CIR V GJM MANUFACTURING

Facts: On April 12, 2000, GJM filed its Annual Income Tax Return for the year 1999. CIR found out that GJM had tax
deficiencies due to disallowances/understatements, therefore, CIR had the right to assess GJM within the 3-year prescriptive
period under Sec. 203 of the NIRC or until April 15, 2003. On February 17, 2003, CIR delivered the Preliminary Assessment
Notice (PAN) to GJM. Subsequently, on April 14, 2003, the Formal Assessment Notice (FAN) were delivered by the CIR.
GJM denied having received any assessment from the BIR, thus, such right of assessment by the latter has prescribed.

Issue: Whether or not the denial of GJM having received the Formal Assessment Notice (FAN) made such right of
assessment by the CIR prescribe;

Held: Yes, it has been settled 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, the direct denial of which shifts the burden to the sender to prove
that the mailed letter was, in fact, received by the addressee. In the case at bar, CIR was not able to prove that GJM has
received the FAN sent by them ergo their right to assess has prescribed.

CIR v NEXT MOBILE

FACTS:
Respondent filed with the BIR taxes for 2001. Respondent, through Sarmiento, their director of Finance, executed several
waivers of the statute of limitations to extend the prescriptive perios of assessment for taxes.

On 2005, respondent received from the BIR a PAN and a formal letter of demand to pay deficiency income tax. The BIR
denied respondent's protest.

With the CTA, it was held that the demand was beyond the three year prescription period under the NIRC. That the case
does not apply the 10 year prescripton period as there was not false return by the respondent. Also, the waivers did not
validly extend the prescription because of irregularities.

ISSUE: Whether the period to pay has prescribed.

RULING:
NO.

The SC held that a waiver of the statute of limitations must faithfully comply with RMO No. 20-90 and RDAO 05-01 in
order to be valid. Sarmiento failed to show her authority to the BIR to sign the waivers.

The BIR were also at fault having to neglect their ministerial duties.

Both parties knew the infirmities of the waivers but still continued. Respondents were held in bad faith as after having
benefited by the waivers by giving them more time to pay, they used the waivers they made themselves when the
consequences were not in their favor.

The BIR's negligence amounts to malice and bad faith as they also knew the waivers did not conform with RMO 20-90
and RDAO 05-01.

As both parties are in bad faith, the SC granted the petition on the issue of the nullification of the formal letter of demand
to the CTA.

CIR v PHILIPPINE DAILY INQUIRER

Facts:
Before the Court is a petition for review asPDI is a corporation engaged in the business of newspaper publication.
On 15 April 2005, it filed its Annual Income Tax Return for taxable year 2004.

On 10 August 2006, PDI received a letter dated 30 June 2006 from Region 020 Large Taxpayers' Service of BTR
BIR alleged that based on the computerized matching it conducted on the information and data provided by third party
sources against PDI's declaration on its VAT Returns for taxable year 2004, there was an underdeclaration of domestic
purchases from its suppliers amounting to P317,705,610.52.
In response, PDI submitted reconciliation reports, attached to its letters dated 22 August 2006 and 19 December 2006, to
BIR-LTAID. On 21 March 2007, PDI executed a Waiver of the Statute of Limitation (First Waiver) consenting to the
assessment and/or collection of taxes for the year 2004 which may be found due after the investigation, at any time before
or after the lapse of the period of limitations fixed by Sections 203 and 222 of the National Internal Revenue Code (NIRC)
but not later than 30 June 2007.

In a Preliminary Assessment Notice (PAN) dated 15 October 2007 issued by the BIR-LTAID, PDI was assessed for alleged
deficiency income tax and VAT for taxable year 2004.

PDI sought reconsideration of the PAN and expressed its willingness to execute another Waiver (Third Waiver), which it
did on the same date, thus extending BIR's right to assess and/or collect from it until 30 April 2008.

PDI received a Formal Letter of Demand dated 11 March 2008 and an Audit Result/Assessment Notice from the BIR,
demanding for the payment of alleged deficiency VAT and income tax.

On 16 May 2008, PDI filed its protest. On 12 December 2008, PDI filed a Petition for Review against the Commissioner of
Internal Revenue (CIR) alleging that the 180-day period within which the BIR should act on its protest had already lapsed.

On the basis of the consolidation and cross-referencing of third-party information, discrepancy reports on sales and
purchases were generated to uncover under-declared income and over-claimed purchases (goods and services).

Section 222 of the NIRC provides the exceptions as regards to the provisions laid down under Section 203. In particular, as
shown under Section (1) thereof, the three (3) [year] period of limitation in making assessment shall not apply in cases
where it involves false or fraudulent return or in cases where there is failure to file a return [by] the person obliged to file
such return.

Such being the case, the three (3) [year] period of limitation for the assessment of internal revenue tax liabilities reckoned
from the last day prescribed by law for the filing of the return shall not apply in the case at hand for the simple reason that
petitioner falsely filed the return for taxable year 2004.

Petitioner emphasized that it is a service company deriving its main source of income from newspaper and advertising sales,
thus any understatement of expenses or purchases (also mostly from services) does not mean it understated its sales.

The CTA First Division further ruled that Section 222(b) of the NIRC authorizes the extension of the original three-year
prescriptive period by the execution of a valid waiver upon the agreement in writing between the taxpayer and the BIR,
provided: (1) the agreement was made before the expiration of the three-year period and (2) the guidelines in the proper
execution of the waiver are strictly followed.

