding, all disputes, claims and controversies solely between or
among the departments, bureaus, offices, agencies, and instrumentalities of the National Government, including government-
owned or controlled corporations, but excluding constitutional offices or agencies, arising from the interpretation and
application of statutes, contracts or agreements, shall henceforth be administratively settled or adjudicated as provided
hereinafter; Provided, That this shall not apply to cases already pending in court at the time of the effectivity of this decree.
SECTION 2. In all cases involving only questions of law, the same shall be submitted to and settled or adjudicated by the
Secretary of Justice, as Attorney General and ex officio legal adviser of all government-owned or controlled corporations and
entities, in consonance with Section 83 of the Revised Administrative Code. His ruling or determination of the question in
each case shall be conclusive and binding upon all the parties concerned.
SECTION 3. Cases involving mixed questions of law and of fact or only factual issues shall be submitted to and settled or
adjudicated by:
(a) The Solicitor General, with respect to disputes or claims controversies between or among the departments,
bureaus, offices and other agencies of the National Government;
(b) The Government Corporate Counsel, with respect to disputes or claims or controversies between or among
government-owned or controlled corporations or entities being served by the Office of the Government Corporate
Counsel; and
(c) The Secretary of Justice, with respect to all other disputes or claims or controversies which do not fall under
the categories mentioned in paragraphs (a) and (b).
The PNB and DOJ are of the same position that P.D. No. 242, the more recent law, repealed Section 7(1) of Rep. Act No. 1125, 55 based
on the pronouncement of this Court in Development Bank of the Philippines v. Court of Appeals, et al., 56] quoted below:
The Court expresses its entire agreement with the conclusion of the Court of Appeals and the basic premises thereof
that there is an "irreconcilable repugnancybetween Section 7(2) of R.A. No. 1125 and P.D. No. 242," and hence, that the
later enactment (P.D. No. 242), being the latest expression of the legislative will, should prevail over the earlier.
In the said case, it was expressly declared that P.D. No. 242 repealed Section 7(2) of Rep. Act No. 1125, which provides for the exclusive
appellate jurisdiction of the CTA over decisions of the Commissioner of Customs. PNB contends that P.D. No. 242 should be deemed to
have likewise repealed Section 7(1) of Rep. Act No. 1125, which provide for the exclusive appellate jurisdiction of the CTA over
decisions of the BIR Commissioner.57

After re-examining the provisions on jurisdiction of Rep. Act No. 1125 and P.D. No. 242, this Court finds itself in disagreement with the
pronouncement made in Development Bank of the Philippines v. Court of Appeals, et al., 58and refers to the earlier case of Lichauco &
Company, Inc. v. Apostol, et al.,59 for the guidelines in determining the relation between the two statutes in question, to wit:
The cases relating to the subject of repeal by implication all proceed on the assumption that if the act of later date clearly
reveals an intention on the part of the law making power to abrogate the prior law, this intention must be given effect; but
there must always be a sufficient revelation of this intention, and it has become an unbending rule of statutory construction
that the intention to repeal a former law will not be imputed to the Legislature when it appears that the two statutes, or
provisions, with reference to which the question arises bear to each other the relation of general to special. (Underscoring
ours.)
When there appears to be an inconsistency or conflict between two statutes and one of the statutes is a general law, while the other is a
special law, then repeal by implication is not the primary rule applicable. The following rule should principally govern instead:
Specific legislation upon a particular subject is not affected by a general law upon the same subject unless it clearly appears
that the provisions of the two laws are so repugnant that the legislators must have intended by the later to modify or repeal the
earlier legislation. The special act and the general law must stand together, the one as the law of the particular subject and the
other as the general law of the land. (Ex Parte United States, 226 U. S., 420; 57 L. ed., 281; Ex Parte Crow Dog, 109 U. S.,
556; 27 L. ed., 1030; Partee vs. St. Louis & S. F. R. Co., 204 Fed. Rep., 970.)
Where there are two acts or provisions, one of which is special and particular, and certainly includes the matter in question,
and the other general, which, if standing alone, would include the same matter and thus conflict with the special act or
provision, the special must be taken as intended to constitute an exception to the general act or provision, especially when
such general and special acts or provisions are contemporaneous, as the Legislature is not to be presumed to have intended a
conflict. (Crane v. Reeder and Reeder, 22 Mich., 322, 334; University of Utah vs. Richards, 77 Am. St. Rep., 928.)60
It has, thus, become an established rule of statutory construction that between a general law and a special law, the special law prevails
Generalia specialibus non derogant.61
Sustained herein is the contention of private respondent Savellano that P.D. No. 242 is a general law that deals with administrative
settlement or adjudication of disputes, claims and controversies between or among government offices, agencies and instrumentalities,
including government-owned or controlled corporations. Its coverage is broad and sweeping, encompassing all disputes, claims and
controversies. It has been incorporated as Chapter 14, Book IV of E.O. No. 292, otherwise known as the Revised Administrative Code of
the Philippines.62 On the other hand, Rep. Act No. 1125 is a special law63 dealing with a specific subject matter the creation of the CTA,
which shall exercise exclusive appellate jurisdiction over the tax disputes and controversies enumerated therein.
Following the rule on statutory construction involving a general and a special law previously discussed, then P.D. No. 242 should not
affect Rep. Act No. 1125. Rep. Act No. 1125, specifically Section 7 thereof on the jurisdiction of the CTA, constitutes an exception to
P.D. No. 242. Disputes, claims and controversies, falling under Section 7 of Rep. Act No. 1125, even though solely among government
offices, agencies, and instrumentalities, including government-owned and controlled corporations, remain in the exclusive appellate
jurisdiction of the CTA. Such a construction resolves the alleged inconsistency or conflict between the two statutes, and the fact that P.D.
No. 242 is the more recent law is no longer significant.
Even if, for the sake of argument, that P.D. No. 242 should prevail over Rep. Act No. 1125, the present dispute would still not be covered
by P.D. No. 242. Section 1 of P.D. No. 242 explicitly provides that only disputes, claims and controversies solely between or among
departments, bureaus, offices, agencies, and instrumentalities of the National Government, including constitutional offices or agencies, as
well as government-owned and controlled corporations, shall be administratively settled or adjudicated. While the BIR is obviously a
government bureau, and both PNOC and PNB are government-owned and controlled corporations, respondent Savellano is a private
citizen. His standing in the controversy could not be lightly brushed aside. It was private respondent Savellano who gave the BIR the
information that resulted in the investigation of PNOC and PNB; who requested the BIR Commissioner to reconsider the compromise
agreement in question; and who initiated CTA Case No. 4249 by filing a Petition for Review.
In Bay View Hotel, Inc. v. Manila Hotel Workers' Union-PTGWO, et al.,64] this Court upheld the jurisdiction of the Court of Industrial
Relations over the ordinary courts and justified its decision in the following manner:
Tax II Set 4 * Assessment Cases*Page 49 of 65
We are unprepared to break away from the teaching in the cases just adverted to. To draw a tenuous jurisdictional line is to
undermine stability in labor litigations. A piecemeal resort to one court and another gives rise to multiplicity of suits. To
force the employees to shuttle from one court to another to secure full redress is a situation gravely prejudicial. The time to
be lost, effort wasted, anxiety augmented, additional expense incurred these are considerations which weigh heavily against
split jurisdiction. Indeed, it is more in keeping with orderly administration of justice that all the causes of action here "be
cognizable and heard by only one court: the Court of Industrial Relations."
The same justification is used in the present case to reject DOJ's jurisdiction over the BIR and PNB, to the exclusion of the other parties.
The rights of all four parties in CTA Case No. 4249, namely the BIR, as the tax collector; PNOC, the taxpayer; PNB, the withholding
agent; and private respondent Savellano, the informer claiming his reward; arose from the same factual background and were so closely
interrelated, that a pronouncement as to one would definitely have repercussions on the others. The ends of justice were best served
when the CTA continued to exercise its jurisdiction over CTA Case No. 4249. The CTA, which had assumed jurisdiction over all the
parties to the controversy, could render a comprehensive resolution of the issues raised and grant complete relief to the parties.
II
Validity of the Compromise Agreement
A. PNOC could not apply for a compromise under E.O. No. 44 because its tax liability was not a delinquent account or a
disputed assessment as of 31 December 1985.
PNOC and PNB, on different grounds, dispute the decision of the CTA in CTA Case No. 4249 declaring the compromise agreement
between BIR and PNOC without force and effect.
PNOC asserts that the compromise agreement was in accordance with E.O. No. 44, and its implementing rules and regulations, and
should be binding upon the parties thereto.
E.O. No. 44 granted the BIR Commissioner or his duly authorized representatives the power to compromise any disputed assessment or
delinquent account pending as of 31 December 1985, upon the payment of an amount equal to 30% of the basic tax assessed; in which
case, the corresponding interests and penalties shall be condoned. E.O. No. 44 took effect on 04 September 1986 and remained effective
until 31 March 1987.
The disputed assessments or delinquent accounts that the BIR Commissioner could compromise under E.O. No. 44 are defined under
Revenue Regulation (RR) No. 17-86, as follows:
a) Delinquent account Refers to the amount of tax due on or before December 31, 1985 from a taxpayer who failed to pay
the same within the time prescribed for its payment arising from (1) a self assessed tax, whether or not a tax return was filed,
or (2) a deficiency assessment issued by the BIR which has become final and executory.
Where no return was filed, the taxpayer shall be considered delinquent as of the time the tax on such return was due, and in
availing of the compromise, a tax return shall be filed as a basis for computing the amount of compromise to be paid.
b) Disputed assessment refers to a tax assessment disputed or protested on or before December 31, 1985 under any of the
following categories:
1) if the same is administratively protested within thirty (30) days from the date the taxpayer received the assessment, or
2.) if the decision of the BIR on the taxpayer's administrative protest is appealed by the taxpayer before an appropriate
court.

PNOC's tax liability could not be considered a delinquent account since (1) it was not self-assessed, because the BIR conducted an
investigation and assessment of PNOC and PNB after obtaining information regarding the non-withholding of tax from private
respondent Savellano; and (2) the demand letter, issued against it on 08 August 1986, could not have been a deficiency assessment that
became final and executory by 31 December 1985.
The dissenting opinion contends, however, that the tax liability of PNOC constitutes a self-assessed tax, and is, therefore, a delinquent
account as of 31 December 1985, qualifying for a compromise under E.O. No. 44. It anchors its argument on the declaration made by
this Court in Tupaz v. Ulep,65 that internal revenue taxes are self-assessing.
It is not denied herein that the self-assessing system governs Philippine internal revenue taxes. The dissenting opinion itself defines self-
assessed tax as, "a tax that the taxpayer himself assesses or computes and pays to the taxing authority." Clearly, such a system imposes
upon the taxpayer the obligation to conduct an assessment of himself so he could determine and declare the amount to be used as tax
basis, any deductions therefrom, and finally, the tax due.
E.O. No. 44 covers self-assessed tax, whether or not a tax return was filed. The phrase "whether or not a tax return was filed" only refers
to the compliance by the taxpayer with the obligation to file a return on the dates specified by law, but it does not do away with the
requisite that the tax must be self-assessed in order for the taxpayer to avail of the compromise. The second paragraph of Section 2(a) of
RR No. 17-86 expressly commands, and still imposes upon the taxpayer, who is availing of the compromise under E.O. No. 44, and who
has not previously filed any return, the duty to conduct self-assessment by filing a tax return that would be used as the basis for
computing the amount of compromise to be paid.
Section 2(a)(1) of RR No. 17-86 thus involves a situation wherein a taxpayer, after conducting a self-assessment, discovers or becomes
aware that he had failed to pay a tax due on or before 31 December 1985, regardless of whether he had previously filed a return to reflect
such tax; voluntarily comes forward and admits to the BIR his tax liability; and applies for a compromise thereof. In case the taxpayer
has not previously filed any return, he must fill out such a return reflecting therein his own declaration of the taxable amount and
computation of the tax due. The compromise payment shall be computed based on the amount reflected in the tax return submitted by the
taxpayer himself.
Neither PNOC nor PNB, the taxpayer and the withholding agent, respectively, conducted self-assessment in this case. There is no
showing that in the absence of the tax assessment issued by the BIR against them, that PNOC and/or PNB would have voluntarily
admitted their tax liabilities, already amounting to P385,961,580.82, as of 15 November 1986, and would have offered to compromise the
same. In fact, both PNOC and PNB were conspicuously silent about their tax liabilities until they were assessed thereon.
Any attempt by PNOC and PNB to assess and declare by themselves their tax liabilities had already been overtaken by the BIR's conduct
of its audit and investigation and subsequent issuance of the assessments, dated 08 August 1986 and 08 October 1986, against PNOC and
PNB, respectively. The said tax assessments, uncontested and undisputed, presented the results of the BIR audit and investigation and the
computation of the total amount of tax liabilities of PNOC and PNB. They should be controlling in this case, and should not be so easily
and conveniently ignored and set aside. It would be a contradiction to claim that the tax liabilities of PNOC and PNB are self-assessed
and, at the same time, BIR-assessed; when it is clear and simple that it had been the BIR that conducted the assessment and determined
the tax liabilities of PNOC and PNB.
That the BIR-assessed tax liability should be differentiated from a self-assessed one, is supported by the provisions of RR No. 17-86 on
the basis for computing the amount of compromise payment. Note that where tax liabilities are self-assessed, the compromise payment
shall be computed based on the tax return filed by the taxpayer.66 On the other hand, where the BIR already issued an assessment, the
compromise payment shall be computed based on the tax due on the assessment notice. 67
For instances where the BIR had already issued an assessment against the taxpayer, the tax liability could still be compromised under
E.O. No. 44 only if: (1) the assessment had been final and executory on or before 31 December 1985 and, therefore, considered a
delinquent account as of said date;68 or (2) the assessment had been disputed or protested on or before 31 December 1985. 69
RMO No. 39-86, which provides the guidelines for the implementation of E.O. No. 44, does mention different types of assessments that
may be compromised under said statute (i.e., jeopardy assessments, arbitrary assessments, and tax assessments of doubtful validity).
RMO No. 39-86 may not have expressly stated any qualification for these particular types of assessments; nonetheless, E.O. No. 44
specifically refers only to assessments that were delinquent or disputed as of 31 December 1985.
Tax II Set 4 * Assessment Cases*Page 50 of 65
E.O. No. 44 and all BIR issuances to implement said statute should be interpreted so that they are harmonized and consistent with each
other. Accordingly, this Court finds that the different types of assessments mentioned in RMO No. 39-86 would still have to qualify as
delinquent accounts or disputed assessments as of 31 Dcember 1985, so that they could be compromised under E.O. No. 44.
The BIR had first written to PNOC on 08 August 1986, demanding payment of the income tax on the interest earnings and/or yields from
PNOC's money placements with PNB from 15 October 1984 to 15 October 1986. This demand letter could be regarded as the first
assessment notice against PNOC.
Such an assessment, issued only on 08 August 1986, could not have been final and executory as of 31 December 1985 so as to constitute
a delinquent account. Neither was the assessment against PNOC an assessment that could have been disputed or protested on or before
31 December 1985, having been issued on a later date.
Given that PNOC's tax liability did not constitute a delinquent account or a disputed assessment as of 31 December 1985, then it could
not be compromised under E.O. No. 44.
The assessment against PNOC, instead, was more appropriately covered by Revenue Memorandum Circular (RMC) No. 31-86. RMC
No. 31-86 clarifies the scope of availment of the tax amnesty under E.O. No. 41 70 and compromise payments on delinquent accounts and
disputed assessments under E.O. No. 44. The third paragraph of RMC No. 31-86 reads:
[T]axpayers against whom assessments had been issued from January 1 to August 21, 1986 may settle their tax liabilities by
way of compromise under Section 246 of the Tax Code as amended by paying 30% of the basic assessment excluding
surcharge, interest, penalties and other increments thereto.
The above-quoted paragraph supports the position that only assessments that were disputed or that were final and executory by 31
December 1985 could be the subject of a compromise under E.O. No. 44. Assessments issued between 01 January to 21 August 1986
could still be compromised by payment of 30% of the basic tax assessed, not anymore pursuant to E.O. No. 44, but pursuant to Section
246 of the NIRC of 1977, as amended.
Section 246 of the NIRC of 1977, as amended, granted the BIR Commissioner the authority to compromise the payment of any internal
revenue tax under the following circumstances: (1) there exists a reasonable doubt as to the validity of the claim against the taxpayer; or
(2) the financial position of the taxpayer demonstrates a clear inability to pay the assessed tax. 71
There are substantial differences in circumstances under which compromises may be granted under Section 246 of the NIRC of 1977, as
amended, and E.O. No. 44. Although PNOC and PNB have extensively argued their entitlement to compromise under E.O. No. 44,
neither of them has alleged, much less, has presented any evidence to prove that it may compromise its tax liability under Section 246 of
the NIRC of 1977, as amended.
B. The tax liability of PNB as withholding agent also did not qualify for compromise under E.O. No. 44.
Before proceeding any further, this Court reconsiders the conclusion made by BIR Commissioner Ong in his demand letter, dated 16
January 1991, that the compromise settlement executed between the BIR and PNOC was without legal basis because withholding taxes
were not actually taxes that could be compromised, but a penalty for PNB's failure to withhold and for which it was made personally
liable.
E.O. No. 44 covers disputed or delinquency cases where the person assessed was himself the taxpayer rather than a mere agent. 72 RMO
No. 39-86 expressly allows a withholding agent, who failed to withhold the required tax because of neglect, ignorance of the law, or his
belief that he was not required by law to withhold tax, to apply for a compromise settlement of his withholding tax liability under E.O.
No. 44. A withholding agent, in such a situation, may compromise the withholding tax assessment against him precisely because he is
being held directly accountable for the tax.73

