151.

Commissioner v Enron Subic Power (638)

FACTS: Enron, a domestic corporation filed its annual income tax return. Thereafter, Enron
received from the CIR a formal assessment notice 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.

Due to the non-resolution of its protest within the 180-day period, Enron filed a petition for
review in the CTA. It argued that the deficiency tax assessment disregarded the provisions of
Section 228 of the National Internal Revenue Code (NIRC), as amended, and Section 3.1.4 of
Revenue Regulations (RR) No. 12-99 by not providing the legal and factual bases of the
assessment. Enron likewise questioned the substantive validity of the assessment.

ISSUE: Whether the assessment is valid

RULING: NO. 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 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.

152. United Salvage and Towage v Commissioner

FACTS: BIR Commissioner issued Assessment Notices and the corresponding Demand Letters
against petitioner in the amounts of P411,715.79, P1,441,393.18, P50,429.18, and P14,079.45,
representing Income Tax, Value-added Tax (VAT), Withholding Tax on Compensation, and
Expanded Withholding Tax (EWT) deficiencies. Petitioner filed its administrative protest
contesting the validity of the assessment for Expanded Withholding Tax

ISSUE: Whether the assessment of the EWT is valid

RULING: YES. Section 229 of the National Internal Revenue Code (NIRC) of 1977, as
amended,
merely requires respondent to "first notify the taxpayer of his findings" that proper taxes should
be assessed. There is no requirement that the notice should contain “the law and the facts on
which the assessment is made; otherwise, the assessment shall be void", which is found in
Section 228 of the NIRC of 1997.
153. Reyes v Commissioner (639)

FACTS: Decedent Tancinco left a 1,292 square-meter residential lot and an old house thereon.
The heirs of the decedent 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. The CIR issued a preliminary collection letter to Reyes, followed by a Final Notice
Before Seizure. Subsequently, a Warrant of Distraint and/or Levy was served upon the estate.
Reyes initially protested the notice of levy but then the heirs proposed a compromise settlement
of P1,000,000.00. The CIR rejected Reyes’s offer, pointing out that since the estate tax is a
charge on the estate and not on the heirs, the latter’s 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. As the estate failed to pay its tax liability within the deadline, BIR notified Reyes
that the subject property would be sold at public auction on August 8, 2000. Reyes filed a
protest with the BIR Appellate Division. Assailing the scheduled auction sale, she asserted that
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.

ISSUE: Whether the assessment in this case can be used as a basis for the perfection of a tax
compromise.

RULING: NO. The 2nd paragraph of Sec. 228 of NIRC is clear and mandatory insofar as
taxpayers shall be informed in writing of the law and the facts on which the assessment is
made, otherwise the assessment shall be void. RA 8424 has already amended the provisions of
Sec. 229 of NIRC on protesting an assessment. The old requirement of merely notifying the
taxpayer of the CIR’s findings was changed in 1998 of 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. Being invalid, the assessment canot be in turn be used as a basis for the
perfection of a tax compromise.

Hence, it is premature to declare the compromise on the tax liability of the estate perfected and
consummated considering that the tax assessment is void. 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.

154. Commissioner v BPI

FACTS: In October 28, 1988, petitioner assessed BPI of deficiency percentage and
documentary stamp tax for the year 1986, in the total amount of P129,488,056.63. A letter reply
by respondent was sent on December 10, 1988 stating among other:
... we shall inform you the taxpayer’s decision on whether to pay of protest the assessment,
CTA ruled that BPI failed to protest on time under Sec 270 of NIRC of 1986.
ISSUE: Whether the assessments issued to BPI for deficiency percentage and documentary
stamp taxes for 1986 had already become final and un-appealable.
RULING: YES. In merely notifying BPI of his findings. CIR relied on the provisions of the former
Section 270 prior to its amendment by RA 8424. The sentence “the taxpayers shall be informed
in writing of the law and the facts on which the assessment is made…”
Was not in the old Section 270 but was only later on inserted in the renumbered
Section 228 in 1997. Tax assessments by tax examiners are presumed correct and are
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 BIR examiner
and approved by his superior officers will not be distributed. All presumptions are in favor of the
correctness of tax assessments.