The CIR filed a petition for review on certiorari before this Court.

Issue:
The CTA En Banc erred in ruling that respondent is not estopped from raising the defense of prescription.

Ruling:
The CIR alleges that PDI filed a false or fraudulent return.

The CIR argues that the ten-year period starts from the time of the issuance of its Letter Notice on 10 August 2006. As such,
the assessment made through the Formal Letter of Demand dated 11 March 2008 is within the prescriptive period. We do
not agree.

Under Section 203 of the NIRC, the prescriptive period to assess is set at three years. This rule is subject to the exceptions
provided under Section 222 of the NIRC.
This Court ruled that fraud is never imputed. The Court stated that it will not sustain findings of fraud upon circumstances
which, at most, create only suspicion.[25] The Court added that the mere understatement of a tax is not itself proof of fraud
for the purpose of tax evasion.

The fraud contemplated by law is actual and not constructive. It must be intentional fraud, consisting of deception willfully
and deliberately done or resorted to in order to induce another to give up some legal right. Negligence, whether slight or
gross, is not equivalent to fraud with intent to evade the tax contemplated by law. It must amount to intentional wrongdoing
with the sole object of avoiding the tax.

Thus, while the filing of a fraudulent return necessarily implies that the act of the taxpayer was intentional and done with
intent to evade the taxes due, the filing of a false return can be intentional or due to honest mistake.

In this case, we do not find enough evidence to prove fraud or intentional falsity on the part of PDL. Since the case does not
fall under the exceptions, Section 203 of the NIRC should apply.

Waiver was not a unilateral act of the taxpayer; hence, the BIR must act on it, either by conforming to or by disagreeing
with the extension. A 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 imply
that the taxpayer relinquishes the right to invoke prescription unequivocally.
Since the three Waivers in this case are defective, they do not produce any effect and did not suspend the three-year
prescriptive period under Section 203 of the NIRC.

CIR v TRANSITIONS OPTICAL

In the recent case of CIR vs. Transitions Optical Philippines, Inc. (G.R. No. 227544, February 12, 2018), the Supreme Court
reiterated that a waiver must strictly comply with the requirements prescribed by the regulations. However it qualified and
held that a taxpayer cannot impugn the validity of the waiver on the basis of the defects he himself has caused after benefiting
from it, as he will be deemed estopped by his bad faith. In this case, two (2) waivers were executed by the parties extending
the prescriptive periods for assessment. These waivers were not accompanied by a notarized written authority to act on
behalf of the respondent. Likewise, neither the Revenue District Office’s acceptance date nor respondent’s receipt of the
BIR’s acceptance was indicated in either of the waiver. Despite the waiver’s non-compliance with the requirements in the
regulations, the Supreme Court ruled in favor of the BIR and treated the waiver as valid and binding upon the taxpayer since
the defect was attributable to the latter’s deliberate acts. The respondent did not raise as an issue the validity of the waiver
and the prescription of the petitioner’s right to access the deficiency taxes. By principle of estoppel, respondent should not
be allowed to question the validity of the waivers. Nonetheless, even as respondent is estopped from questioning the validity
of the waivers, the court held that assessment is still void since the Final Assessment Notice (FAN) was served beyond the
supposed extended period. Counting of three (3) year prescription period begins from the receipt of the FAN.

CIR v SYSTEMS TECHNOLOGY INSTITUTE

CIR v STANDARD CHARTERED BANK

Facts: SCB received a Formal Letter of Demand dated June 24, 2004 for deficiency taxes and increments for the taxable
year 1998, amounting to P33.3M. On August 12, 2004, SCB protested against said assessment and requested the CIR that
it be withdrawn and cancelled. CIR had not rendered a decision, prompting SCB to file a Petition for Review before CTA
division.

The CTA division granted the petition of SCB, canceled and set aside the FLD and Assessment Notices on the ground that
CIR’s right to assess was already barred by prescription. CIR presented copies of Waivers of Statute of Limitations executed
by both parties. CTA, however, noted that these waivers did not strictly comply with Revenue Memorandum Order No. 20-
90. CIR filed for MR, which was denied.

CIR appealed with the CTA En Banc, but it affirmed CTA division decision. Hence, the present Petition for Review on
Certiorari.

Issue: W/N petitioner’s right to access respondent for deficiency taxes for 1998 has already prescribed.
Held: Yes.
The period for petitioner to assess and collect an internal revenue tax is limited only to three years by Section 203 of the
NIRC of 1997. This mandate is primarily to safeguard the interests of taxpayers from unreasonable investigation by not
indefinitely extending the period of assessment and depriving the taxpayer of the assurance that it will no longer be subjected
to further investigation for taxes after the expiration of reasonable period of time.
As an exception, Section 222 authorizes the extension of the original three-year prescriptive period by the execution
of a valid waiver. RMO No. 20-90 outlines the procedure for the proper execution of a waiver and failure to comply with
any of the requisites renders a waiver defective and ineffectual. The waivers executed by CIR and SCB were in violation of
RMO 20-90:
1. the CIR did not sign (assessment was more than P1M)
2. date of acceptance and the amount and kind of tax due were not indicated
3. the waiver speaks of request to extend the period to file additional documents, not the request for recon or reinvestigation
as required by RMO 20-90.
The period to assess the tax liabilities of respondent for taxable year 1998 was never extended. Consequently, when
the succeeding waivers of Statute of Limitations were subsequently executed covering the same tax liabilities of respondent,
and there being no assessment having been issued as of that time, prescription has already set in.
[Although respondent paid the deficiency WTC and FWT assessments, it did not waive the defense of prescription
as regards the remaining tax deficiencies, it being on record that respondent continued to raise the issue of prescription.
Doctrine of estoppel not applicable.]
The Formal Letter of Demand and Assessment Notices are void. Petition is denied.