RMO No. 39-86 distinguishes between the withholding agent in the foregoing situation from the withholding agent who withheld the tax
but failed to remit the amount to the Government. A withholding agent in the latter situation is the one disqualified from applying for a
compromise settlement because he is being made accountable as an agent, who held funds in trust for the Government. 74
Both situations, however, involve withholding agents. The right to compromise under these provisions should have been claimed by
PNB, the withholding agent for PNOC. The BIR held PNB personally accountable for its failure to withhold the tax on the interest
earnings and/or yields from PNOC's money placements with PNB. The BIR sent a demand letter, dated 08 October 1986, addressed
directly to PNB, for payment of the withholding tax assessed against it, but PNB failed to take any action on the said demand letter. Yet,
all the offers to compromise the withholding tax assessment came from PNOC and PNOC did not claim that it made the offers to
compromise on behalf of PNB.
Moreover, the general requirement of E.O. No. 44 still applies to withholding agents that the withholding tax liability must either be a
delinquent account or a disputed assessment as of 31 December 1985 to qualify for compromise settlement. The demand letter against
PNB, which also served as its assessment notice, had been issued on 08 October 1986 or two months later than PNOC's. PNB's
withholding tax liability could not be considered a delinquent account or a disputed assessment, as defined under RR No. 17-86, for the
same reasons that PNOC's tax liability did not constitute as such. The tax liability of PNB, therefore, was also not eligible for
compromise settlement under E.O. No. 44.
C. Even assuming arguendo that PNOC and/or PNB qualified under E.O. No. 44, their application for compromise was filed
beyond the deadline.
Despite already ruling that the tax liabilities of PNOC and PNB could not be compromised under E.O. No. 44, this Court still deems it
necessary to discuss the finding of the CTA that the compromise agreement had been filed beyond the effectivity of E.O. No. 44, since
the CTA made a declaration in relation thereto that paragraph 2 of RMO No. 39-86 was null and void for unduly extending the effectivity
of E.O. No. 44.
Paragraph 2 of RMO No. 39-86 provides that:
2. Period for availment. Filing of application for compromise settlement under the said law shall be effective only until
March 31, 1987. Applications filed on or before this date shall be valid even if the payment or payments of the compromise
amount shall be made after the said date, subject, however, to the provisions of Executive Order No. 44 and its implementing
Revenue Regulations No. 17-86.
It is well-settled in this jurisdiction that administrative authorities are vested with the power to make rules and regulations because it is
impracticable for the lawmakers to provide general regulations for various and varying details of management. The interpretation given
to a rule or regulation by those charged with its execution is entitled to the greatest weight by the court construing such rule or regulation,
and such interpretation will be followed unless it appears to be clearly unreasonable or arbitrary.75
RMO No. 39-86, particularly paragraph 2 thereof, does not appear to be unreasonable or arbitrary. It does not unduly expand the
coverage of E.O. No. 44 by merely providing that applications for compromise filed until 31 March 1987 are still valid, even if payment
of the compromised amount is made on a later date.
It cannot be expected that the compromise allowed under E.O. No. 44 can be automatically granted upon mere filing of the application by
the taxpayer. Irrefutably, the applications would still have to be processed by the BIR to determine compliance with the requirements of
E.O. No. 44. As it is uncontested that a taxpayer could still file an application for compromise on 31 March 1987, the very last day of
effectivity of E.O. No. 44, it would be unreasonable to expect the BIR to process and approve the taxpayer's application within the same
date considering the volume of applications filed and pending approval, plus the other matters the BIR personnel would also have to
attend to. Thus, RMO No. 39-86 merely assures the taxpayers that their applications would still be processed and could be approved on a
later date. Payment, of course, shall be made by the taxpayer only after his application had been approved and the compromised amount
had been determined.
Given that paragraph 2 of RMO No. 39-86 is valid, the next question that needs to be addressed is whether PNOC had been able to
submit an application for compromise on or before 31 March 1987 in compliance thereof. Although the compromise agreement was
Tax II Set 4 * Assessment Cases*Page 51 of 65
executed only on 22 June 1987, PNOC is claiming that it had already written a letter to the BIR, as early as 25 September 1986, offering
to compromise its tax liability, and that the said letter should be considered as PNOC's application for compromise settlement.
A perusal of PNOC's letter, dated 25 September 1986, would reveal, however, that the terms of its proposed compromise did not conform
to those authorized by E.O. No. 44. PNOC did not offer to pay outright 30% of the basic tax assessed against it as required by E.O. No.
44; and instead, made the following offer:
(2) That PNOC be permitted to set-off its foregoing mentioned tax liability of P304,419,396.83 against the tax refund/credit
claims of the National Power Corporation (NPC) for specific taxes on fuel oil sold to NPC totaling P335,259,450.21, which
tax refunds/credits are actually receivable accounts of our Company from NPC. 76
PNOC reiterated the offer in its letter to the BIR, dated 14 October 1986. 77 The BIR, in its letters to PNOC, dated 8 October 1986 78 and
11 November 1986,79 consistently denied PNOC's offer because the claim for tax refund/credit of NAPOCOR was still under process, so
that the offer to set-off such claim against PNOC's tax liability was premature.
Furthermore, E.O. No. 44 does not contemplate compromise payment by set-off of a tax liability against a claim for tax refund/credit.
Compromise under E.O. No. 44 may be availed of only in the following circumstances:
SEC. 3. Who may avail. Any person, natural or juridical, may settle thru a compromise any delinquent account or disputed
assessment which has been due as of December 31, 1985, by paying an amount equal to thirty percent (30%) of the basic
tax assessed.
SEC. 6. Mode of Payment. Upon acceptance of the proposed compromise, the amount offered as compromise in complete
settlement of the delinquent account shall be paid immediately in cash or manager's certified check.
Deferred or staggered payments of compromise amounts over P50,000 may be considered on a case to case basis in
accordance with the extant regulations of the Bureau upon approval of the Commissioner of Internal Revenue, his Deputy or
Assistant as delineated in their respective jurisdictions.
If the Compromise amount is not paid as required herein, the compromise agreement is automatically nullified and the
delinquent account reverted to the original amount plus the statutory increments, which shall be collected thru the summary
and/or judicial processes provided by law.
E.O. No. 44 is not for the benefit of the taxpayer alone, who can extinguish his tax liability by paying the compromise amount equivalent
to 30% of the basic tax. It also benefits the Government by making collection of delinquent accounts and disputed assessments simpler,
easier, and faster. Payment of the compromise amount must be made immediately, in cash or in manager's check. Although deferred or
staggered payments may be allowed on a case-to-case basis, the mode of payment remains unchanged, and must still be made either in
cash or in manager's check.
PNOC's offer to set-off was obviously made to avoid actual cash-out by the company. The offer defeated the purpose of E.O. No. 44
because it would not only delay collection, but more importantly, it would not guarantee collection. First of all, BIR's collection was
contingent on whether the claim for tax refund/credit of NAPOCOR would be subsequently granted. Second, collection could not be
made immediately and would have to wait until the resolution of the claim for tax refund/credit of NAPOCOR. Third, there is no proof,
other than the bare allegation of PNOC, that NAPOCOR's claim for tax refund/credit is an account receivable of PNOC. A possible
dispute between NAPOCOR and PNOC as to the proceeds of the tax refund/credit would only delay collection by the BIR even further.
It was only in its letter, dated 09 June 1987, that PNOC actually offered to compromise its tax liability in accordance with the terms and
circumstances prescribed by E.O. No. 44 and its implementing rules and regulations, by stating that:

