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1.
GR No. 212825, Dec. 7, 2015
Commissioner of Internal Revenue vs. Next Mobile, Inc.

Facts: On September 25, 2003, respondent received a copy of the Letter of Authority dated September 8, 2003 signed by
Regional Director Nestor S.Valeroso authorizing Revenue Officer Nenita L. Crespo of Revenue District Office 43 to
examine respondents books of accounts and other accounting records for income and withholding taxes for the period
covering January 1 ,2001 to December 31, 2001. Ma. Lida Sarmiento , respondents Director of Finance, subsequently
executed several waivers of the statute of limitations to extend the prescriptive period of assessment for taxes due in
taxable year ending December 31, 2001.

On October 25, 2005, respondent received a Formal Letter of Demand and Assessment Notices/Demand No. 43-734
both dated October 17, 2005 from the BIR, demanding payment of deficiency income tax, final withholding tax (FWT),
expanded withholding tax (EWT), increments for late remittance of taxes withheld, and compromise penalty for failure to
file returns/late filing/late remittance of taxes withheld, in the total amount of P313,339,610.42 for the taxable year
ending December 31, 2001. On November 23, 2005, respondent filed its protest against the FLO and requested the
reinvestigation of the assessments. On July 28, 2009, respondent received a letter from the BIR denying its protest.

On December 11, 2012, the former First Division of the CTA rendered a Decision granting respondents Petition for
Review and declared the FLO dated October 17, 2005 and Assessment Notices/Demand No. 43-734 dated October 17,
2005 cancelled and withdrawn for being issued beyond the three-year prescriptive period provided by law.

Issue: Whether or not the CIRs right to assess respondents deficiency taxes had already prescribed.

Held: The general rule is that when a waiver does not comply with the requisites for its validity specified under RMO No.
20-90 and RDAO 01-05, it is invalid and ineffective to extend the prescriptive period to assess taxes. However, due to its
peculiar circumstances, the Court shall treat this case as an exception to this rule.

First, the parties in this case are in pari delicto or in equal fault.

Second, the Court has repeatedly pronounced that parties must come to court with clean hands. Parties who do not
come to court with clean hands cannot be allowed to benefit from their own wrongdoing.

Third, respondent is estopped from questioning the validity of its Waivers. While it is true that the Court has repeatedly
held that the doctrine of estoppel must be sparingly applied as an exception to the statute of limitations for assessment
of taxes, the Court finds that the application of the doctrine is justified in this case. Verily, the application of estoppel in
this case would promote the administration of the law, prevent injustice and avert the accomplishment of a wrong and
undue advantage. Respondent executed five Waivers and delivered them to petitioner, one after the other. It allowed
petitioner to rely on them and did not raise any objection against their validity until petitioner assessed taxes and
penalties against it. Moreover, the application of estoppel is necessary to prevent the undue injury that the government
would suffer because of the cancellation of petitioners assessment of respondents tax liabilities.

3.
Commissioner of Internal Revenue vs. Pascor Realty and Development Corporation,
309 SCRA 402. G.R. No. 128315. June 29, 1999
Facts:
Then BIR Commissioner Ong filed a criminal complaint before the DOJ against PRDC alleging evasion of taxes for 1986,
1987 and 1988. Attached to the criminal complaint was a joint affidavit executed by the tax examiners.
Private respondents filed an Urgent Request for Reconsideration/Reinvestigation disputing the tax assessment and tax
liability. The Commissioner denied the urgent request for reconsideration/reinvestigation because she had not yet issued
a formal assessment.
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Private respondents then elevated the Decision of the Commissioner to the CTA. The Commissioner filed a Motion to
Dismiss on the ground that the CTA has no jurisdiction over the subject matter of the petition, as there was yet no formal
assessment issued against the petitioners.

Issue:
Whether or not an assessment is necessary before criminal charges for tax evasion may be instituted.

Held:
NO. 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. 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 CTA. Further, such
affidavit was not issued to the taxpayer, it was submitted as an attachment to the DOJ. It must also be noted that not
every document coming from the Bureau of Internal Revenue which provides a computation of the tax liability of a
taxpayer can be considered as an assessment. An assessment is deemed made only when the CIR releases, mails or
sends such notice to the taxpayer.

Anent the issue of the filing of the criminal complaint, Section 222 of the National Internal Revenue Code 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. Section 205 of the NIRC clearly mandates that the civil
and criminal aspects of the case may be pursued simultaneously.

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. 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.

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.

4.
CIR V CA and Atlas Consolidated Mining and Development Corporation
GR No. 104151 March 10, 1995

Facts: The Commissioner of Internal Revenue served 2 notices and demand for payment of the respective deficiency ad
valorem and business taxes for taxable years 1975 and 1976 against respondent Atlas Consolidated Mining and
Development Corporation or ACMDC. Respondent protested the assessments. It filed two separate petitions for review
before the CTA. CTA rendered a decision holding that ACMDC was not liable for deficiency ad valorem taxes on copper
and silver for 1975 and 1976 thereby effectively sustaining the theory of ACMDC that in computing the ad valorem tax on
copper mineral, the refining and smelting charges should be deducted, in addition to freight and insurance charges.
CTA held ACMDC liable for the amount consisting of 25% surcharge for late payment of the ad valorem tax and late filing
of notice of removal of silver, gold and pyrite extracted during certain periods, and for alleged deficiency manufacturer's
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sales tax and such contractor's tax for leasing out of its personal properties. Respondent elevated the matter to the
Supreme Court.