REPUBLIC v YU DE LIM
REPUBLIC v. LIM DE YU (Alarcon)
[GR. No. L-17438; December 29, 1960]

“Dapat di pa prescribed bago ka mag waive”

Recit-Ready:
Facts: Lim de Yu filed her income tax returns for the years 1958 to
1953. BIR assessed her taxes which she paid. BIR assessed her
for income tax deficiency for the same period of 1948 to 1953
in the total of P22, 450.50. She protested and requested an
reinvestigation. She signed a “waiver on the statute of
limitations in the NIRC” on August 30, 1956. In July 18, 1958,
BIR assessed her for the third time for tax deficiency of P35,
379.63 which included a 50% surcharge for the same tax
periods. Upon her failure to pay for the taxes due, BIR filed a
collection case against her on May 11, 1958. Respondent
alleges that BIR’s action to assess and collect has already
prescribed as the 5 year period has lapsed. BIR contends that it
has 10 years from discovery of fraud to collect from Yu de Lim
as her return were fraudulent, as there was a great disparity from
BIR’s assessment from the returns filed.

Issue/s:
1) WON the returns filed by respondent for the years 1948 to 1953
are false and fraudulent—NO
2) WON taxes due from 1948 to 1953 can still be collected
—NO

Held:
1) Fraud was not established by BIR. The prescriptive period then is 5
years from the filing of the return. Prescriptive period for tax on
years 1948 to 1950 has already prescribed when Yu de Lim executed
a “waiver” on August 30, 1956. What is only included in the
“waiver” was 1951 and 1953 taxes. With respect to the tax year
 1953, as to which the return was filed by appellee on March 1, 1954,
the waiver was not necessary for the effectivity of the assessment
made on July 18, 1958, since such assessment was well within the
original five-year period provided by law. After the assessment on
July 18, 1958, appellant had five years within which to file suit for
collection pursuant to Section 332 (c) of the tax code.

Facts:
 Rita Lim de Yu filed her yearly income tax returns from 1948 to 1953. BIR assessed her taxes due and she paid them
accordingly.
 On July 17, 1955 BIR issued a deficiency tax assessment for the years 1945 to 1953 in the total amount of P22,450.50.
She protested and requested a reinvestigation. On August 30, 1956, she signed a “waiver” of the statute on limitations
under the Tax Code as a condition on the reinvestigation requested.
 On July 18, 1958, the BIR issued to her tax assessment notices for the years 1948 to 1953 totalling P35,379.63. This
assessment, like the last one, covered not only the basic deficiency income taxes but also 50% thereof as surcharge.
 Upon respondent’s failure to pay, an action for collection was filed against her in Court of First Instance in Cotabato on
May 11, 1959. After trial, the suit was dismissed. BIR appeled to the Supreme Court.
 BIR claims that the returns filed by Yu de Lim for 1948 to 1953 are fraudulent as they are much less than as computed
by the BIR and under par (a) Sec 332 of the Tax Code, it has 10 years from the date of discovery of the fraud (May 25,
1955) within which to asses the tax or to file a suit for collection without assessment. They content Yu de Lim can no
longer question the correctness of the assesments in view of her failure to raise in the Court of Tax Appeals.

Issue/s:
1) WON the returns filed by respondent for the years 1948 to 1953 are false and fraudulent—NO
2) WON taxes due from 1948 to 1953 can still be collected
—No,1948 to 1950; Yes- 1951 to 1953

Held/Ratio: decision of trial court is modified by ordering appellee to pay appellant the sum of P26,182.00 as deficiency
income taxes for the years 1951, 1952 and 1953, plus 5% surcharge and 1% monthly interest thereon from July 31, 1958
until payment of the full obligation, with costs.

1) No. While fraud is alleged, it has not been established by BIR.

o It is one thing to say that the correctness of respondent’s assessment can no longer be challenged on the same technical
grounds just stated by BIR and another to say that respondent committed a deliberate fraud in her returns.
o On three different occasions, BIR arrived in three highly different computations.
 First, it accepted Yu de Lim’s yearly statement of income from 1945 to 1953 and assessed her for
P2,732.37 which respondent paid.
 In 1956, BIR came up with different figures for the same period. It assessed respondent with P22,
450.50 as deficiency tax.
 In 1958, the Bureau assessed respondent P35, 379.63 for years 1948 to 1953, inclusive of 50%
surcharge notwithstanding the fact that respondent filed her return that year and paid for it.

2) Fraud not having been proven, the period of limitation for assessment or collection was five years from the
filing of the return, according to Section 331 of the Tax Code. The right to assess or collect taxes for 1948 to
1950 had already prescribed when the BIR issued the deficiency tax assessment on July 17, 1956.

o Tax years 1948 to 1950 cannot be deemed included in the “waiver of statute of limitations under the NIRC”
executed by respondent on August 30, 1956. The five year period for assessment may be extended upon
agreement between the Commissioner and the taxpayer but such agreement must be made before the
expiration of the original period.

o With respect to the tax year 1953, as to which the return was filed by appellee on March 1, 1954, the waiver
was not necessary for the effectivity of the assessment made on July 18, 1958, since such assessment was well
within the original five-year period provided by law. After the assessment on July 18, 1958, appellant had five
years within which to file suit for collection pursuant to Section 332 (c) of the tax code.
 o Appellee's theory that collection could be made only up to the end of the period of extension stated in the
waiver, namely, December 31, 1958, is without merit. Assessment and collection are two different processes.
Collection may be effected within five years after assessment or within the period for collection agreed upon
in writing by the Commissioner of Internal Revenue and the taxpayer before the expiration of such five-year
period.