Consequently, we reiterate our previous request for compromise under E.O. No. 44, and convey our preparedness to settle the
subject tax assessment liability by payment of the compromise amount ofP91,003,129.89, representing thirty percent (30%)
of the basic tax assessment of P303,343,766.29, in accordance with E.O. No. 44 and its implementing BIR Revenue
Memorandum Order No. 39-86.80
PNOC claimed in the same letter that it had previously requested for a compromise under the terms of E.O. No. 44, but this Court could
not find evidence of such previous request. There are stark and substantial differences in the terms of PNOC's offer to compromise in its
earlier letters, dated 25 September 1986 and 14 October 1986 (set-off of the entire amount of its tax liability against the claim for tax
refund/credit of NAPOCOR), to those in its letter, dated 09 June 1987 (payment of the compromise amount representing 30% of the basic
tax assessed against it), making it difficult for this Court to accept that the letter of 09 June 1987 merely reiterated PNOC's offer to
compromise in its earlier letters.
This Court likewise cannot give credence to PNOC's allegation that beginning 25 September 1986, the date of its first letter to the BIR,
there were continuing negotiations between PNOC and BIR that culminated in the compromise agreement on 22 June 1987. Aside from
the exchange of letters recounted in the preceding paragraphs, both PNOC and PNB failed to present any other proof of the supposed
negotiations.
After the BIR denied the second offer of PNOC to set-off its tax liability against the claim for tax refund/credit of NAPOCOR in a letter,
dated 11 November 1986, there is no other evidence of subsequent communication between PNOC and the BIR. It was only after almost
seven months, or on 09 June 1987, that PNOC again wrote a letter to the BIR, this time offering to pay the compromise amount of 30%
of the basic tax assessed against. This letter was already filed beyond 31 March 1987, after the lapse of the effectivity of E.O. No. 44 and
the deadline for filing applications for compromise under the said statute.
Evidence of meetings between PNOC and the BIR, or any other form of communication, wherein the parties presented their offer and
counter-offer to the other, would have been very valuable in explaining and supporting BIR Commissioner Tan's decision to accept
PNOC's third offer to compromise after denying the previous two. The absence of such evidence herein negates PNOC's claim of actual
negotiations with the BIR.
Therefore, even assuming arguendo that the tax liabilities of PNOC and PNB qualify as delinquent accounts or disputed assessments as
of 31 December 1985, the application for compromise filed by PNOC on 09 June 1987, and accepted by then BIR Commissioner Tan on
22 June 1987, was still filed way beyond 31 March 1987, the expiration date of the effectivity of E.O. No. 44 and the deadline for filing
of applications for compromise under RMO No. 39-86.
D. The BIR Commissioner's discretionary authority to enter into a compromise agreement is not absolute and the CTA may
inquire into allegations of abuse thereof.
The foregoing discussion supports the CTA's conclusion that the compromise agreement between PNOC and the BIR was indeed without
legal basis. Despite this lack of legal support for the execution of the said compromise agreement, PNB argues that the CTA still had no
jurisdiction to review and set aside the compromise agreement. It contends that the authority to compromise is purely discretionary on
the BIR Commissioner and the courts cannot interfere with his exercise thereof.
It is generally true that purely administrative and discretionary functions may not be interfered with by the courts; but when the exercise
of such functions by the administrative officer is tainted by a failure to abide by the command of the law, then it is incumbent on the
courts to set matters right, with this Court having the last say on the matter.81
The manner by which BIR Commissioner Tan exercised his discretionary power to enter into a compromise was brought under the
scrutiny of the CTA amidst allegations of "grave abuse of discretion and/or whimsical exercise of jurisdiction." 82 The discretionary power
of the BIR Commissioner to enter into compromises cannot be superior over the power of judicial review by the courts.
The discretionary authority to compromise granted to the BIR Commissioner is never meant to be absolute, uncontrolled and
unrestrained. No such unlimited power may be validly granted to any officer of the government, except perhaps in cases of national
emergency.83 In this case, the BIR Commissioner's authority to compromise, whether under E.O. No. 44 or Section 246 of the NIRC of
1977, as amended, can only be exercised under certain circumstances specifically identified in said statutes. The BIR Commissioner
Tax II Set 4 * Assessment Cases*Page 52 of 65
would have to exercise his discretion within the parameters set by the law, and in case he abuses his discretion, the CTA may correct such
abuse if the matter is appealed to them.84
Petitioners PNOC and PNB both contend that BIR Commissioner Tan merely exercised his authority to enter into a compromise specially
granted by E.O. No. 44. Since this Court has already made a determination that the compromise agreement did not qualify under E.O.
No. 44, BIR Commissioner Tan's decision to agree to the compromise should have been reviewed in the light of the general authority
granted to the BIR Commissioner to compromise taxes under Section 246 of the NIRC of 1977, as amended. Then again, petitioners
PNOC and PNB failed to allege, much less present evidence, that BIR Commissioner Tan acted in accordance with Section 246 of the
NIRC of 1977, as amended, when he entered into the compromise agreement with PNOC.
E. The CTA may set aside a compromise agreement that is contrary to law and public policy.
PNB also asserts that the CTA had no jurisdiction to set aside a compromise agreement entered into in good faith. It relies on the
decision of this Court in Republic v. Sandiganbayan 85 that a compromise agreement cannot be set aside merely because it is too one-
sided. A compromise agreement should be respected by the courts as the res judicata between the parties thereto.
This Court, though, finds that there are substantial differences in the factual background of Republic v. Sandiganbayan and the present
case.
The compromise agreement executed between the Presidential Commission on Good Government (PCGG) and Roberto S. Benedicto
in Republic v. Sandiganbayan was judicially approved by the Sandiganbayan. The Sandiganbayan had ample opportunity to examine the
validity of the compromise agreement since two years elapsed from the time the agreement was executed up to the time it was judicially
approved. This Court even stated in the said case that, "We are not dealing with the usual compromise agreement perfunctorily submitted
to a court and approved as a matter of course. The PCGG-Benedicto agreement was thoroughly and, at times, disputatiously discussed
before the respondent court. There could be no deception or misrepresentation foisted on either the PCGG or the Sandiganbayan." 86
In addition, the new PCGG Chairman originally prayed for the re-negotiation of the compromise agreement so that it could be more just,
fair, and equitable, an action considered by this Court as an implied admission that the agreement was not contrary to law, public policy
or morals nor was there any circumstance which had vitiated consent. 87
The above-mentioned circumstances strongly supported the validity of the compromise agreement in Republic v. Sandiganbayan, which
was why this Court refused to set it aside. Unfortunately for the petitioners in the present case, the same cannot be said herein.
The Court of Appeals, in upholding the jurisdiction of the CTA to set aside the compromise agreement, ruled that:
We are unable to accept petitioner's submissions. Its formulation of the issues on CIR and CTA's lack of jurisdiction to
disturb a compromise agreement presupposes a compromise agreement validly entered into by the CIR and not, when as in
this case, it was indubitably shown that the supposed compromise agreement is without legal support. In case of arbitrary or
capricious exercise by the Commissioner or if the proceedings were fatally defective, the compromise can be attacked and
reversed through the judicial process (Meralco Securities Corporation v. Savellano, 117 SCRA 805, 812 [1982]; Sarah E.
Ramsay, et. al. v. U.S. 21 Ct. C1 443, aff'd 120 U.S. 214, 30 L. Ed. 582; Tyson v. U.S., 39 F. Supp. 135 cited in page 18 of
decision) .88
Although the general rule is that compromises are to be favored, and that compromises entered into in good faith cannot be set
aside,89 this rule is not without qualification. A court may still reject a compromise or settlement when it is repugnant to law, morals,
good customs, public order, or public policy.90
The compromise agreement between the BIR and PNOC was contrary to law having been entered into by BIR Commissioner Tan in
excess or in abuse of the authority granted to him by legislation. E.O. No. 44 and the NIRC of 1977, as amended, had identified the
situations wherein the BIR Commissioner may compromise tax liabilities, and none of these situations existed in this case.

The compromise, moreover, was contrary to public policy. The primary duty of the BIR is to collect taxes, since taxes are the lifeblood
of the Government and their prompt and certain availability are imperious needs. 91 In the present case, however, BIR Commissioner Tan,
by entering into the compromise agreement that was bereft of any legal basis, would have caused the Government to lose almost P300
million in tax revenues and would have deprived the Government of much needed monetary resources.
Allegations of good faith and previous execution of the terms of the compromise agreement on the part of PNOC would not be enough
for this Court to disregard the demands of law and public policy. Compromise may be the favored method to settle disputes, but when it
involves taxes, it may be subject to closer scrutiny by the courts. A compromise agreement involving taxes would affect not just the
taxpayer and the BIR, but also the whole nation, the ultimate beneficiary of the tax revenues collected.
F. The Government cannot be estopped from collecting taxes by the mistake, negligence, or omission of its agents.
The new BIR Commissioner, Commissioner Ong, had acted well within his powers when he set aside the compromise agreement, dated
22 June 1987, after finding that the said compromise agreement was without legal basis. When he took over from his predecessor, there
was still a pending motion for reconsideration of the said compromise agreement, filed by private respondent Savellano on 24 March
1988. To resolve the said motion, he reviewed the compromise agreement and, thereafter, came upon the conclusion that it did not
comply with E.O. No. 44 and its implementing rules and regulations.
It had been declared by this Court in Hilado v. Collector of Internal Revenue, et al.,92 that an administrative officer, such as the BIR
Commissioner, may revoke, repeal or abrogate the acts or previous rulings of his predecessor in office. The construction of a statute by
those administering it is not binding on their successors if, thereafter, the latter becomes satisfied that a different construction should be
given.
It is evident in this case that the new BIR Commissioner, Commissioner Ong, construed E.O. No. 44 and its implementing rules and
regulations differently from that of his predecessor, former Commissioner Tan, which led to Commissioner Ong's revocation of the BIR
approval of the compromise agreement, dated 22 June 1987. Such a revocation was only proper considering that the former BIR
Commissioner's decision to approve the said compromise agreement was based on the erroneous construction of the law (i.e., E.O. No.
44 and its implementing rules and regulations) and should not give rise to any vested right on PNOC. 93
Furthermore, approval of the compromise agreement and acceptance of the compromise payment by his predecessor cannot estop BIR
Commissioner Ong from setting aside the compromise agreement, dated 22 June 1987, for lack of legal basis; and from demanding
payment of the deficiency withholding tax from PNB. As a general rule, the Government cannot be estopped from collecting taxes by the
mistake, negligence, or omission of its agents94 because:
. . . Upon taxation depends the Government ability to serve the people for whose benefit taxes are collected. To safeguard
such interest, neglect or omission of government officials entrusted with the collection of taxes should not be allowed to
bring harm or detriment to the people, in the same manner as private persons may be made to suffer individually on account
of his own negligence, the presumption being that they take good care of their personal affairs. This should not hold true to
government officials with respect to matters not of their own personal concern. This is the philosophy behind the
government's exception, as a general rule, from the operation of the principle of estoppel. (Republic vs. Caballero, L-27437,
September 30, 1977, 79 SCRA 177; Manila Lodge No. 761, Benevolent and Protective Order of the Elks, Inc. vs. Court of
Appeals, L-41001, September 30, 1976, 73 SCRA 162; Sy vs. Central Bank of the Philippines, L-41480, April 30, 1976, 70
SCRA 571; Balmaceda vs. Corominas & Co., Inc., 66 SCRA 553;Auyong Hian vs. Court of Tax Appeals, 59 SCRA
110; Republic vs. Philippine Rabbit Bus Lines, Inc., 66 SCRA 553; Republic vs. Philippine Long Distance Telephone
Company, L-18841, January 27, 1969, 26 SCRA 620; Zamora vs. Court of Tax Appeals, L-23272, November 26, 1970, 36
SCRA 77; E. Rodriguez, Inc. vs. Collector of Internal Revenue, L-23041, July 31, 1969, 28 SCRA 119).95
III
Finality of the Tax Assessment
A. The issue on whether the BIR complied with the notice requirements under RR No. 12-85 is raised for the first time on
appeal and should not be given due course.
Tax II Set 4 * Assessment Cases*Page 53 of 65
PNB, in another effort to block the collection of the deficiency withholding tax, this time raises doubts as to the validity of the deficiency
withholding tax assessment issued against it on 16 January 1991. It submits that the BIR failed to comply with the notice requirements
set forth in RR No. 12-85.96
Whether or not the BIR complied with the notice requirements of RR No. 12-85 is a new issue raised by PNB only before this Court.
Such a question has not been ventilated before the lower courts. For an appellate tribunal to consider a legal question, it should have
been raised in the court below.97 If raised earlier, the matter would have been seriously delved into by the CTA and the Court of Appeals. 98
B. The assessment against PNB had become final and unappealable, and therefore, enforceable.
The CTA and the Court of Appeals declared as final and unappealable, and thus, enforceable, the assessment against PNB, dated 16
January 1991, since PNB failed to protest said assessment within the 30-day prescribed period. This Court, though, finds that the
significant BIR assessment, as far as this case is concerned, should be the one issued by the BIR against PNB on 08 October 1986.
The BIR issued on 08 October 1986 an assessment against PNB for its withholding tax liability on the interest earnings and/or yields
from PNOC's money placements with the bank. It had 30 days from receipt to protest the BIR's assessment. 99 PNB, however, did not
take any action as to the said assessment so that upon the lapse of the period to protest, the withholding tax assessment against it, dated 8
October 1986, became final and unappealable, and could no longer be disputed. 100 The courts may therefore order the enforcement of this
assessment.
It is the enforcement of this BIR assessment against PNB, dated 08 October 1986, that is in issue in the instant case. If the compromise
agreement is valid, it would effectively bar the BIR from enforcing the assessment and collecting the assessed tax; on the other hand, if
the compromise agreement is void, then the courts can order the BIR to enforce the assessment and collect the assessed tax.
As has been previously discussed by this Court, the BIR demand letter, dated 16 January 1991, is not a new assessment against PNB. It
only demanded from PNB the payment of the balance of the withholding tax assessed against it on 08 October 1986. The same demand
letter also has no substantial effect or impact on the resolution of the present case. It is already unnecessary and superfluous, having been
issued by the BIR when CTA Case No. 4249 was already pending before the CTA. At best, the demand letter, dated 16 January 1991,
constitute a useful reference for the courts in computing the balance of PNB's tax liability, after applying as partial payment thereon the
amount previously received by the BIR from PNOC pursuant to the compromise agreement.
IV
Prescription
A. The defense of prescription was never raised by petitioners PNOC and PNB, and should be considered waived.
The dissenting opinion takes the position that the right of the BIR to assess and collect income tax on the interest earnings and/or yields
from PNOC's money placements with PNB, particularly for taxable year 1985, had already prescribed, based on Section 268 of the NIRC
of 1977, as amended.
Section 268 of the NIRC of 1977, as amended, provides a three-year period of limitation for the assessment and collection of internal
revenue taxes, which begins to run after the last day prescribed for filing of the return. 101
The dissenting opinion points out that more than four years have elapsed from 25 January 1986 (the last day prescribed by law for PNB
to file its withholding tax return for the fourth quarter of 1985) to 16 January 1991 (the date when the alleged final assessment of PNB's
tax liability was issued).
The issue of prescription, however, was brought up only in the dissenting opinion and was never raised by PNOC and PNB in the
proceedings before the BIR nor in any of their pleadings submitted to the CTA and the Court of Appeals.