155. Hermano Miguel Febres v CIR

FACTS: Petitioner received a Preliminary Assessment Notice (PAN) from respondent, for
deficiency expanded withholding tax (EWT) inclusive of interest and compromise penalty for
taxable year 2005, in the aggregate amount of Php3,531,893.24. Petitioner filed its
administrative protest through the Regional Director of BIR, for the cancellation and termination
of the assessment on the ground that it is void for failure to comply with Article 228 of the NIRC
that is, the assessments merely itemized and summarized the tax base, applied the tax rate,
and indicated the alleged tax liability, interest and compromise penalty due thereon and also
failed to state the specific provision of the NIRC of 1997, as amended, or rules and regulations
not complied with by petitioner

ISSUE: Whether the Assessment Notice are void for alleged failure to comply with Section 228
of the NIRC

RULING: NO. SC ruled that the requirement of the law to inform the taxpayer of the basis of the
assessment does not necessarily mean that it be a full narration of the facts and laws on which
the assessment in based. The purpose of the assessment is to enable the taxpayer to know the
law and the facts on which the assessment is made, and to afford hi his right to due process
once it is served and received.

156. Big AA Corporation v CIR

FACTS: Petitioner is a corporation engaged in the distribution of San Miguel Beer, relying on
Sec. 6(A) of the NIRC (1997), it filed its 2001 Amended Annual ITR and VAT returns to reflect
its total purchases. Respondent found that there was a discrepancy in the amount of total
purchases made by petitioner thus, a Letter Notice dated Nov. 28, 2002 was issued requiring
petitioner to avail of the Voluntary Assessment and Abatement Program. Petitioner questioned
the validity of Revenue Memorandum Circular No. 40-2003 which clarified that a Letter Notice is
considered as a Notice of Audit or Investigation for purposes of barring petitioner in amending
its income and value-added tax returns for the taxable year 2001.

ISSUE: Whether a letter notice being served by respondent upon a taxpayer who is found to
have underdeclared its sales or purchases can be considered a notice of audit or investigation
which would in effect disqualify the taxpayer concerned from amending its return which is the
subject of such audit or investigation.

RULING: YES. Under the provisions of Section 6(A) of the NIRC of 1997, a taxpayer can no
longer
amend its tax returns once a notice of audit or investigation is issued against it within
the three-year period allowed by law for such amendment. A notice of audit or
investigation, as the name implies, is a letter informing the taxpayer that there exists
certain discrepancies or inconsistencies in its annual returns, thus, there is a need to
inspect or examine its books of account. It’s incomprehensible to even consider that the
letter notice was issued to directly assess petitioner of its deficiency VAT and income taxes, as
argued by petitioner.

157. CIR v Sony Philippines

FACTS: The Commissioner issued a Letter of Authority numbered 19734 (LOA 19734) which
authorized certain revenue examiners to examine Sony Philippines’ books of accounts
regarding revenue taxes for “the period 1997 and unverified prior years.”
After the examination of said books, the CIR found out, among others, that Sony Philippines is
liable for deficiency taxes and penalties for value added tax amounting to P11,141,014.41.
Sony Philippines contested such finding as it argued that the basis used by the CIR to assess
said deficiency were the records covering the period of January 1998 through March 1998
which was a period not covered by the letter of authority so issued. The CIR countered that the
LOA phrase “the period 1997 and unverified prior years” should be understood to mean the
fiscal year ending on March 31, 1998.
Eventually the case reached the Court of Tax Appeals and the CTA decided agreed with Sony
Philippines on this one. So did the CTA en banc.
ISSUE: Whether the CIR is correct
HELD: NO. The LOA issued is clear on which period is covered by the examination to be
conducted. It’s only meant to cover the year “1997 and unverified prior years” not the
year 1998. The revenue officers who examined the records covering the period of January to
March 1998 had exceeded the jurisdiction granted to them by the LOA.
Further, the LOA which covered “1997 and unverified prior years” is in violation of the principle
that a Letter of Authority should cover a taxable period not exceeding one taxable year. If the
audit of a taxpayer shall include more than one taxable period, the other periods or years shall
be specifically indicated in the LOA (as embodied in Section C of Revenue Memorandum Order
No. 43-90 dated September 20, 1990).