 "An assessment is not an action or proceeding for the collection of taxes. It is merely a notice to
the effect that the amount therein stated is due as tax and a demand for the payment thereof. It is a
step preliminary, but essential to warrant distraint, if still feasible, and, also, to establish a cause
for 'judicial action' as the phrase is used in section 316 of the Tax Code x x x" (Alhambra Cigar
and Cigarette Manufacturing Company v. The Collector of Internal Revenue, L-12026, May 29,
1959).

REPUBLIC VS. HEIRS OF CESAR JALANDONI

FACTS: Isabel Ledesma died intestate leaving real properties and personal properties consisting of shares of stock in
various domestic corporations. She left as heirs her husband Bernardino Jalandoni and three children, namely, Cesar,
Angeles and Delfin. Cesar Jalandoni, one of the heirs, filed an estate and inheritance tax return. On the basis of this return,
the BIR made two separate partial assessments calling for the payment deficiency estate and inheritance taxes. The BIR
then demanded payment from the heirs while stating that the same was still "to be considered partial pending investigation
of the return." These stated sums were unquestionably paid by the heirs.

When the BIR conducted another investigation, it found: (1) that the market value of the lands reported in the return filed
by Cesar Jalandoni were UNDERDECLARED; (2) that seven lots in the Talisay-Silay, Negros Occidental were OMITTED
from the return; and (3) the shares of stock owned by the deceased in the Victorias Milling Company, Hawaiian-Philippine
Company and Central Azucarera de la Carlota were also UNDERDECLARED. As such, the BIR required the heirs to pay
the amounts of P 29,995.30 and P 49,842.05 as deficiency estate and inheritance taxes.

Defendant Bernardino Jalandoni wrote a letter to the Collector of Internal Revenue setting up the defense of
PRESCRIPTION. He argued that the required deficiency in the estate and inheritance taxes payment can no longer be
collected since MORE THAN FIVE YEARS had already elapsed from the filing of the return pursuant to Section 331 of
the NIRC. As a rejoinder, the Collector retorted claiming that such defense is not valid since the estate and inheritance tax
return filed by them contained OMISSIONS which amount to FRAUD INDICATIVE OF AN INTENTION TO EVADE
PAYMENT of the proper tax due the government. Hence, the Collector concluded that THE TAXES COULD STILL BE
DEMANDED within ten years from the discovery of the falsity or omission pursuant to Section 332(a) of said Code.

When the lower court ordered the Collector to verify the allegation that the seven lots in Negros Occidental were in fact
included therein, the Collector designated Examiner Genaro Butas to conduct the examination. In his report, Examiner Butas
stated that of the seven lots that were previously reported not included in the return, TWO WERE ACTUALLY
DECLARED THEREIN, though he reaffirmed his previous finding as regards the other five lots and the market value of
the sugar lands and rice lands and the value of the shares of stock in several domestic corporations.

Nevertheless, the lower court found that that the return submitted by Cesar Jalandoni is FALSE AND FRAUDULENT on
the ground that the DIFFERENCES between the amounts appearing in the returns filed and the undeclared properties of the
estate of the deceased is a SUBSTANTIAL UNDERSTATEMENT OF THE TRUE VALUE OF THE ESTATE. The lower
court was not inclined to believe that the omission or understatements were due to mere inadvertence, negligence, or honest
statement of error, in fact, it believed that such circumstances are indicative of a willful intent to defraud. Hence, it ordered
the heirs to pay the Collector the sum of P 79,837.35 as estate and inheritance taxes. The heirs appealed the case arguing
that FRAUD CANNOT BE IMPUTED AGAINST THEM since there was NO EVIDENCE ON RECORD SHOWING
THAT SAID RETURN WAS FILED IN BAD FAITH.

ISSUE: Was there an intention on the part of the heirs to evade payment of the proper tax?

DECISION: NO. The omission and under declaration of the properties was NOT DELIBERATE and DID NOT AMOUNT
TO FRAUD indicative of an intention to evade payment of the proper tax due the government. As regards to the claim of
the Government that the SEVEN LOTS were deliberately omitted from the tax returns filed by the representative of the
heirs: It appears, however, that three of the seven lots alleged to have been excluded were actually INCLUDED in the
returns; that one lot was not included because it BELONGED to one of the heirs; and that the three remaining lots were
ALREADY DECLARED in the return submitted by Bernardino Jalandoni as part of the conjugal property for purposes of
income tax.

As regards to the claim of the Government that the MARKET VALUE OF THE SUGAR LANDS were under declared by
the representative of the heirs, as it did not tally with the valuation made by the Collector: Any mistake made in the valuation
made by the representative can only be considered as HONEST MISTAKE or one based on an EXCUSABLE
INADVERTENCE, since HE NOT AN EXPERT IN APPRAISING REAL ESTATE. It is certainly an ERROR TO
IMPUTE FRAUD BASED ON AN HONEST DIFFERENCE OF OPINION.