Section 1, Rule 9 of the Rules of Civil Procedure lays down the rule on defenses and objections not pleaded, and reads:
SECTION 1. Defenses and objections not pleaded. Defenses and objections not pleaded either in a motion to dismiss or
in the answer are deemed waived. However, when it appears from the pleadings or the evidence on record that the court has
no jurisdiction over the subject matter, that there is another action pending between the parties for the same cause, or that the
action is barred by prior judgment or by the statute of limitations, the court shall dismiss the claim.
The general rule enunciated in the above-quoted provision governs the present case, that is, the defense of prescription, not pleaded in a
motion to dismiss or in the answer, is deemed waived. The exception in same provision cannot be applied herein because the pleadings
and the evidence on record do not sufficiently show that the action is barred by prescription.
It has been consistently held in earlier tax cases that the defense of prescription of the period for the assessment and collection of tax
liabilities shall be deemed waived when such defense was not properly pleaded and the facts alleged and evidences submitted by the
parties were not sufficient to support a finding by this Court on the matter.102 In Querol v. Collector of Internal Revenue,103 this Court
pronounced that prescription, being a matter of defense, imposes the burden on the taxpayer to prove that the full period of the limitation
has expired; and this requires him to positively establish the date when the period started running and when the same was fully
accomplished.
In making its conclusion that the assessment and collection in this case had prescribed, the dissenting opinion took liberties to assume the
following facts even in the absence of allegations and evidences to the effect that: (1) PNB filed returns for its withholding tax
obligations for taxable year 1985; (2) PNB reported in the said returns the interest earnings of PNOC's money placements with the bank;
and (3) that the returns were filed on or before the prescribed date, which was 25 January 1986.
It is not safe to adopt the first and second assumptions in this case considering that Section 269 of the NIRC of 1977, as amended,
provides for a different period of limitation for assessment and collection of taxes in case of false or fraudulent return or for failure to file
a return. In such cases, the BIR is given 10 years after discovery of the falsity, fraud, or omission within which to make an assessment. 104
It is also not safe to accept the third assumption since there can be a possibility that PNB filed the withholding tax return later than the
prescribed date, in which case, following the dictates of Section 268 of the NIRC of 1977, as amended, the three-year prescriptive period
shall be counted from the date the return was actually filed. 105
PNB's withholding tax returns for taxable year 1985, duly received by the BIR, would have been the best evidence to prove actual filing,
the date of filing and the contents thereof. These facts are relevant in determining which prescriptive period should apply, and when such
prescriptive period should begin to run and when it had lapsed. Yet, the pleadings did not refer to any return, and no return was made
part of the records of the present case.
This Court could not make a proper ruling on the matter of prescription on the mere basis of assumptions; such an issue should have been
properly raised, argued, and supported by evidences submitted by the parties themselves before the BIR and the courts below.
B. Granting that this Court can take cognizance of the defense of prescription, this Court finds that the assessment of the
withholding tax liability against PNOC and collection of the tax assessed were done within the prescriptive period.
Assuming, for the sake of argument, that this Court can give due course to the defense of prescription, it finds that the assessment against
PNB for its withholding tax liability for taxable year 1985 and the collection of the tax assessed therein were accomplished within the
prescribed periods for assessment and collection under the NIRC of 1977, as amended.
If this Court adopts the assumption made by the dissenting opinion that PNB filed its withholding tax return for the last quarter of 1985
on 25 January 1986, then the BIR had until 24 January 1989 to assess PNB. The original assessment against PNB was issued as early as
08 October 1986, well-within the three-year prescriptive period for making the assessment as prescribed by the following provisions of
the NIRC of 1977, as amended:
Tax II Set 4 * Assessment Cases*Page 54 of 65
SEC. 268. Period of limitation upon assessment and collection. Except as provided in the succeeding section, internal
revenue taxes shall be assessed within three 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
SEC. 269. Exceptions as to period of limitation of assessment and collection of taxes.
(c) Any internal revenue tax which has been assessed within the period of limitation above-prescribed may be collected by
distraint or levy or by a proceeding in court within three years following the assessment of the tax.
Sections 268 and 269(c) of the NIRC of 1977, as amended, should be read in conjunction with one another. Section 268 requires that
assessment be made within three years from the last day prescribed by law for the filing of the return. Section 269(c), on the other hand,
provides that when an assessment is issued within the prescribed period provided in Section 268, the BIR has three years, counted from
the date of the assessment, to collect the tax assessed either by distraint, levy or court action. Therefore, when an assessment is timely
issued in accordance with Section 268, the BIR is given another three-year period, under Section 269(c), within which to collect the tax
assessed, reckoned from the date of the assessment.
In the case of PNB, an assessment was issued against it by the BIR on 08 October 1986, so that the BIR had until 07 October 1989 to
enforce it and to collect the tax assessed. The filing, however, by private respondent Savellano of his Amended Petition for Review
before the CTA on 02 July 1988 already constituted a judicial action for collection of the tax assessed which stops the running of the
three-year prescriptive period for collection thereof.
A judicial action for the collection of a tax may be initiated by the filing of a complaint with the proper regular trial court; or where the
assessment is appealed to the CTA, by filing an answer to the taxpayer's petition for review wherein payment of the tax is prayed for. 106
The present case is unique, however, because the Petition for Review was filed by private respondent Savellano, the informer, against the
BIR, PNOC, and PNB. The BIR, the collecting government agency; PNOC, the taxpayer; and PNB, the withholding agent, initially
found themselves on the same side. The prayer in the Amended Petition for Review of private respondent Savellano reads:
WHEREFORE, in view of the foregoing, petitioner respectfully prays that the compromise agreement of June 22, 1987 be
reviewed and declared null and void, and that this Court directs:
a) respondent Commissioner to enforce and collect and respondents PNB and/or PNOC to pay in a joint and
several capacity, the total tax liability of P387,987,785.73, plus interests from 31 October 1986; and
b) respondent Commissioner to pay unto petitioner, as informer's reward, 15% of the tax liability collected under
clause (a) hereof.
Other equitable reliefs under the premises are likewise prayed for.107 (Underscoring ours.)
Private respondent Savellano, in his Amended Petition for Review in CTA Case No. 4249, prayed for (1) the CTA to direct the BIR
Commissioner to enforce and collect the tax, and (2) PNB and/or PNOC to pay the tax making CTA Case No. 4249 a collection case.
That the Amended Petition for Review was filed by the informer and not the taxpayer; and that the prayer for the enforcement of the tax
assessment and payment of the tax was also made by the informer, not the BIR, should not affect the nature of the case as a judicial action
for collection. In case the CTA grants the Petition and the prayer therein, as what has happened in the present case, the ultimate result
would be the collection of the tax assessed. Consequently, upon the filing of the Amended Petition for Review by private respondent
Savellano, judicial action for collection of the tax had been initiated and the running of the prescriptive period for collection of the said
tax was terminated.
 Tax II Set 4 * Assessment Cases*Page 55 of 65

Supposing that CTA Case No. 4249 is not a collection case which stops the running of the prescriptive period for the collection of the tax, (1) The compromise agreement between PNOC and the BIR, dated 22 June 1987, is declared void for being contrary to law
CTA Case No. 4249, at the very least, suspends the running of the said prescriptive period. Under Section 271 of the NIRC of 1977, as and public policy, and is without force and effect;
amended, the running of the prescriptive period to collect deficiency taxes shall be suspended for the period during which the BIR
Commissioner is prohibited from beginning a distraint or levy or instituting a proceeding in court, and for 60 days thereafter. 108 Just as in
the cases of Republic v. Ker & Co., Ltd.109 and Protector's Services, Inc. v. Court of Appeals,110 this Court declares herein that the (2)Paragraph 2 of RMO No. 39-86 remains a valid provision of the regulation;
pendency of the present case before the CTA, the Court of Appeals and this Court, legally prevents the BIR Commissioner from
instituting an action for collection of the same tax liabilities assessed against PNOC and PNB in the CTA or the regular trial courts. To (3)The withholding tax assessment against PNB, dated 08 October 1986, had become final and unappealable. The BIR
rule otherwise would be to violate the judicial policy of avoiding multiplicity of suits and the rule on lis pendens. Commissioner is ordered to enforce the said assessment and collect the amount ofP294,958,450.73, the balance of tax
assessed after crediting the previous payment made by PNOC pursuant to the compromise agreement, dated 22 June 1987;
Once again, that CTA Case No. 4249 was initiated by private respondent Savellano, the informer, instead of PNOC, the taxpayer, or PNB, and
the withholding agent, would not prevent the suspension of the running of the prescriptive period for collection of the tax. What is
controlling herein is the fact that the BIR Commissioner cannot file a judicial action in any other court for the collection of the tax (4) Private respondent Savellano shall be paid the remainder of his informer's reward, equivalent to 15% of the deficiency
because such a case would necessarily involve the same parties and involve the same issues already being litigated before the CTA in withholding tax ordered collected herein, or P 44,243,767.61.
CTA Case No. 4249. The three-year prescriptive period for collection of the tax shall commence to run only after the promulgation of the
decision of this Court in which the issues of the present case are resolved with finality.
SO ORDERED.

Whether the filing of the Amended Petition for Review by private respondent Savellano entirely stops or merely suspends the running of
the prescriptive period for collection of the tax, it had been premature for the BIR Commissioner to issue a writ of garnishment against
PNB on 12 August 1991 and for the Central Bank of the Philippines to debit the account of PNB on 02 September 1992 pursuant to the
said writ, because the case was by then, pending review by the Court of Appeals. However, since this Court already finds that the THIRD DIVISION
compromise agreement is without force and effect and hereby orders the enforcement of the assessment against PNB, then, any issue or
controversy arising from the premature garnishment of PNB's account and collection of the tax by the BIR has become moot and
academic at this point.
COMMISSIONER OF INTERNAL G.R. No. 167560
V

Additional Informer's Reward REVENUE,

Private respondent Savellano is entitled to additional informer's reward since the BIR had already collected the full amount of the tax
assessment against PNB.
Petitioner, Present:
PNOC insists that private respondent Savellano is not entitled to additional informer's reward because there was no voluntary payment of
the withholding tax liability. PNOC, however, fails to state any legal basis for its argument.

Section 316(1) of the NIRC of 1977, as amended, granted a reward to an informer equivalent to 15% of the revenues, surcharges, or fees YNARES-SANTIAGO, J.,
recovered, plus, any fine or penalty imposed and collected. 111 The provision was clear and uncomplicated an informer was entitled to a
reward of 15% of the total amount actually recovered or collected by the BIR based on his information. The provision did not make any
distinction as to the manner the tax liability was collected whether it was through voluntary payment by the taxpayer or through
garnishment of the taxpayer's property. Applicable herein is another well-known maxim in statutory construction Ubi lex non distinguit
nec nos distinguere debemos when the law does not distinguish, we should not distinguish. 112 Chairperson,

Pursuant to the writ of garnishment issued by the BIR, the Central Bank issued a debit advice against the demand deposit account of PNB
with the Central Bank for the amount of P294,958,450.73, and credited the same amount to the demand deposit account of the Treasurer
- versus - AUSTRIA-MARTINEZ,
of the Republic of the Philippines. The Treasurer of the Republic, in turn, already issued a journal voucher transferring P294,958,450.73
to the account of the BIR.

Since the BIR had already collected P294,958,450.73 from PNB through the execution of the writ of garnishment over PNB's deposit CHICO-NAZARIO,
with the Central Bank, then private respondent Savellano should be awarded 15% thereof as reward since the said collection could still be
traced to the information he had given.

WHEREFORE, in view of the foregoing, the Petitions of PNOC and PNB in G.R. No. 109976 and G.R. No. 112800, respectively, are NACHURA, and
hereby DENIED. This Court AFFIRMS the assailed Decisions of the Court of Appeals in CA-G.R. SP No. 29583 and CA-G.R. SP No.
29526, which affirmed the decision of the CTA in CTA Case No. 4249, with modifications, to wit:

REYES, JJ.
DOMINADOR MENGUITO, Promulgated:
Respondent. September 17, 2008
x----------------------------------------------------------x
DECISION
AUSTRIA-MARTINEZ, J.:
1
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the March 31, 2005 Decision of
the Court of Appeals (CA) which reversed and set aside the Court of Tax Appeals (CTA) April 2, 2002 Decision 2 and October 10, 2002
Resolution3 ordering Dominador Menguito (respondent) to pay the Commissioner of Internal Revenue (petitioner) deficiency income
and percentage taxes and delinquency interest.
Based on the Joint Stipulation of Facts and Admissions4 of the parties, the CTA summarized the factual and procedural antecedents of the
case, the relevant portions of which read:
Petitioner Dominador Menguito [herein respondent] is a Filipino citizen, of legal age, married to Jeanne Menguito and is engaged in the
restaurant and/or cafeteria business. For the years 1991, 1992 and 1993, its principal place of business was at Gloriamaris, CCP
Complex, Pasay City and later transferred to Kalayaan Bar (Copper Kettle Cafeteria Specialist or CKCS), Departure Area, Ninoy Aquino
International Airport, Pasay City. During the same years, he also operated a branch at Club John Hay, Baguio City carrying the business
name of Copper Kettle Cafeteria Specialist (Joint Stipulation of Facts and Admissions, p. 133, CTA records).
xxxx
Subsequently, BIR Baguio received information that Petitioner [herein respondent] has undeclared income from Texas Instruments and
Club John Hay, prompting the BIR to conduct another investigation. Through a letter dated July 28, 1997, Spouses Dominador Menguito
and Jeanne Menguito (Spouses Menguito) were informed by the Assessment Division of the said office that they have underdeclared
sales totaling P48,721,555.96 (Exhibit 11, p. 83, BIR records). This was followed by a Preliminary Ten (10) Day Letter dated August 11,
1997, informing Petitioner [herein respondent] that in the investigation of his 1991, 1992 and 1993 income, business and withholding tax
case, it was found out that there is still due from him the total sum of P34,193,041.55 as deficiency income and percentage tax.
On September 2, 1997, the assessment notices subject of the instant petition were issued. These were protested by Ms. Jeanne Menguito,
through a letter dated September 28, 1997 (Exhibit 14, p. 112, BIR Records), on the ground that the 40% deduction allowed on their
computed gross revenue, is unrealistic. Ms. Jeanne Menguito requested for a period of thirty (30) days within which to coordinate with
the BIR regarding the contested assessment.
On October 10, 1997, BIR Baguio replied, informing the Spouses Menguito that the source of assessment was not through the
disallowance of claimed expenses but on data received from Club John Hay and Texas Instruments Phils., Inc. Said letter gave the
spouses ten (10) days to present evidence (Exhibit 15, p. 110, BIR Records).
Tax II Set 4 * Assessment Cases*Page 56 of 65
In an effort to clear an alleged confusion regarding Copper Kettle Cafeteria Specialist (CKCS) being a sole proprietorship owned by
the Spouses, and Copper Kettle Catering Services, Inc. (CKCS, Inc.) being a corporation with whom Texas Instruments and Club
John Hay entered into a contract, Petitioner [respondent] submitted to BIR Baguio a photocopy of the SEC Registration of Copper
Kettle Catering Services, Inc. on March 23, 1999 (pp. 134-141, BIR Records).
On April 12, 1999, BIR Baguio wrote a letter to Spouses Menguito, informing the latter that a reinvestigation or reconsideration cannot
be given due course by the mere submission of an uncertified photocopy of the Certificate of Incorporation. Thus, it avers that the
amendment issued is still valid and enforceable.
On May 26, 1999, Petitioner [respondent] filed the present case, praying for the cancellation and withdrawal of the deficiency income
tax and percentage tax assessments on account of prescription, whimsical factual findings, violation of procedural due process on the
issuance of assessment notices, erroneous address of notices and multiple credit/ investigation by the Respondent [petitioner] of
Petitioner's [respondents] books of accounts and other related records for the same tax year.
Instead of filing an Answer, Respondent [herein petitioner] moved to dismiss the instant petition on July 1, 1999, on the ground of lack
of jurisdiction. According to Respondent [petitioner], the assessment had long become final and executory when Petitioner [respondent]
failed to comply with the letter dated October 10, 1997.
Petitioner opposed said motion on July 21, 1999, claiming that the final decision on Petitioner's [respondents] protest is the April 12,
1999 letter of the Baguio Regional Office; therefore, the filing of the action within thirty (30) days from receipt of the said letter was
seasonably filed. Moreover, Petitioner [respondent] asserted that granting that the April 12, 1999 letter in question could not be construed
to mean as a denial or final decision of the protest, still Petitioner's [respondents] appeal was timely filed since Respondent [petitioner]
issued a Warrant of Distraint and/or Levy against the Petitioner [respondent] on May 3, 1999, which warrant constituted a final decision
of the Respondent [petitioner] on the protest of the taxpayer.
On September 3, 1999, this Court denied Respondent's [petitioners] 'Motion to Dismiss' for lack of merit.
Respondent [petitioner] filed his Answer on September 24, 1999, raising the following Special and Affirmative Defenses:
xxxx
5. Investigation disclosed that for taxable years 1991, 1992 and 1993, petitioner [respondent] filed false or fraudulent income and
percentage tax returns with intent to evade tax by under declaring his sales.
6. The alleged duplication of investigation of petitioner [respondent] by the BIR Regional Office in Baguio City and by the Revenue
District Office in Pasay City is justified by the finding of fraud on the part of the petitioner [respondent], which is an exception to the
provision in the Tax Code that the examination and inspection of books and records shall be made only once in a taxable year (Section
235, Tax Code). At any rate, petitioner [respondent], in a letter dated July 18, 1994, waived his right to the consolidation of said
investigation.
7. The aforementioned falsity or fraud was discovered on August 5, 1997. The assessments were issued on September 2, 1997, or
within ten (10) years from the discovery of such falsity or fraud (Section 223, Tax Code). Hence, the assessments have not prescribed.
8. Petitioner's [respondents] allegation that the assessments were not properly addressed is rendered moot and academic by his
acknowledgment in his protest letter dated September 28, 1997 that he received the assessments.
9. Respondent [petitioner] complied with the provisions of Revenue Regulations No. 12-85 by informing petitioner [respondent] of
the findings of the investigation in letters dated July 28, 1997 and August 11, 1997 prior to the issuance of the assessments.