158. Estate of the Late Juliana Deiz v Commissioner

FACTS: Juliana Gabriel entered into a contract of agency with the Philippine Trust Company
(PhilTrust) for the latter to manager her business affairs. In April 1979, Gabriel died. Two days
after her death, PhilTrust filed the income tax return (ITR) of Gabriel. PhilTrust however did not
mention therein that Gabriel already died. PhilTrust petitioned to be appointed as administrator
of her estate but the probate court assigned an heir instead. Meanwhile, the BIR found that
Gabriel has a tax deficiency in the amount of P318,000. Eventually, a final assessment notice
(FAN) addressed to Gabriel was sent via registered mail to PhilTrust. At this point, the BIR was
still uninformed about Gabriel’s death. PhilTrust did not answer the FAN and so a warrant of
distraint and levy was issued against the property of Gabriel. The administrator of the estate
protested the warrant on the ground that there was an invalid service of assessment. The
Commissioner maintained that there was a valid service because a) PhilTrust was the agent of
Gabriel, and b) the tax code (of 1977) does not require that the assessment be actually received
by the taxpayer; that all it requires is that the assessment be released, mailed, and sent to the
taxpayer at the address stated in the ITR filed.
ISSUE: Whether or not the CIR is correct.
HELD: No. PhilTrust was no longer the agent of Gabriel when the FAN was issued in 1982. The
contract of agency ceased when Gabriel died in 1979. Since the agency was extinguished, the
estate of Gabriel cannot be bound by the mistakes and omission of PhilTrust i.e., failure to notify
BIR of Gabriel’s death and failure to file an answer for the FAN issued.
Anent the second argument of the CIR, although there is really no statutory requirement that the
FAN should be actually received by the taxpayer, the same should be sent to the taxpayer. In
this case, it was sent to PhilTrust. Also, although there is no specific requirement that the
taxpayer should receive the notice within the prescriptive period (so long as the FAN was made
within such period), due process requires at the very least that such notice actually be received.
An assessment contains not only a computation of tax liabilities, but also a demand for
payment within a prescribed period. It also signals the time when penalties and interests
begin to accrue against the taxpayer. To enable the taxpayer to determine his remedies
thereon, due process requires that it must be served on and received by the taxpayer.

159. BPI v Commissioner

FACTS: Following a pre-assessment notice on deficiency tax filed by respondent in 1986, the
latter sent final demand to petitioner on April 7, 1989. Petitioner filed a protest and a waiver of
the Statutes of Limitations which was effected until December 31, 1994. On August 9, 2002,
respondent issued a final decision on petitioner’s protest ordering the withdrawal and
cancellation of the deficiency withholding tax assessment in the amount of P190,752,860.82
and considered the sane as close and terminated but the documentary stamp tax of
P24,587,174.63 was reiterated. Thereafter petition for review was filed with CTA. The court
denied the petition.
ISSUE: Whether the collection of the deficiency DST is barred by prescription:
RULING: In order to determine whether the prescriptive period for collecting the tax deficiency
tolled by BPI’s filing of the protest letters dated April 7, 1989. Section 20 of the Tax Code must
be examined:
The running of the Statute of Limitations… on the making of assessment and the
beginning of distraint or levy or a proceeding in court of collection… shall be suspended for the
period… when the taxpayer requests for re-investigation which is granted by the Commissioner.
In order to suspend the running of the prescriptive periods for assessment and
collection, the request for re-investigation must be granted by CIR. There is nothing in this case
which indicates, expressly or impliedly, that the CIR had granted the request for re-investigation
filed by BPI. What is reflected is the silence and inaction of the CIR.
Given the prescription of the Government’s claim, we no longer deem it necessary to
pass upon the validity of the assessment

160. BASF Coatings v Commissioner

FACTS: In a Formal Assessment Notice (FAN) dated January 17, 2003, CIR assessed BASF
the aggregate amount of P18,671,343.14 representing deficiencies in income tax, value added
tax, withholding tax on compensation, expanded withholding tax and documentary stamp tax,
including increments, for the taxable year 1999. The FAN was sent by registered mail on
January 24, 2003 to BASF’s former address in Las Piñas City.
Thereafter, the Chief of the Collection issued a First Notice Before Issuance of Warrant of
Distraint and Levy, which was sent to the residence of one of respondent's directors.

BASF filed a protest letter citing lack of due process and prescription as grounds.

The CTA En Banc held that petitioner's right to assess respondent for deficiency taxes for the
taxable year 1999 has already prescribed and that the FAN issued to respondent never attained
finality because BASF did not receive it.

ISSUE: Whether the assessments are void

RULING: YES. As there are no notices sent to BASF, the assessments are void. In CIR v
Reyes, the SC ruled that if there is no valid notice sent, the assessment is void. The reason for
this is that “the law imposes a substantive, not merely formal, requirement.”