As regards to the claim of the Government that the VALUE OF THE SHARES OF STOCK did not tally with their book
value: The fact that the value of the shares of stock given in the returns did not tally with their book value appearing in the
corporate books is NOT IN ITSELF INDICATIVE OF FRAUD especially when said BOOK VALUE ONLY BECAME
KNOWN SEVERAL MONTHS AFTER THE DEATH OF THE DECEASED. Moreover, stock securities frequently
fluctuate in value and a MERE DIFFERENCE OF OPINION in relation thereto CANNOT SERVE AS PROPER BASIS
for assessing AN INTENTION TO DEFRAUD the government.

AZNAR v CTA
Facts:
- Petitioner, as administrator of the estate of the deceased, Matias H. Aznar, seeks a review and nullification of the
decision of the Court of Tax Appeals ordering the petitioner to pay the government the sum of P227,691.77
representing deficiency income taxes for the years 1946 to 1951.
- An investigation by the Commissioner of Internal Revenue (CIR) ascertained the assets and liabilities of the
taxpayer and it was discovered that from 1946 to 1951, his net worth had increased every year, which increases in
net worth was very much more than the income reported during said years.
- The findings clearly indicated that the taxpayer did not declare correctly the income reported in his income tax
returns for the aforesaid years.
- Petitioner avers that according to the NIRC, the right of the CIR to assess deficiency income taxes of the late Aznar
for the years 1946, 1947, and 1948 had already prescribed at the time the assessment was made on November 28,
1952; there being a five year limitation upon assessment and collection from the filing of the returns.
- Meanwhile, respondents believe that the prescription period in the case at bar that is applicable is under Sec. 332 of
the NIRC which provides that: "(a) In the case of a false or fraudulent return with intent to evade tax or of a 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".
- Petitioner argues said provision does not apply because the taxpayer did not file false and fraudulent returns with
intent to evade tax.

Issue: Whether or not the deceased Aznar filed false or fraudulent income tax returns and subsequently, whether the
action has not prescribed.

Held: The petition is without merit.

The respondent CTA concluded that the very "substantial under declarations of income for six consecutive years eloquently
demonstrate the falsity or fraudulence of the income tax returns with an intent to evade the payment of tax." The ordinary
period of prescription of 5 years within which to assess tax liabilities under Sec. 331 of the NIRC should be applicable to
normal circumstances, but whenever the government is placed at a disadvantage so as to prevent its lawful agents from
proper assessment of tax liabilities due to false returns, fraudulent return intended to evade payment of tax, or failure to file
returns, the period of ten years from the time of the discovery of the falsity, fraud or omission even seems to be inadequate.
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 petitioner's tax liability
had not expired at the time said assessment was made.

CIR v ASALUS CORPORATION

FACTS:
On December 16, 2010, respondent Asalus Corporation (Asalus) received a Notice of Informal Conference from Revenue
District Office No. 47 of the Bureau of Internal Revenue (BIR). It was in connection with the investigation conducted by
Revenue Officer Fidel M. Bañares II on the Value-Added Tax transactions of Asalus for the taxable year 2007. Asalus filed
its Letter-Reply, dated December 29, 2010, questioning the basis of Bañares' computation for its VAT liability.

On January 10, 2011, petitioner Commissioner of Internal Revenue issued the Preliminary Assessment Notice finding
Asalus liable for deficiency VAT for 2007 in the aggregate amount of P413,378,058.11.

On August 26, 2011, Asalus received the Formal Assessment Notice stating that it was liable for deficiency VAT for 2007
in the total amount of P95,681,988.64, inclusive of surcharge and interest. Consequently, it filed its protest against the FAN,
dated September 6, 2011.

On October 16, 2012, Asalus received the Final Decision on Disputed Assessment showing VAT deficiency for 2007 in the
aggregate amount of P106,761,025.17, inclusive of surcharge and interest and P25,000.00 as compromise penalty. As a
result, it filed a petition for review before the CTA Division.

In its April 2, 2014 Decision, the CTA Division ruled that the VAT assessment issued on August 26, 2011 had prescribed
and consequently deemed invalid.

ISSUE:
WHETHER OR NOT the CTA erred in the decision and that the petition be granted in favor of the petitioner.

HELD:
The statement given by the CTA were correct in a way, and it was given due respect for they found it partly correct but,
after a review of the records and applicable laws and jurisprudence, the Court finds that the CTA erred in concluding that
the assessment against Asalus had prescribed. Internal revenue taxes shall be assessed within three years after the last day
prescribed by law for the filing of the return, or where the return is filed beyond the period, from the day the return was
actually filed. Section 222 of the NIRC, however, provides for exceptions to the general rule. It states that in the case of a
false or fraudulent return with intent to evade tax or of failure to file a return, the assessment may be made within ten years
from the discovery of the falsity, fraud or omission.

In the oft-cited Aznar v. CTA, the Court compared a false return to a fraudulent return in relation to the applicable
prescriptive periods for assessments, to wit:

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 of income for six consecutive years eloquently
demonstrate the falsity or fraudulence of the income tax returns with an intent to evade the payment of tax."

WHEREFORE, petition is GRANTED. The July 30, 2015 Decision and the November 6, 2015 Resolution of the Court of
Tax Appeals En Banc are REVERSED and SET ASIDE. The case is ordered REMANDED to the Court of Tax Appeals for
the determination of the Value Added Tax liabilities of the Asalus Corporation.