10. Petitioner [respondent] did not allege in his administrative protest that there was a duplication of investigation, that the
assessments have prescribed, that they were not properly addressed, or that the provisions of Revenue Regulations No. 12-85 were
not observed. Not having raised them in the administrative level, petitioner [respondent] cannot raise the same for the first time on
appeal (Aguinaldo Industries Corp. vs. Commissioner of Internal Revenue, 112 SCRA 136).
11. The assessments were issued in accordance with law and regulations.
12. All presumptions are in favor of the correctness of tax assessments (CIR vs. Construction Resources of Asia, Inc., 145 SCRA 67),
and the burden to prove otherwise is upon petitioner [respondent]. 5 (Emphasis supplied)
On April 2, 2002, the CTA rendered a Decision, the dispositive portion of which reads:
Accordingly, Petitioner [herein respondent] is ORDERED to PAY the Respondent [herein petitioner] the amount of P11,333,233.94
and P2,573,655.82 as deficiency income and percentage tax liabilities, respectively for taxable years 1991, 1992 and 1993 plus 20%
delinquency interest from October 2, 1997 until full payment thereof.
SO ORDERED.6
Respondent filed a motion for reconsideration but the CTA denied the same in its Resolution of October 10, 2002. 7
Through a Petition for Review8 filed with the CA, respondent questioned the CTA Decision and Resolution mainly on the ground that
Copper Kettle Catering Services, Inc. (CKCS, Inc.) was a separate and distinct entity from Copper Kettle Cafeteria Specialist (CKCS);
the sales and revenues of CKCS, Inc. could not be ascribed to CKCS; neither may the taxes due from one, charged to the other; nor the
notices to be served on the former, coursed through the latter.9 Respondent cited the Joint Stipulation in which petitioner acknowledged
that its (respondents) business was called Copper Kettle Cafeteria Specialist, not Copper Kettle Catering Services, Inc. 10
Based on the unrefuted11 CTA summary, the CA rendered the Decision assailed herein, the dispositive portion of which reads:
WHEREFORE, the instant petition is GRANTED. Reversing the assailed Decision dated April 2, 2002 and Resolution dated October 10,
2002, the deficiency income tax and percentage income tax assessments against petitioner in the amounts of P11,333,233.94
and P2,573,655.82 for taxable years 1991, 1992 and 1993 plus the 20% delinquency interest thereon are annulled.
SO ORDERED.12
Petitioner filed a motion for reconsideration but the CA denied the same in its October 10, 2002 Resolution. 13
Hence, herein recourse to the Court for the reversal of the CA decision and resolution on the following grounds:
I
The Court of Appeals erred in reversing the decision of the Court of Tax Appeals and in holding that Copper Kettle Cafeteria Specialist
owned by respondent and Copper Kettle Catering Services, Inc. owned and managed by respondent's wife are not one and the same.
II
The Court of Appeals erred in holding that respondent was denied due process for failure of petitioner to validly serve respondent with
Tax II Set 4 * Assessment Cases*Page 57 of 65
the post-reporting and pre-assessment notices as required by law.
On the first issue, the CTA has ruled that CKCS, Inc. and CKCS are one and the same corporation because "[t]he contract between Texas
Instruments and Copper Kettle was signed by petitioners [respondents] wife, Jeanne Menguito as proprietress." 14
However, the CA reversed the CTA on these grounds:
Respondents [herein petitioners] allegation that Copper Kettle Catering Services, Inc. and Copper Kettle Cafeteria Specialists are not
distinct entities and that the under-declared sales/revenues of Copper Kettle Catering Services, Inc. pertain to Copper Kettle Cafeteria
Specialist are belied by the evidence on record. In the Joint Stipulation of Facts submitted before the tax court, respondent [petitioner]
admitted "that petitioners [herein respondents] business name is Copper Kettle Cafeteria Specialist."
Also, the Certification of Club John Hay and Letter dated July 9, 1997 of Texas Instruments both addressed to respondent indicate that
these companies transacted with Copper Kettle Catering Services, Inc., owned and managed by JEANNE G. MENGUITO, NOT
petitioner Dominador Menguito. The alleged under-declared sales income subject of the present assessments were shown to have been
earned by Copper Kettle Catering Services, Inc. in its commercial transaction with Texas Instruments and Camp John Hay; NOT by
petitioners dealing with these companies. In fact, there is nothing on record which shows that Texas Instruments and Camp John Hay
conducted business relations with Copper Kettle Cafeteria Specialist, owned by herein petitioner Dominador Menguito. In the absence,
therefore, of clear and convincing evidence showing that Copper Kettle Cafeteria Specialist and Copper Kettle Catering Services, Inc.
are one and the same, respondent can NOT validly impute alleged underdeclared sales income earned by Copper Kettle Catering
Services, Inc. as sales income of Copper Kettle Cafeteria Specialist. 15 (Emphasis supplied)
Respondent is adamant that the CA is correct. Many times in the past, the BIR had treated CKCS separately from CKCS, Inc.: from May
1994 to June 1995, the BIR sent audit teams to examine the books of account and other accounting records of CKCS, and based on said
audits, respondent was held liable for deficiency taxes, all of which he had paid. 16 Moreover, the certifications17 issued by Club John Hay
and Texas Instruments identify the concessionaire operating therein as CKCS, Inc., owned and managed by his spouse Jeanne Menguito,
and not
CKCS.18
Petitioner impugns the findings of the CA, claiming that these are contradicted by evidence on record consisting of a reply to the
September 2, 1997 assessment notice of BIR Baguio which Jeanne Menguito wrote on September 28, 1997, to wit:
We are in receipt of the assessment notice you have sent us, dated September 2, 1997. Having taken hold of the same only now following
our travel overseas, we were not able to respond immediately and manifest our protest. Also, with the impending termination of our
businesses at 19th Tee, Club John Hay and at Texas Instruments, Loakan, Baguio City, we have already started the transfer of our records
and books in Baguio City to Manila that we will need more time to review and sort the records that may have to be presented relative to
the assessment x x x.19 (Emphasis supplied)
Petitioner insists that said reply confirms that the assessment notice is directed against the businesses which she and her husband,
respondent herein, own and operate at Club John Hay and Texas Instruments, and establishes that she is protesting said notice not just for
herself but also for respondent.20
Moreover, petitioner argues that if it were true that CKCS, Inc. and CKCS are separate and distinct entities, respondent could have easily
produced the articles of incorporation of CKCS, Inc.; instead, what respondent presented was merely a photocopy of the incorporation
articles.21 Worse, petitioner adds, said document was not offered in evidence before the CTA, but was presented only before the CA. 22
Petitioner further insists that CKCS, Inc. and CKCS are merely employing the fiction of their separate corporate existence to evade
payment of proper taxes; that the CTA saw through their ploy and rightly disregarded their corporate individuality, treating them instead

as one taxable entity with the same tax base and liability; 23 and that the CA should have sustained the CTA.24
In effect, petitioner would have the Court resolve a purely factual issue 25 of whether or not there is substantial evidence that CKCS, Inc.
and CKCS are one and the same taxable entity.
As a general rule, the Court does not venture into a trial of facts in proceedings under Rule 45 of the Rules of Courts, for its only
function is to review errors of law.26 The Court declines to inquire into errors in the factual assessment of the CA, for the latters findings
are conclusive, especially when these are synonymous to those of the CTA. 27 But when the CA contradicts the factual findings of the
CTA, the Court deems it necessary to determine whether the CA was justified in doing so, for one basic rule in taxation is that the factual
findings of the CTA, when supported by substantial evidence, will not be disturbed on appeal unless it is shown that the CTA committed
gross error in its appreciation of facts.28
The Court finds that the CA gravely erred when it ignored the substantial evidence on record and reversed the CTA.
In a number of cases, the Court has shredded the veil of corporate identity and ruled that where a corporation is merely an
adjunct, business conduit or alter ego of another corporation or when they practice fraud on our internal revenue laws, [29] the
fiction of their separate and distinct corporate identities shall be disregarded, and both entities treated as one taxable person,
subject to assessment for the same taxable transaction.
The Court considers the presence of the following circumstances, to wit: when the owner of one directs and controls the
operations of the other, and the payments effected or received by one are for the accounts due from or payable to the other; 30 or
when the properties or products of one are all sold to the other, which in turn immediately sells them to the public, [31] as
substantial evidence in support of the finding that the two are actually one juridical taxable personality.
In the present case, overwhelming evidence supports the CTA in disregarding the separate identity of CKCS, Inc. from CKCS and in
treating them as one taxable entity.
First, in respondents Petition for Review before the CTA, he expressly admitted that he "is engaged in restaurant and/or cafeteria
business" and that "[i]n 1991, 1992 and 1993, he also operated a branch at Club John Hay, Baguio City with a business name of Copper
Kettle Cafeteria Specialist."32 Respondent repeated such admission in the Joint Stipulation. 33 And then in Exhibit "1"34 for petitioner, a
July 18, 1994 letter sent by Jeanne Menguito to BIR, Baguio City, she stated thus:
"in connection with the investigation of Copper Kettle Cafeteria Specialist which is located at 19th Tee Club John Hay, Baguio City
under letter of authority nos. 0392897, 0392898, and 0392690 dated May 16, 1994, investigating my income, business, and withholding
taxes for the years 1991, 1992, and 1993."35 (Emphasis supplied)
Jeanne Menguito signed the letter as proprietor of Copper Kettle Cafeteria Specialist. 36
Related to Exhibit "1" is petitioner's Exhibit "14," which is another letter dated September 28, 1997, in which Jeanne Menguito protested
the September 2, 1997 assessment notices directed at Copper Kettle Cafeteria Specialist and referred to the latter as "our business at 19th
Tee Club John Hay and at Texas Instruments."37 Taken along with the Joint Stipulation, Exhibits "A" through "C" and the August 3, 1993
Certification of Camp John Hay, Exhibits "1" and "14," confirm that respondent, together with his spouse Jeanne Menguito, own, operate
and manage a branch of Copper Kettle Cafeteria Specialist, also called Copper Kettle Catering Services at Camp John Hay.
Moreover, in Exhibits "A" to "A-1,"38 Exhibits "B" to "B-1"39 and Exhibits "C" to "C-1"40 which are lists of concessionaires that operated
in Club John Hay in 1992, 1993 and 1991, respectively,41 it appears that there is no outlet with the name "Copper Kettle Cafeteria
Specialist" as claimed by respondent. The name that appears in the lists is "19th TEE CAFETERIA (Copper Kettle, Inc.)." However, in
the light of the express admission of respondent that in 1991, 1992 and 1993, he operated a branch called Copper Kettle Cafeteria
Specialist in Club John Hay, the entries in Exhibits "A" through "C" could only mean that said branch refers to "19th Tee Cafeteria
Tax II Set 4 * Assessment Cases*Page 58 of 65
(Copper Kettle, Inc.)." There is no evidence presented by respondent that contradicts this conclusion.
In addition, the August 9, 1993 Certification issued by Club John Hay that "COPPER KETTLE CATERING SERVICES owned and
managed by MS. JEANNE G. MENGUITO is a concessionaire in John Hay since July 1991 up to the present and is operating the outlet
19TH TEE CAFETERIA AND THE TEE BAR"42 convincingly establishes that respondent's branch which he refers to as Copper Kettle
Cafeteria Specialist at Club John Hay also appears in the latter's records as "Copper Kettle Catering Services" with an outlet called "19th
Tee Cafeteria and The Tee Bar."
Second, in Exhibit "8"43 and Exhibit "E,"44 Texas Instruments identified the concessionaire operating its canteen as "Copper Kettle
Catering Services, Inc."45 and/or "COPPER KETTLE CAFETERIA SPECIALIST SVCS."46 It being settled that respondent's "Copper
Kettle Cafeteria Specialist" is also known as "Copper Kettle Catering Services," and that respondent and Jeanne Menguito both own,
manage and act as proprietors of the business, Exhibit "8" and Exhibit "E" further establish that, through said business, respondent also
had taxable transactions with Texas Instruments.
In view of the foregoing facts and circumstances, the Articles of Incorporation of CKCS, Inc. -- a certified true copy of which respondent
attached only to his Reply filed with the CA47 -- cannot insulate it from scrutiny of its real identity in relation to CKCS. It is noted that
said Articles of Incorporation of CKCS, Inc. was issued in 1989, but documentary evidence indicate that after said date, CKCS, Inc. has
also assumed the name CKCS, and vice-versa. The most concrete indication of this practice is the 1991 Quarterly Percentage Tax
Returns covering the business name/trade "19th Tee Camp John Hay." In said returns, the taxpayer is identified as "Copper Kettle
Cafeteria Specialist"48 or CKCS, not CKCS, Inc. Yet, in several documents already cited, the purported owner of 19th Tee Bar at Club
John Hay is CKCS, Inc.
All these pieces of evidence buttress the finding of the CTA that in 1991, 1992 and 1993, respondent, together with his spouse Jeanne
Menguito, owned and operated outlets in Club John Hay and Texas Instruments under the names Copper Kettle Cafeteria Specialist or
CKCS and Copper Kettle Catering Services or Copper Kettle Catering Services, Inc..
Turning now to the second issue.
In respondent's Petition for Review with the CTA, he questioned the validity of the Assessment Notices, 49 all dated September 2, 1997,
issued by BIR, Baguio City against him on the following grounds:
1. The assessment notices, based on income and percentage tax returns filed for 1991, 1992 and 1993, were issued beyond the three-year
prescriptive period under Section 203 of the Tax Code;50
2. The assessment notices were addressed to Copper Kettle Specialist, Club John Hay, Baguio City, despite notice to petitioner that
respondent's principal place of business was at the CCP Complex, Pasay City.51
3. The assessment notices were issued in violation of the requirement of Revenue Regulations No. 12-85, dated November 27, 1985, that
the taxpayer be issued a post-reporting notice and pre-assessment notice before the preliminary findings of deficiency may ripen into a
formal assessment;52 and
4. The assessment notices did not give respondent a 15-day period to reply to the findings of deficiency. 53
The Court notes that nowhere in his Petition for Review did respondent deny that he received the September 2, 1997 assessment notices.
Instead, during the trial, respondent's witness, Ma. Theresa Nalda (Nalda), testified that she informed the BIR, Baguio City "that there
was no Notice or letter, that we did not receive,
perhaps, because they were not addressed to Mr. Menguito's head office."54

The CTA correctly upheld the validity of the assessment notices. Citing Section 223 of the Tax Code which provides that the prescriptive
period for the issuance of assessment notices based on fraud is 10 years, the CTA ruled that the assessment notices issued against
respondent on September 2, 1997 were timely because petitioner discovered the falsity in respondent's tax returns for 1991, 1992 and
1993 only on February 19, 1997.55 Moreover, in accordance with Section 2 of Revenue Regulation No. 12-85, which requires that
assessment notices be sent to the address indicated in the taxpayer's return, unless the latter gives a notice of change of address, the
assessment notices in the present case were sent by petitioner to Camp John Hay, for this was the address respondent indicated in his tax
returns.56 As to whether said assessment notices were actually received, the CTA correctly held that since respondent did not testify that
he did not receive said notices, it can be presumed that the same were actually sent to and received by the latter. The Court agrees with
the CTA in considering as hearsay the testimony of Nalda that respondent did not receive the notices, because Nalda was not competent
to testify on the matter, as she was employed by respondent only in June 1998, whereas the assessment notices were sent on September
2, 1997.57
Anent compliance with the requirements of Revenue Regulation No. 12-85, the CTA held:
BIR records show that on July 28, 1997, a letter was issued by BIR Baguio to Spouses Menguito, informing the latter of their supposed
underdeclaration of sales totalingP48,721,555.96 and giving them 5 days to communicate any objection to the results of the investigation
(Exhibit 11, p. 83, BIR Records). Records likewise reveal the issuance of a Preliminary Ten (10) Day Letter on August 11, 1997,
informing Petitioner [respondent herein] that the sum of P34,193,041.55 is due from him as deficiency income and percentage tax
(Exhibit 13, p. 173, BIR Records). Said letter gave the Petitioner [respondent herein] a period of ten (10) days to submit his objection to
the proposed assessment, either personally or in writing, together with any evidence he may want to present.
xxxx
As to Petitioner's allegation that he was given only ten (10) days to reply to the findings of deficiency instead of fifteen (15) days granted
to a taxpayer under Revenue Regulations No. 12-85, this Court believes that when Respondent [petitioner herein] gave the Petitioner
[respondent herein] on October 10, 1997 an additional period of ten (10) days to present documentary evidence or a total of twenty (20)
days, there was compliance with Revenue Regulations No. 12-85 and the latter was amply given opportunity to present his side x x x. 58
The CTA further held that respondent was estopped from raising procedural issues against the assessment notices, because these were not
cited in the September 28, 1997 letter-protest which his spouse Jeanne Menguito filed with petitioner.59
On appeal by respondent,60 the CA resolved the issue, thus:
Moreover, if the taxpayer denies ever having received an assessment from the BIR, it is incumbent upon the latter to prove by
competent evidence that such notice was indeed received by the addressee. Here, respondent [petitioner herein] merely alleged that it
"forwarded" the assessment notices to petitioner [respondent herein]. The respondent did not show any proof of mailing, registry receipt
or acknowledgment receipt signed by the petitioner [respondent herein]. Since respondent [petitioner herein] has not adduced
sufficient evidence that petitioner [respondent herein] had in fact received the pre-assessment notice and post-reporting notice
required by law, it cannot be assumed that petitioner [respondent herein] had been served said notices.61
No other ground was cited by the CA for the reversal of the finding of the CTA on the issue.
The CA is gravely mistaken.
In their Petition for Review with the CTA, respondent expressly stated that "[s]ometime in September 1997, petitioner [respondent
herein] received various assessment notices, all dated 02 September 1997, issued by BIR-Baguio for alleged deficiency income and
percentage taxes for taxable years ending 31 December 1991, 1992 and 1993 x x x." 62 In their September 28, 1997 protest to the
September 2, 1997 assessment notices, respondent, through his spouses Jeanne Menguito, acknowledged that "[they] are in receipt of the
assessment notice you have sent us, dated September 2, 1997 x x x." 63
Tax II Set 4 * Assessment Cases*Page 59 of 65
Respondent is therefore estopped from denying actual receipt of the September 2, 1997 assessment notices, notwithstanding the denial of
his witness Nalda.
As to the address indicated on the assessment notices, respondent cannot question the same for it is the said address which appears in its
percentage tax returns.64 While respondent claims that he had earlier notified petitioner of a change in his business address, no evidence
of such written notice was presented. Under Section 11 of Revenue Regulation No. 12-85, respondent's failure to give written notice of
change of address bound him to whatever communications were sent to the address appearing in the tax returns for the period involved in
the investigation.65
Thus, what remain in question now are: whether petitioner issued and mailed a post-reporting notice and a pre-assessment notice; and
whether respondent actually received them.
There is no doubt that petitioner failed to prove that it served on respondent a post-reporting notice and a pre-assessment notice. Exhibit
"11"66 of petitioner is a mere photocopy of a July 28, 1997 letter it sent to respondent, informing him of the initial outcome of the
investigation into his sales, and the release of a preliminary assessment upon completion of the investigation, with notice for the latter to
file any objection within five days from receipt of the letter. "Exhibit "13" 67 of petitioner is also a mere photocopy of an August 11, 1997
Preliminary Ten (10) Day Letter to respondent, informing him that he had been found to be liable for deficiency income and percentage
tax and inviting him to submit a written objection to the proposed assessment within 10 days from receipt of notice. But nowhere on the
face of said documents can be found evidence that these were sent to and received by respondent. Nor is there separate evidence, such as
a registry receipt of the notices or a certification from the Bureau of Posts, that petitioner actually mailed said notices.
However, while the lack of a post-reporting notice and pre-assessment notice is a deviation from the requirements under Section 1 68 and
Section 269 of Revenue Regulation No. 12-85, the same cannot detract from the fact that formal assessments were issued to and actually
received by respondents in accordance with Section 228 of the National Internal Revenue Code which was in effect at the time of
assessment.
It should be emphasized that the stringent requirement that an assessment notice be satisfactorily proven to have been issued and released
or, if receipt thereof is denied, that said assessment notice have been served on the taxpayer,70 applies only to formal assessments
prescribed under Section 228 of the National Internal Revenue Code, but not to post-reporting notices or pre-assessment notices. The
issuance of a valid formal assessment is a substantive prerequisite to tax collection, 71 for it contains not only a computation of tax
liabilities but also a demand for payment within a prescribed period, thereby signaling the time when penalties and interests begin to
accrue against the taxpayer and enabling the latter to determine his remedies therefor. Due process requires that it must be served on and
received by the taxpayer.72
A post-reporting notice and pre-assessment notice do not bear the gravity of a formal assessment notice. The post-reporting notice and
pre-assessment notice merely hint at the initial findings of the BIR against a taxpayer and invites the latter to an "informal" conference or
clarificatory meeting. Neither notice contains a declaration of the tax liability of the taxpayer or a demand for payment thereof. Hence,
the lack of such notices inflicts no prejudice on the taxpayer for as long as the latter is properly served a formal assessment notice. In the
case of respondent, a formal assessment notice was received by him as acknowledged in his Petition for Review and Joint Stipulation;
and, on the basis thereof, he filed a protest with the BIR, Baguio City and eventually a petition with the CTA.
WHEREFORE, the petition is GRANTED. The March 31, 2005 Decision of the Court of Appeals
is REVERSED and SET ASIDE and the April 2, 2002 Decision and October 10, 2002 Resolution of the Court of Tax Appeals
are REINSTATED.
SO ORDERED.
SECOND DIVISION
 Tax II Set 4 * Assessment Cases*Page 60 of 65

G.R. No. 185371 December 8, 2010

Add: 25% Surcharge P 38,584.54

COMMISSIONER OF INTERNAL REVENUE, Petitioner, 20% Interest 79,746.49

vs.
Compromise Penalty
METRO STAR SUPERAMA, INC., Respondent.
Late Payment P16,000.00
DECISION
Failure to File VAT returns 2,400.00 18,400.00 136,731.01

MENDOZA, J.: TOTAL P 291,069.09

WITHHOLDING TAX
This petition for review on certiorari under Rule 45 of the Rules of Court filed by the petitioner Commissioner of Internal Revenue (CIR)
seeks to reverse and set aside the 1] September 16, 2008 Decision 1 of the Court of Tax Appeals En Banc (CTA-En Banc), in C.T.A. EB Compensation 2,772.91
No. 306 and 2] its November 18, 2008 Resolution 2 denying petitioners motion for reconsideration.
Expanded 110,103.92
The CTA-En Banc affirmed in toto the decision of its Second Division (CTA-Second Division) in CTA Case No. 7169 reversing the Total Tax Due P 112,876.83
February 8, 2005 Decision of the CIR which assessed respondent Metro Star Superama, Inc.(Metro Star) of deficiency value-added tax
and withholding tax for the taxable year 1999. Less: Tax Withheld 111,848.27

Deficiency Withholding Tax P 1,028.56

Based on a Joint Stipulation of Facts and Issues3 of the parties, the CTA Second Division summarized the factual and procedural
antecedents of the case, the pertinent portions of which read: Add: 20% Interest p.a. 576.51

Compromise Penalty 200.00

Petitioner is a domestic corporation duly organized and existing by virtue of the laws of the Republic of the Philippines, x x x.
TOTAL P 1,805.07
On January 26, 2001, the Regional Director of Revenue Region No. 10, Legazpi City, issued Letter of Authority No. 00006561 for
*Expanded Withholding Tax P1,949,334.25 x 5% 97,466.71
Revenue Officer Daisy G. Justiniana to examine petitioners books of accounts and other accounting records for income tax and other
internal revenue taxes for the taxable year 1999. Said Letter of Authority was revalidated on August 10, 2001 by Regional Director Film Rental 10,000.25 x 10% 1,000.00
Leonardo Sacamos.
Audit Fee 193,261.20 x 5% 9,663.00
For petitioners failure to comply with several requests for the presentation of records and Subpoena Duces Tecum, [the] OIC of BIR
Rental Expense 41,272.73 x 1% 412.73
Legal Division issued an Indorsement dated September 26, 2001 informing Revenue District Officer of Revenue Region No. 67, Legazpi
City to proceed with the investigation based on the best evidence obtainable preparatory to the issuance of assessment notice. Security Service 156,142.01 x 1% 1,561.42

On November 8, 2001, Revenue District Officer Socorro O. Ramos-Lafuente issued a Preliminary 15-day Letter, which petitioner Service Contractor P 110,103.92
received on November 9, 2001. The said letter stated that a post audit review was held and it was ascertained that there was deficiency
Total
value-added and withholding taxes due from petitioner in the amount of P 292,874.16.
SUMMARIES OF DEFICIENCIES
On April 11, 2002, petitioner received a Formal Letter of Demand dated April 3, 2002 from Revenue District No. 67, Legazpi City,
assessing petitioner the amount of Two Hundred Ninety Two Thousand Eight Hundred Seventy Four Pesos and Sixteen Centavos VALUE ADDED TAX P 291,069.09
(P292,874.16.) for deficiency value-added and withholding taxes for the taxable year 1999, computed as follows:
WITHHOLDING TAX 1,805.07

ASSESSMENT NOTICE NO. 067-99-003-579-072 TOTAL P 292,874.16

VALUE ADDED TAX Subsequently, Revenue District Office No. 67 sent a copy of the Final Notice of Seizure dated May 12, 2003, which petitioner received
on May 15, 2003, giving the latter last opportunity to settle its deficiency tax liabilities within ten (10) [days] from receipt thereof,
Gross Sales P1,697,718.90 otherwise respondent BIR shall be constrained to serve and execute the Warrants of Distraint and/or Levy and Garnishment to enforce
collection.
Output Tax P 154,338.08

Less: Input Tax _____________ On February 6, 2004, petitioner received from Revenue District Office No. 67 a Warrant of Distraint and/or Levy No. 67-0029-23 dated
May 12, 2003 demanding payment of deficiency value-added tax and withholding tax payment in the amount of P292,874.16.
VAT Payable P 154,338.08