CIR v AYALA SECURITIES CORPORATION (1976 and 1980)

Facts: Ayala Securities Corp. (Ayala) failed to file returns of their accumulated surplus so Ayala was charged with 25%
surtax by the Commissioner of internal Revenue. The CTA (Court of Tax Appeals) reversed the Commissioner’s decision
and held that the assessment made against Ayala was beyond the 5-yr prescriptive period as provided in section 331 of the
National Internal Revenue Code. Commissioner now files a motion for reconsideration of this decision. Ayala invokes the
defense of prescription against the right of the Commissioner to assess the surtax.

Issue: Whether or not the right to assess and collect the 25% surtax has prescribed after five years.

Held: No. There is no such time limit on the right of the Commissioner to assess the 25% surtax since there is no express
statutory provision limiting such right or providing for its prescription. Hence, the collection of surtax is imprescriptible.
The underlying purpose of the surtax is to avoid a situation where the corporation unduly retains its surplus earnings
instead of declaring and paying dividends to its shareholders. SC reverses the ruling of the CTA.

1980:
Facts: An assessment made on 21 February 1961 by the Commissioner of Internal Revenue against the Ayala Securities
Corporation (and received by the latter on 22 March 1961) in the sum of P758,687.04 on its surplus of P2,758,442.37 for
its fiscal year ending 30 September 1955. Raised before the Court of Tax Appeals, the tax court reversed the assessment of
the 25% surtax and interest in the amount of P758,687.04, and thereby cancelled and declared of no force and effect the
assessment of the Commissioner for 1955. On 8 April 1976, the Supreme Court affirmed the decision of the Court of Tax
Appeals and ruled that the assessment fell under the 5-year prescriptive period provided in section 331 of the National
Internal Revenue
Code (NIRC) and that the assessment had, therefore, been made after the expiration of the said 5-year prescriptive period
and was of no binding force and effect. The Commissioner moved for reconsideration.

The Supreme Court set aside its decision of 8 April 1976, and rendered in lieu thereof another judgment ordering the
corporation to pay the assessment in the sum of P758,687.04 as 25% surtax on its unreasonably accumulated surplus, plus
the 5% surcharge and 1% monthly interest thereon, pursuant to section 51 (e) of the NIRC, as amended by RA 2343; with
costs.

CIR v BASF COATING

2/3 of BC's board members and stockholders decided to dissolve the corporation by cutting its 50-year term of existence
(from 1990) short (only until March 31, 2001). Subsequently, BC moved out of its address in Las Piñas City and
transferred to Carmelray Industrial Park, Canlubang, Calamba, Laguna

On June 26, 2001, BC submitted 2 letters to BIR. The first was a notice of dissolution. The send was a manifestation with
documents supporting said dissolution such as BIR Form 1905 which refers to an update of information contained in its
tax registration. Thereafter, a FAN was sent to BC's former address in Las Piñas City. The FAN indicated an amount of 18
million pesos representing income tax, VAT, WTC, EWT and DST for the taxable year of 1999.

On March 5, 2004, BIR's RDO No. 39, South Quezon City, issued a First Notice Before Issuance of Warrant of Distraint
and Levy (FNB), which was sent to the residence of one of BC's directors.

On March 19, 2004, BC filed a protest letter citing lack of due process and prescription as grounds.

After 180 days without action on the part of the CIR, BC filed a petition for review with the CTA. Trial ensued.

The CTA 1D ruled that since the CIR was actually aware of BC's new address and such error in sending should not be
taken against BC. According to the CTA 1D, since there are no valid notices sent to BC, the subsequent assessments
against it are considered void.

CIR filed an MR. It was denied. So, it went to CTA en banc. The CTA En Banc held that CIR'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 BC did not receive it.

CIR filed an MR. Denied.

ISSUE #1: Was the running of the 3-year prescriptive period to assess suspended when BC failed to notify the CIR
of its change of address?

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

It is true that, under the Tax Code, the running of the Statute of Limitations shall be suspended when the taxpayer cannot
be located in the address given in the return filed upon which a tax is being assessed or collected. In addition, Section 11
of RR 12-85 states that, in case of change of address, the taxpayer is required to give a written notice thereof to the RDO
or the district having jurisdiction over his former legal residence and/or place of business.

However, the Supreme Court ruled that the above-mentioned provisions on the suspension of the 3-year period to assess
apply only if the CIR is not aware of the whereabouts of the taxpayer.

In the present case, the CIR, by all indications, was well aware that BC had moved to its new address in Calamba, Laguna,
as shown by the documents which formed part of respondent's records with the BIR.

Moreover, before the FAN was sent to BC's old address, the RDO sent BC a letter regarding the results of its investigation
and an invitation to an information conference. This could not have been done without being aware of BC's new
address. Finally, the PAN was "returned to sender" before the FAN was sent.

Hence, despite the absence of a formal written notice of Bc's change of address, the fact remains that petitioner became
aware of respondent's new address as shown by documents replete in its records. As a consequence, the running of the
three-year period to assess respondent was not suspended and has already prescribed.

ISSUE #2: Section 3.1.7 of BIR Revenue Regulation No. 12-99 allows "constructive service" if the assessment
notice is served by registered mail. This constructive service rule was upheld in Nava v. Commissioner of Internal
Revenue. Isn't there constructive service in BC's case?

No there is none.

The CIR's reliance on the provisions of Section 3.1.7 of BIR RR No. 12-9944 as well as on the case of Nava v.
Commissioner of Internal Revenue is misplaced, because in the said case, one of the requirements of a valid assessment
notice is that the letter or notice must be properly addressed. It is not enough that the notice is sent by registered mail as
provided under the said RR. In the instant case, the FAN was sent to the wrong address. Thus, the CTA is correct in
holding that the FAN never attained finality because BC never received it, either actually or constructively.