On July 30, 2004, petitioner filed with the Office of respondent Commissioner a Motion for Reconsideration pursuant to Section 3.1.5 of
Revenue Regulations No. 12-99.
On February 8, 2005, respondent Commissioner, through its authorized representative, Revenue Regional Director of Revenue Region
10, Legaspi City, issued a Decision denying petitioners Motion for Reconsideration. Petitioner, through counsel received said Decision
on February 18, 2005.
x x x.
Denying that it received a Preliminary Assessment Notice (PAN) and claiming that it was not accorded due process, Metro Star filed a
petition for review4 with the CTA. The parties then stipulated on the following issues to be decided by the tax court:
1. Whether the respondent complied with the due process requirement as provided under the National Internal Revenue Code
and Revenue Regulations No. 12-99 with regard to the issuance of a deficiency tax assessment;
1.1 Whether petitioner is liable for the respective amounts of P291,069.09 and P1,805.07 as deficiency VAT and
withholding tax for the year 1999;
1.2. Whether the assessment has become final and executory and demandable for failure of petitioner to protest
the same within 30 days from its receipt thereof on April 11, 2002, pursuant to Section 228 of the National
Internal Revenue Code;
2. Whether the deficiency assessments issued by the respondent are void for failure to state the law and/or facts upon which
they are based.
2.2 Whether petitioner was informed of the law and facts on which the assessment is made in compliance with
Section 228 of the National Internal Revenue Code;
3. Whether or not petitioner, as owner/operator of a movie/cinema house, is subject to VAT on sales of services under Section
108(A) of the National Internal Revenue Code;
4. Whether or not the assessment is based on the best evidence obtainable pursuant to Section 6(b) of the National Internal
Revenue Code.
The CTA-Second Division found merit in the petition of Metro Star and, on March 21, 2007, rendered a decision, the decretal portion of
which reads:
WHEREFORE, premises considered, the Petition for Review is hereby GRANTED. Accordingly, the assailed Decision dated February 8,
2005 is hereby REVERSED and SET ASIDE and respondent is ORDERED TO DESIST from collecting the subject taxes against
petitioner.
The CTA-Second Division opined that "[w]hile there [is] a disputable presumption that a mailed letter [is] deemed received by the
addressee in the ordinary course of mail, a direct denial of the receipt of mail shifts the burden upon the party favored by the presumption
to prove that the mailed letter was indeed received by the addressee."5It also found that there was no clear showing that Metro Star
actually received the alleged PAN, dated January 16, 2002. It, accordingly, ruled that the Formal Letter of Demand dated April 3, 2002, as
well as the Warrant of Distraint and/or Levy dated May 12, 2003 were void, as Metro Star was denied due process. 6
The CIR sought reconsideration7 of the decision of the CTA-Second Division, but the motion was denied in the latters July 24, 2007
Resolution.8
Tax II Set 4 * Assessment Cases*Page 61 of 65
Aggrieved, the CIR filed a petition for review9 with the CTA-En Banc, but the petition was dismissed after a determination that no new
matters were raised. The CTA-En Banc disposed:
WHEREFORE, the instant Petition for Review is hereby DENIED DUE COURSE and DISMISSED for lack of merit. Accordingly, the
March 21, 2007 Decision and July 27, 2007 Resolution of the CTA Second Division in CTA Case No. 7169 entitled, "Metro Star
Superama, Inc., petitioner vs. Commissioner of Internal Revenue, respondent" are hereby AFFIRMED in toto.
SO ORDERED.
The motion for reconsideration10 filed by the CIR was likewise denied by the CTA-En Banc in its November 18, 2008 Resolution. 11
The CIR, insisting that Metro Star received the PAN, dated January 16, 2002, and that due process was served nonetheless because the
latter received the Final Assessment Notice (FAN), comes now before this Court with the sole issue of whether or not Metro Star was
denied due process.
The general rule is that the Court will not lightly set aside the conclusions reached by the CTA which, by the very nature of its functions,
has accordingly developed an exclusive expertise on the resolution unless there has been an abuse or improvident exercise of
authority.12 In Barcelon, Roxas Securities, Inc. (now known as UBP Securities, Inc.) v. Commissioner of Internal Revenue, 13 the Court
wrote:
Jurisprudence has consistently shown that this Court accords the findings of fact by the CTA with the highest respect. In Sea-Land
Service Inc. v. Court of Appeals [G.R. No. 122605, 30 April 2001, 357 SCRA 441, 445-446], this Court recognizes that the Court of Tax
Appeals, which by the very nature of its function is dedicated exclusively to the consideration of tax problems, has necessarily developed
an expertise on the subject, and its conclusions will not be overturned unless there has been an abuse or improvident exercise of authority.
Such findings can only be disturbed on appeal if they are not supported by substantial evidence or there is a showing of gross error or
abuse on the part of the Tax Court. In the absence of any clear and convincing proof to the contrary, this Court must presume that the
CTA rendered a decision which is valid in every respect.
On the matter of service of a tax assessment, a further perusal of our ruling in Barcelon is instructive, viz:
Jurisprudence is replete with cases holding that if the taxpayer denies ever having received an assessment from the BIR, it is incumbent
upon the latter to prove by competent evidence that such notice was indeed received by the addressee. The onus probandi was shifted to
respondent to prove by contrary evidence that the Petitioner received the assessment in the due course of mail. The Supreme Court has
consistently held that while a mailed letter is deemed received by the addressee in the course of mail, this is merely a disputable
presumption subject to controversion and a direct denial thereof shifts the burden to the party favored by the presumption to prove that
the mailed letter was indeed received by the addressee (Republic vs. Court of Appeals, 149 SCRA 351). Thus as held by the Supreme
Court in Gonzalo P. Nava vs. Commissioner of Internal Revenue, 13 SCRA 104, January 30, 1965:
"The facts to be proved to raise this presumption are (a) that the letter was properly addressed with postage prepaid, and (b) that it was
mailed. Once these facts are proved, the presumption is that the letter was received by the addressee as soon as it could have been
transmitted to him in the ordinary course of the mail. But if one of the said facts fails to appear, the presumption does not lie. (VI, Moran,
Comments on the Rules of Court, 1963 ed, 56-57 citing Enriquez vs. Sunlife Assurance of Canada, 41 Phil 269)."
x x x. What is essential to prove the fact of mailing is the registry receipt issued by the Bureau of Posts or the Registry return card which
would have been signed by the Petitioner or its authorized representative. And if said documents cannot be located, Respondent at the
very least, should have submitted to the Court a certification issued by the Bureau of Posts and any other pertinent document which is
executed with the intervention of the Bureau of Posts. This Court does not put much credence to the self serving documentations made by
the BIR personnel especially if they are unsupported by substantial evidence establishing the fact of mailing. Thus:
"While we have held that an assessment is made when sent within the prescribed period, even if received by the taxpayer after its
expiration (Coll. of Int. Rev. vs. Bautista, L-12250 and L-12259, May 27, 1959), this ruling makes it the more imperative that the release,
mailing or sending of the notice be clearly and satisfactorily proved. Mere notations made without the taxpayers intervention, notice or

control, without adequate supporting evidence cannot suffice; otherwise, the taxpayer would be at the mercy of the revenue offices,
without adequate protection or defense." (Nava vs. CIR, 13 SCRA 104, January 30, 1965).
x x x.
The failure of the respondent to prove receipt of the assessment by the Petitioner leads to the conclusion that no assessment was issued.
Consequently, the governments right to issue an assessment for the said period has already prescribed. (Industrial Textile Manufacturing
Co. of the Phils., Inc. vs. CIR CTA Case 4885, August 22, 1996). (Emphases supplied.)
The Court agrees with the CTA that the CIR failed to discharge its duty and present any evidence to show that Metro Star indeed received
the PAN dated January 16, 2002. It could have simply presented the registry receipt or the certification from the postmaster that it mailed
the PAN, but failed. Neither did it offer any explanation on why it failed to comply with the requirement of service of the PAN. It merely
accepted the letter of Metro Stars chairman dated April 29, 2002, that stated that he had received the FAN dated April 3, 2002, but not
the PAN; that he was willing to pay the tax as computed by the CIR; and that he just wanted to clarify some matters with the hope of
lessening its tax liability.
This now leads to the question: Is the failure to strictly comply with notice requirements prescribed under Section 228 of the National
Internal Revenue Code of 1997 and Revenue Regulations (R.R.) No. 12-99 tantamount to a denial of due process? Specifically, are the
requirements of due process satisfied if only the FAN stating the computation of tax liabilities and a demand to pay within the prescribed
period was sent to the taxpayer?
The answer to these questions require an examination of Section 228 of the Tax Code which reads:
SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized representative finds that proper taxes should be
assessed, he shall first notify the taxpayer of his findings: provided, however, that a preassessment notice shall not be required in the
following cases:
(a) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on
the face of the return; or
(b) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding
agent; or
(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was
determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for
the taxable quarter or quarters of the succeeding taxable year; or
(d) When the excise tax due on exciseable articles has not been paid; or
(e) When the article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital
equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.
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.
Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said notice. If the
taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment based on his findings.
Tax II Set 4 * Assessment Cases*Page 62 of 65
Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from
receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days
from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the
taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the
said decision, or from the lapse of one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and
demandable. (Emphasis supplied).
Indeed, Section 228 of the Tax Code clearly requires that the taxpayer must first be informed that he is liable for deficiency taxes through
the sending of a PAN. He must be informed of the facts and the law upon which the assessment is made. The law imposes a substantive,
not merely a formal, requirement. To proceed heedlessly with tax collection without first establishing a valid assessment is evidently
violative of the cardinal principle in administrative investigations - that taxpayers should be able to present their case and adduce
supporting evidence.14
This is confirmed under the provisions R.R. No. 12-99 of the BIR which pertinently provide:
SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax Assessment.
3.1 Mode of procedures in the issuance of a deficiency tax assessment:
3.1.1 Notice for informal conference. The Revenue Officer who audited the taxpayer's records shall, among others, state in
his report whether or not the taxpayer agrees with his findings that the taxpayer is liable for deficiency tax or taxes. If the
taxpayer is not amenable, based on the said Officer's submitted report of investigation, the taxpayer shall be informed, in
writing, by the Revenue District Office or by the Special Investigation Division, as the case may be (in the case Revenue
Regional Offices) or by the Chief of Division concerned (in the case of the BIR National Office) of the discrepancy or
discrepancies in the taxpayer's payment of his internal revenue taxes, for the purpose of "Informal Conference," in order to
afford the taxpayer with an opportunity to present his side of the case. If the taxpayer fails to respond within fifteen (15) days
from date of receipt of the notice for informal conference, he shall be considered in default, in which case, the Revenue
District Officer or the Chief of the Special Investigation Division of the Revenue Regional Office, or the Chief of Division in
the National Office, as the case may be, shall endorse the case with the least possible delay to the Assessment Division of the
Revenue Regional Office or to the Commissioner or his duly authorized representative, as the case may be, for appropriate
review and issuance of a deficiency tax assessment, if warranted.
3.1.2 Preliminary Assessment Notice (PAN). If after review and evaluation by the Assessment Division or by the
Commissioner or his duly authorized representative, as the case may be, it is determined that there exists sufficient basis to
assess the taxpayer for any deficiency tax or taxes, the said Office shall issue to the taxpayer, at least by registered mail, a
Preliminary Assessment Notice (PAN) for the proposed assessment, showing in detail, the facts and the law, rules and
regulations, or jurisprudence on which the proposed assessment is based (see illustration in ANNEX A hereof). If the
taxpayer fails to respond within fifteen (15) days from date of receipt of the PAN, he shall be considered in default, in which
case, a formal letter of demand and assessment notice shall be caused to be issued by the said Office, calling for payment of
the taxpayer's deficiency tax liability, inclusive of the applicable penalties.
3.1.3 Exceptions to Prior Notice of the Assessment. The notice for informal conference and the preliminary assessment
notice shall not be required in any of the following cases, in which case, issuance of the formal assessment notice for the
payment of the taxpayer's deficiency tax liability shall be sufficient:
(i) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax
appearing on the face of the tax return filed by the taxpayer; or
(ii) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the
withholding agent; or

(iii) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable
period was determined to have carried over and automatically applied the same amount claimed against the
estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or
(iv) When the excise tax due on excisable articles has not been paid; or
(v) When an article locally purchased or imported by an exempt person, such as, but not limited to, vehicles,
capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.
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 (see illustration in ANNEX B hereof).
The same shall be sent to the taxpayer only by registered mail or by personal delivery.
If sent by personal delivery, the taxpayer or his duly authorized representative shall acknowledge receipt thereof in the duplicate copy of
the letter of demand, showing the following: (a) His name; (b) signature; (c) designation and authority to act for and in behalf of the
taxpayer, if acknowledged received by a person other than the taxpayer himself; and (d) date of receipt thereof.
x x x.
From the provision quoted above, it is clear that the sending of a PAN to taxpayer to inform him of the assessment made is but part of the
"due process requirement in the issuance of a deficiency tax assessment," the absence of which renders nugatory any assessment made by
the tax authorities. The use of the word "shall" in subsection 3.1.2 describes the mandatory nature of the service of a PAN. The
persuasiveness of the right to due process reaches both substantial and procedural rights and the failure of the CIR to strictly comply with
the requirements laid down by law and its own rules is a denial of Metro Stars right to due process. 15 Thus, for its failure to send the
PAN stating the facts and the law on which the assessment was made as required by Section 228 of R.A. No. 8424, the assessment made
by the CIR is void.
The case of CIR v. Menguito16 cited by the CIR in support of its argument that only the non-service of the FAN is fatal to the validity of
an assessment, cannot apply to this case because the issue therein was the non-compliance with the provisions of R. R. No. 12-85 which
sought to interpret Section 229 of the old tax law. RA No. 8424 has already amended the provision of Section 229 on protesting an
assessment. The old requirement of merelynotifying the taxpayer of the CIRs 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. 17The
regulation then, on the other hand, simply provided that a notice be sent to the respondent in the form prescribed, and that no
consequence would ensue for failure to comply with that form.1avvphi1
The Court need not belabor to discuss the matter of Metro Stars failure to file its protest, for it is well-settled that a void assessment
bears no fruit.18
It is an elementary rule enshrined in the 1987 Constitution that no person shall be deprived of property without due process of law. 19 In
balancing the scales between the power of the State to tax and its inherent right to prosecute perceived transgressors of the law on one
side, and the constitutional rights of a citizen to due process of law and the equal protection of the laws on the other, the scales must tilt in
favor of the individual, for a citizens right is amply protected by the Bill of Rights under the Constitution. Thus, while "taxes are the
lifeblood of the government," the power to tax has its limits, in spite of all its plenitude. Hence in Commissioner of Internal Revenue v.
Algue, Inc.,20 it was said
Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On the other hand, such collection
should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to
reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the
promotion of the common good, may be achieved.
Tax II Set 4 * Assessment Cases*Page 63 of 65
xxx xxx xxx
It is said that taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for the lack of the motive
power to activate and operate it. Hence, despite the natural reluctance to surrender part of ones hard-earned income to taxing authorities,
every person who is able to must contribute his share in the running of the government. The government for its part is expected to
respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material
values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of
exaction by those in the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it be exercised
reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to complain and the courts will then
come to his succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate x
x x that the law has not been observed.21 (Emphasis supplied).
WHEREFORE, the petition is DENIED.
SO ORDERED.
RR 18-2013 - Revised Rules On Assessment Procedure
The tax assessment regulations in the Philippines have long been in place since 1985 (Revenue Regulations No. 12-1985), until its
amendment sometime 1999 under Revenue Regulations No. 12-1999 (RR No. 12-99). Seeing the need to update certain rules in keeping
with a more efficient and responsive procedures for tax audit in the Philippines, the Bureau of Internal Revenue (BIR) has
issued Revenue Regulations No. 18-2013 (RR No. 18-2013), amending the tax assessment rules of 1999. Under, RR No. 18-2013, the
following six (6) new rules have been introduced or clarified:
1. PAN instead of Informal Conference
In RR 12-99, the findings and alleged deficiency taxes from the tax examination or tax assessment in the Philippines shall be contained in
a Notice for Informal Conference or Notice of Preliminary findings informing the taxpayer of the findings and giving a period ranging
from five (5) to fifteen 915) days to respond either through an informal discussion with the handling officer or a position paper to the
Notice for Informal Conference.
Under the new rules, the issuance of Notice for Informal Conference has been deleted and a Preliminary Assessment Notice (PAN) shall
be issued instead of the Notice for Informal Conference. The tax payer may pay the deficiency taxes in the PAN or file a protest within
fifteen (15) days stating its disagreement to the findings with the basis of such protest, facts and the law.
2. Issuance of FAN/FLD within 15 days from PAN
Upon issuance of the Preliminary Assessment Notice (PAN) in the Philippines, the BIR will issue a Final Assessment Notice Formal
Letter of Demand (FAN-FLD) within fifteen (15) days thereof. The wording of RR No. 18-2013 is quite silent as to the impact of the
protest to the PAN timely filed within fifteen (15) days from receipt thereof.
The taxpayer may pay the deficiency taxes in the Final Assessment Notice Formal Letter of Demand (FAN-FLD) in Philippines issued
within the prescriptive period of the BIR to issue (either under the three-year period, or ten-year period), or file the protest to the FAN-
FLD with factual and legal basis within thirty (30) days from receipt thereof, then, submit complete supporting documents within sixty
(60) days from filing the protest.
3. Final and executor of undisputed findings
In filing the protest, the taxpayer should dispute all the alleged findings on deficiency internal revenue taxes and any item stated in the
assessment that has not been disputed will become final and executory where the taxpayer will be required to pay upon filing the protest.
Protests filed without such payment on undisputed findings will not be accepted by the BIR.
4. Administrative appeal
Tax assessment process would be undertaken by the commissioner or by the authorized representative such as Regional Directors. In the
event of the following circumstance, the taxpayer has the option to elevate the tax assessment case in the Philippines with the Court of
Tax Appeals (CTA) via Petition For Review within thirty (30) days:
Denial of the that the protest to the formal assessment notice formal letter of demand; or
Inaction on the protest within one hundred eighty (180) days
Under the new rules on tax assessment in the Philippines under RR No. 18-2013, if such denial or inaction has been made by the
Commissioners authorized representative, then, the taxpayer has the option to elevate the same with the Commissioner of Internal
Revenue (CIR) instead of having the same with the CTA which would require a legal counsel to file, payment of filing fees, and other
technical requirements.

5. Service of Tax Assessment Notices to taxpayers
Under RR No. 12-99, service of notices such as PAN and FAN-FLD shall be made either by personal delivery or by registered mail only.
In the new rules of tax assessment in the Philippines under RR No. 18-2013, the following new modes of serving notices has been
introduced that is more aligned with the Rules of Court of the Supreme Court of the Philippines in legal proceedings in the Philippines:
1. Service to taxpayer in its business address, residence, or wherever it may be found under personal delivery
2. Service to professional courier under service by mail
3. Service to the office in charge of the office, or to a legal resident at residence, or with the barangay officials under substituted
service
4. Service to tax agent
BIR has now more options tor each out taxpayers under tax assessment in the Philippines.
6. Imposition of Delinquency interest
Delinquency interest is the interest being imposed upon a taxpayer as an addition to the tax from the time required to be paid as stated in
the FAN-FLD up to such time of full payment. RR No. 18-2013 has expressly provided that the delinquency interest should be imposed.
The base for the computation of such delinquency interest includes the deficiency interest covering the interest from the time required by
law to be filed or from late filing until the date required to be paid stated in the FAN-FLD. In short, the deficiency interest will generate
delinquency interest or interest will earn another interest similar in concept to a compounded interest computation in finance practice.
References:
Revenue Regulations No. 18-2013
Revenue Regulations No. 12-1999
Revenue Regulations No. 12-1985
REVENUE REGULATIONS NO. 12-99
issued September 14, 1999 implements the provisions of the Tax Code of 1997 relative to the rules on assessment of national internal
revenue taxes, fees and charges, as well as provides the rules for the extra-judicial settlement of a taxpayer's criminal violation of the said
Code or any of its implementing Regulations through payment of a suggested compromise penalty. As a general principle, in case the tax
due from the taxpayer is paid on a partial or installment basis, the interest on the deficiency tax or on the delinquency tax liability of the
taxpayer will be imposed from due date of the tax until full payment thereof. The interest will be computed based on the diminishing
balance of the tax, inclusive of interests
Waiver from the Defense of Prescription in Philippines
By: Tax and Accounting Center Philippines
As a matter of right under Section 203 of the Tax Code of the Philippines, as amended (Tax Code), the Bureau of Internal Revenue (BIR)
has the power to examine the books of accounts and other accounting records of the taxpayers and make an assessment within three
years, and we quote:
SECTION 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.
To illustrate the counting of the three year period, let us take up the taxable calendar year ending December 2009. Income tax return
filing for said 2009 is not later than April 15, 2010. Counting the three-year period, the BIR can make as assessment (issuance of Formal
Assessment Notice and Formal Letter of Demand or FAN-FLD) up to April 2013, (April 2011 is year 1, April 2012 is year 2). Should
BIR fail to issue an assessment within said period, then, it will lose its right to assess and the taxpayer will no longer be assessed for said
taxable year.
The above three-year period of the BIR to assess is not however absolute. Under Section 222(b) of the Tax Code, the taxpayer and the
Commissioner of Internal Revenue (CIR) may agree in writing for the timing of the assessment executed before the expiration of the
Tax II Set 4 * Assessment Cases*Page 64 of 65
three-year period. This is what we call as Waiver from the Defense of Prescription or simply Waiver. Under BIR Revenue
Memorandum Order No. 20-1990 (RMO 20-90)and Revenue Delegation Administrative Order No. 09-2001 (RDAO 05-01), the
following procedures and requirements should be observed for the execution of a VALID waiver from the defense of prescription:
1. The waiver must be in the proper form prescribed by RMO 20-90. The phrase but not after ______ 19 ___, which indicates the
expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of prescription, should be filled up.
2. The waiver must be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation, the waiver must
be signed by any of its responsible officials. In case the authority is delegated by the taxpayer to a representative, such delegation should
be in writing and duly notarized.
3. The waiver should be duly notarized.
4. The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has accepted and agreed to the waiver.
The date of such acceptance by the BIR should be indicated. However, before signing the waiver, the CIR or the revenue official
authorized by him must make sure that the waiver is in the prescribed form, duly notarized, and executed by the taxpayer or his duly
authorized representative.
5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of the period of
prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed.
6. The waiver must be executed in three copies, the original copy to be attached to the docket of the case, the second copy for the
taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the taxpayer of his/her file copy must be indicated
in the original copy to show that the taxpayer was notified of the acceptance of the BIR and the perfection of the agreement.
In a number of court decisions (e.g. CIR vs. Kudos Metal Corporation), G.R. No. 178087 dated May 5, 2010), the above requirements
for a valid waiver from the defense of prescription in the Philippines has been upheld. Failure to follow the same should invalidate the
waiver and the same will not extend the three-year period of assessment.
For taxpayers, execution of a Waiver from the defense of prescription in the Philippines is voluntary on its part. On practical
considerations, taxpayers execute a waiver if the same is favorable on its part, such as when certain material schedules and documents are
to be prepared and submitted to the BIR that would tend to lower down the assessment and time is of the essence. On such instance, the
taxpayer should see to it that the Waiver complies with the above requirements and procedures.
The new rule on waivers: a taxpayers gamble
Taxwise or Otherwise
By Caryl H. Granada-Bacay, 5 May 2016
Casino Rule: The house always wins. Something to keep in mind for who study the tax system, particularly in light of the recent policy
turnaround in regard to the waiver of the Statute of Limitations.
Until just recently, the prevailing rules on the proper execution of the waiver of the Statute of Limitations under the National Internal
Revenue Code of the Philippines (Tax Code) can be found in Revenue Memorandum Order (RMO) 20-90 of the Bureau of Internal
Revenue (BIR). In the landmark case of Philippine Journalists, Inc. v. Commissioner of Internal Revenue (G.R. No. 162852, 16
December 2004), the Supreme Court (SC) gave a stringent interpretation of RMO 20-90, requiring faithful compliance with its
requirements for a waiver to be valid. The court ruled that since a waiver to extend the period for the BIR to issue an assessment and
collect taxes is a derogation of the taxpayers right to security against prolonged and unscrupulous investigations, waivers of this kind
must be carefully and strictly construed.

Recently however, the Supreme Court adjusted its stance. In G.R. No. 212825 dated Dec. 29, 2015, the high court laid down exceptions
to the rule. In this case, the BIR and the corporate taxpayer were considered in pari delicto or in equal fault, and the Court deemed it
more equitable to allow BIRs lapses to pass (mentioning that proper administrative sanctions could be imposed on the negligent BIR
officials). Consequently, the validity of the waivers were upheld in support of the principle that tax collection is the lifeblood of the
state. Since the taxpayer was also at fault, it was not allowed to benefit from its own wrongdoing by invalidating the signed waivers.
For failure to raise any objections, the taxpayer was estopped from questioning the validity of the waivers.
In parallel with this SC decision, the BIR found it high time to repeal RMO 20-90. Thus, on April 4, the BIR issued RMO 14-2016,
providing a new set of rules on executing waivers. Under the new relaxed rules, the waiver may be, but not necessarily in the form
prescribed by RMO 20-90 or the related Revenue Delegation Authority Order No. 05-01. The taxpayers failure to follow the
prescribed forms will not invalidate the executed waiver, as long as the following minimum conditions are complied with:
The waiver of the Statute of Limitations shall be executed before the expiration of the period to assess or to collect taxes. The
date of execution shall specifically be indicated in the waiver.
The waiver shall be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation, the
waiver must be signed by any of its responsible officials.
The expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of prescription should be
indicated.
In addition, the taxpayer is now charged with the burden of ensuring that the waivers are validly executed by its authorized
representatives. The BIR no longer requires that the delegation of authority to a representative be in writing and notarized. This means
that it is presumed that the person signing has the authority to do so. Thus, the taxpayer is now estopped from questioning the authority
of its representative who signed the waiver. Also, the waiver itself need not be notarized. It is sufficient that they be in writing to
produce legal effect and to bind the taxpayer upon its execution.
The apparent departure from RMO 20-90 is the previous requirement that only the authorized revenue officials are allowed to accept
the waiver. With the new relaxed rules, the group supervisor as designated in the Letter of Authority or Memorandum of Assignment
can accept the waiver. Further, the date of acceptance of the signed waiver by the BIR is no longer required to be indicated. RMO 14-
2016 only considers two material dates: 1) the date of the execution of the waiver by the taxpayer or its authorized representative; and
2) the expiry date of the period the taxpayer waives the statute of limitations.
Even under the old rules, taxpayers must consider carefully whether or not they should execute waivers to extend the prescriptive
period. Now, with these new relaxed rules that lean in favor of the BIR, the decision should be weighed more carefully because once
signed, waivers can no longer be challenged.
While it would seem unfair for the BIR to change a long-standing rule to its advantage, it is but proper since the Commissioner, under
the Tax Code, is vested with powers, not only to assess and collect taxes, but also to prescribe additional requirements for tax
Tax II Set 4 * Assessment Cases*Page 65 of 65
administration and enforcement. This means that the Commissioner has the power to make, amend or repeal rulings he may deem
necessary for the proper implementation and interpretation of the tax laws.
With the enactment of RMO 14-2016, the BIR would seem to always win. As for the taxpayers, however, the law may be harsh, but
like players in a game of poker, they will have to play by the rules.
REVENUE MEMORANDUM ORDER NO. 14-2016 issued on April 18, 2016 revises the guidelines for the execution of waivers from
the defense of prescription pursuant to Section 222 of the National Internal Revenue Code (NIRC) of 1997, as amended. The waiver may
be, but not necessarily, in the form prescribed by Revenue Memorandum Order No. 20-90 or Revenue Delegation Authority Order No.
05-01.
The taxpayer's failure to follow the aforesaid forms does not invalidate the executed waiver for as long as the following are complied
with:
a) The Waiver of the Statute of Limitations under Section 222 (b) and (d) shall be executed before the expiration of the period to assess or
to collect taxes. The date of execution shall be specifically indicated in the waiver.
b) The waiver shall be signed by the taxpayer himself or his duly authorized representative. ln the case of a corporation, the waiver must
be signed by any of its responsible officials;
c) The expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of prescription should be
indicated.
Except for waiver of collection of taxes which shall indicate the particular taxes assessed, the waiver need not specify the particular taxes
to be assessed nor the amount thereof, and it may simply state "all internal revenue taxes" considering that during the assessment stage,
the Commissioner of Internal Revenue (CIR) or her duly authorized representative is still in the process of examining and determining
the tax liability of the taxpayer.
The taxpayer is charged with the burden of ensuring that the waivers of statute of limitation are validly executed by its authorized
representative. The authority of the taxpayer's representative who participated in the conduct of audit or investigation shall not be
thereafter contested to invalidate the waiver.
The waiver may be notarized. However, it is sufficient that the waiver is in writing as specifically provided by the NIRC, as amended.
The waiver shall take legal effect and be binding on the taxpayer upon its execution thereof. lt shall be the duty of the taxpayer to submit
its duly executed waiver to the CIR or officials previously designated in existing issuances or the concerned revenue district officer or
group supervisor as designated in the Letter of Authority/Memorandum of Assignment who shall then indicate acceptance by signing the
same.
Such waiver shall be executed and duly accepted prior to the expiration of the period to assess or to collect. The taxpayer shall have the
duty to retain a copy of the accepted waiver. The two (2) material dates that need to be present on the waiver are the date of execution of
the waiver by the taxpayer or its authorized representative; and the expiry date of the period the taxpayer waives the statute of limitations.
Before the expiration of the period set on the previously executed waiver, the period earlier set may be extended by subsequent written
waiver made in accordance with this Order.