PHILIPPINE REFINING COMPANY V CA

FACTS:
Petitioner Philippine Refining Company (PRC) was assessed by respondent Commissioner of Internal Revenue
(Commissioner) to pay a deficiency tax for the year 1985 in the amount of P1,892,584
PRC protested that the amounts are bad debts and interest expense which are allowable and legal deductions, but CIR
ignored it and issued a warrant of garnishment against PRC's deposits at City Trust Bank.

PRC filed a Petition for Review with the CTA who reversed the interest expense disallowance but maintained the 13 bad
debts disallowance.

PRC elevated the case to CA who dismissed the case for failing to satisfy the requirements of worthlessness of a debt:
(1) there is a valid and subsisting debt
(2) debt must be actually ascertained to be worthless and uncollectible during the taxable year
(3) debt must be charged off during the taxable year
(4) debt must arise from the business or trade of the taxpayer
(5) uncollectible even in the future
(6) exerted diligent effort to collect

ISSUES:
1. W/N bad debts requirements are met to be deductible as assessed by the CA
2. W/N PRC should be liable for penalties and interests

HELD: petition at bar is DENIED

1. NO.
Furthermore, there are steps outlined to be undertaken by the taxpayer to prove that he exerted diligent efforts to collect the
debts, viz: (1) sending of statement of accounts; (2) sending of collection letters; (3) giving the account to a lawyer for
collection; and (4) filing a collection case in court.

The only evidentiary support given by PRC for its aforesaid claimed deductions was the explanation or justification posited
by its financial adviser or accountant. Not a single document was offered to show that the Remoblas Store and CM Variety
Store were burned, even just a police report or an affidavit attesting to such loss by fire. The account of Tomas Store in the
amount of P16,842.79 is uncollectible, claims petitioner PRC, since the owner thereof was murdered and left no visible
assets which could satisfy the debt. Withal, just like the accounts of the two other stores just mentioned, petitioner again
failed to present proof of the efforts exerted to collect the debt, other than the aforestated asseverations of its financial
adviser. The accounts of Aboitiz Shipping Corporation and J. Ruiz Trucking in the amounts of P89,483.40 and P69,640.34,
respectively, both of which allegedly arose from the hijacking of their cargo and for which they were given 30% rebates by
PRC, are claimed to be uncollectible. Again, petitioner failed to present an iota of proof, not even a copy of the supposed
policy regulation of PRC that it gives rebates to clients in case of loss arising from fortuitous events or force majeure, which
rebates it now passes off as uncollectible debts.

Findings of the CTA having recognized expertise will not ordinarily be reviewed absent a showing of gross error or abuse
on its part.

2. YES.
Sec. 248 and 249 of the tax code clearly provides that civil penalty is imposed in case of failure to pay the tax within the
prescribed time for its payment and deficiency tax or any surcharge or interest on the due date appearing in the notice and
demand of the commissioner. Thus, penalties of 25% surcharge and interest of 20% shall accrue from April 11, 1989.
Tax laws imposing penalties for delinquencies, so we have long held, are intended to hasten tax payments by punishing
evasions or neglect of duty in respect thereof. If penalties could be condoned for flimsy reasons, the law imposing penalties
for delinquencies would be rendered nugatory, and the maintenance of the Government and its multifarious activities will
be adversely affected.

CIR v REPUBLIC CEMENT

This matter was extensively discussed and categorically resolved in Commissioner of Internal Revenue v. Republic Cement
Corporation, decided on August 10, 1983, stating that cement qua cement was never considered as a mineral product within
the meaning of Section 246 of the Tax Code, notwithstanding that at least 80% of its components are minerals, for the
simple reason that cement is the product of a manufacturing process and is no longer the mineral product contemplated in
the Tax Code (i.e.; minerals subjected to simple treatments) for the purpose of imposing the ad valorem tax.

The argument that the assessment cannot as yet be enforced because it is still being contested loses sight of the urgency of
the need to collect taxes as "the lifeblood of the government." If the payment of taxes could be postponed by simply
questioning their validity, the machinery of the state would grind to a halt and all government functions would be paralyzed.

CAGAYAN ELECTRIC V CIR

FACTS:
Cagayan Electric is a holder of a legislative franchise under RA 3247 where payment of 3% tax on gross earning is in lieu
of all taxes and assessments upon privileges. In 1968, RA 5431 amended the franchise by making all corporate taxpayers
liable for income tax. In 1969, through RA 6020, its franchise was extended to two other towns and the tax exemption was
reenacted. The commissioner required the company to pay deficiency income taxes for the intervening period (1968-1969).

ISSUE:
Is CEPALCO liable for the tax?

RULING:
Yes. Congress could impair the company’s legislative franchise by making it liable for income tax. The Constitution
provides that a franchise is subject to amendment, alteration or repeal by the Congress when the public interest so requires.
However, it cannot be denied that the said 1969 assessment appears to be highly controversial. It had reason not to pay
income tax because of the tax exemption its franchise. For this reason, it should be liable only for tax proper and should not
be held liable for surcharge and interest.

CIR v AIR INDIA

FACTS:

The private respondent Air India is a foreign corporation organized under the laws of India. It is not licensed to do business
in the Philippines as an international carrier. Air India's status in the Philippines is that of an off-line international
carrier not engaged in the business of air transportation in the Philippines.

Commissioner of Internal Revenue held the private respondent liable for the payment of P142,471.68. 1 The amount
represents the 2.5% income tax on the private respondent's gross Philippine billings for the said fiscal year pursuant to
Section 24 (b) (2) of the National Internal Revenue Code, as amended, inclusive of the 50% surcharge and interest for willful
neglect to file a return as provided under Section 72 of the same code.

Respondent’s contention: It cannot be held liable to pay the said imposition because it did not derive any income from
sources with the Philippines during the said fiscal year and that the amount of P2,968,156.00 mentioned in the assessment
made by the petitioner was derived exclusively from sources outside the Philippines.

Petitioner’s contention: It was realized in the Philippines and was, therefore, derived from sources within the Philippines.
Petitioner also stressed that in case of any doubt, the presumption is that the tax assessment is correct. 3

Court of Tax Appeals ruled in favor of the private respondent and set aside the decision of the petitioner. 4 The tax court
likewise held that the surcharge and interest imposed upon the private respondent are improper.

ISSUE: whether or not the revenue derived by an international air carrier from sales of tickets in the Philippines for air
transportation, while having no landing rights in the country, constitutes income of the said international air carrier from
Philippine sources and, accordingly, taxable under Section 24 (b) (2) of the National Internal Revenue Code.

HELD: Yes.

The source of an income is the property, activity or service that produced the income. For the source of income to be
considered as coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines.

The revenue derived by the private respondent Air India from the sales of airplane tickets through its agent Philippine Air
Lines, Inc., here in the Philippines, must be considered taxable income. As correctly assessed by the petitioner, such income
is subject to a 2.5% tax pursuant to Presidential Decree No. 1355, amending Section 24 (b) (2) of the tax code. The total
Philippine billings of the private respondent for the taxable year in question amounts to P2,968,156.00. 2.5% of this amount
or P74,203.90 constitutes the income tax due from the private respondent.

The 50% surcharge or fraud penalty provided in Section 72 of the National Internal Revenue Code is imposed on a
delinquent taxpayer who willfully neglects to file the required tax return within the period prescribed by the law, or who
willfully files a false or fraudulent tax return.

On the other hand, the same Section provides that if the failure to file the required tax return is not due to willful neglect, a
penalty of 25% is to be added to the amount of the tax due from the taxpayer.

There being no cogent basis to find willful neglect to file the required tax return on the part of the private respondent, the
50% surcharge or fraud penalty imposed upon it is improper. Nonetheless, such failure subjects the private respondent to a
25% penalty pursuant to Section 72.

INTEREST

As for the interest which the private respondent is liable to pay, We find the 42% interest assessed by the petitioner to be in
order. At the time the tax liability of the private respondent accrued, Section 51 (d) of the tax code, before it was amended
by Presidential Decree No. 1705 12 prescribed an interest rate of 4% per annum, provided that the maximum amount that
could be collected as interest on the tax deficiency will not exceed the amount corresponding to a period of three years.
Thus, the maximum interest rate then was 42%.

DEFICIENCY

Section 51 (e) (2) shows that this interest is in addition to the interest provided in Section 51 (d). This view can be gleaned
from the use of the phrase "Where a deficiency, or any interest assessed in connection therewith under paragraph (d) of
this section" in Section 51 (e) (2). The additional interest is to be computed upon the entire amount of the tax liability
(previous interest included) which remains unpaid. This is manifested by the use of the phrase "there shall be collected upon
the unpaid amount as part of the tax" in Section 51 (e) (2). However, the same Section provides that the maximum amount
that may be collected as interest cannot exceed the amount corresponding to a period of three years. In this case, the
maximum rate would be 60%.

SURCHARGE

An examination of Section 51 (e) (3) reveals that this surcharge is imposed for the late payment of the unpaid tax deficiency
and/or unpaid interest assessed in connection therewith, in addition to all other charges. This is confirmed by the use of the
words "there shall be collected in addition to the interest prescribed herein [referring to the entire Section 51 (e)] and in
paragraph (d) above [referring to Section 51 (d)]." The additional surcharge is computed on the amount of tax unpaid,
exclusive of all other impositions. This is confirmed by the phrase "ten per centum of the amount of tax unpaid." The failure
to pay the tax deficiency within the required period of time upon demand is penalized by this additional surcharge. Upon
such failure to pay, the surcharge is automatically due; its imposition is mandatory. 13

Under the aforementioned provisions of the tax code, the private respondent became liable to pay the additional interest
provided in Section 51 (e) (2) and the 10% surcharge provided in Section 51 (e) (3) thirty days after February 20, 1981, the
date when the Commissioner of Internal Revenue sought the payment of the deficiency. More than three years have passed
since and yet the account remains unsettled. Thus, the additional interest and surcharge can be imposed on the private
respondent as asserted by the petitioner. Presidential Decree No. 1705 took effect on August 1, 1980. It was, therefore, the
law in effect when the additional interest and surcharge could be legally imposed on the private respondent.

The three-year or 60% maximum interest provided in Section 51 (e) (2) calls for application. It is computed against the total
amount unpaid by the private respondent.

WHEREFORE, in view of the foregoing, the Decision of the Court of Tax Appeals in CTA Case No. 3441 is hereby SET
ASIDE. The private respondent Air India is hereby ordered to pay the amount of P235,374.94 as deficiency tax, inclusive
of interest and surcharges. We make no pronouncement as to costs.