Issue:

1.Whether or not the notice of assessment or demand properly served to the respondent
2.Whether or not receipt of the second assessment or demand be construed as receipt of the first demand

Ruling:

The court ruled in the negative on the first issue. While the contention of the petitioner is correct that a mailed letter is
deemed received by the once who addressed to receive, still according to the court it is a disputable presumption. A
direct denial on the part of the addressee shift the burden back to the one who sent the mail to prove that the mailed
letter was actually received. Absence of such proof will not give rise to the presumption that it was received by the
respondent.

As to the second issue, the records show that petitioner gave a follow up letter reiterating demand for payment of taxes.
The follow up letter is considered a notice of assessment in itself, which when duly received will be construed as receipt
of the first demand letter.

Also under Section 7, the assessment is appealable within 30 days from receipt of the demand letter. Failure to appeal
within the time will render the assessment final executory and demandable. Thus, respondent is barred from disputing
the assessment.

5.
G.R. No. L-38540 April 30, 1987
REPUBLIC OF THE PHILIPPINES vs. THE COURT OF APPEALS, and NIELSON & COMPANY, INC.

Facts: In a demand letter, dated 16 July 1955, the Commissioner of Internal Revenue assessed private respondent
deficiency taxes for the years 1949 to 1952, totalling P14,449.00. Petitioner reiterated its demand upon private
respondent for payment of said amount, per letters dated 24 April 1956, 19 September 1956 and 9 February 1960.
Private respondent did not contest the assessment in the Court of Tax Appeals. On the theory that the assessment had
become final and executory, petitioner filed a complaint for collection of the said amount against private respondent
with the Court of First Instance of Manila, where it was docketed as Civil Case No. 42911. However, for failure to serve
summons upon private respondent, the complaint was dismissed, without prejudice, in the Court's order dated 30 June
1961. On motion, the order of dismissal was set aside, at the same time giving petitioner sixty (60) days within which to
serve summons upon private respondent.

For failure anew to serve summons, the Court of First Instance of Manila issued an order dated 4 October 1962
dismissing Civil Case No. 42911 without prejudice. The order of dismissal became final on 5 November 1962.

On 15 November 1962, the complaint against private respondent for collection of the same tax was refiled, but the same
was erroneously docketed as Civil Case No. 42911, the same case previously dismissed without prejudice. Without
correcting this error, another complaint was filed on 26 November 1963, docketed as Civil Case No. 55817, the subject
matter of the present appeal.

Issue: Whether or not the letter dated July 16, 1955 cannot be considered as an assessment, on the theory that the same
has not been received by private respondent.

Held: As correctly observed by the respondent court in its appealed decision, while the contention of petitioner is correct
that a mailed letter is deemed received by the addressee in the ordinary course of mail, stilt this is merely a disputable
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presumption, subject to controversion, and a direct denial of the receipt thereof shifts the burden upon the party
favored by the presumption to prove that the mailed letter was indeed received by the addressee.

Since petitioner has not adduced proof that private respondent had in fact received the demand letter of 16 July 1955, it
cannot be assumed that private respondent received said letter. Records, however, show that petitioner wrote private
respondent a follow-up letter dated 19 September 1956, reiterating its demand for the payment of taxes as originally
demanded in petitioner's letter dated 16 July 1955.

Under Section 7 of Republic Act No. 1125, the assessment is appealable to the Court of Tax Appeals within thirty (30)
days from receipt of the letter. The taxpayer's failure to appeal in due time, as in the case at bar, makes the assessment in
question final, executory and demandable. Thus, private respondent is now barred from disputing the correctness of the
assessment or from invoking any defense that would reopen the question of its liability on the merits.

In a suit for collection of internal revenue taxes, as in this case, where the assessment has already become final and
executory, the action to collect is akin to an action to enforce a judgment. No inquiry can be made therein as to the
merits of the original case or the justness of the judgment relied upon.

7.
CIR vs Vda. De Codinera
GR No. L-9675. September 28, 1957

Facts:
The Collector sent a warrant of distraint and levy against the properties of Restituto Codiera for collection of deficiency
specific tax. However, it could not be enforced because of its attachment to another case. After seven years, the Collector
issued a warrant of distraint and levy commanding the City Treasurer to distrain the goods, chattels, or effects and other
personal property of whatever character, and levy upon the real property and interest in or rights to real property of the
estate of the deceased. The heirs of the deceased filed the action with the CTA barring the government to collect said
deficiency on the ground of prescription therefore praying to declare null and void, and of no legal force and effect the
warrant of distraint and levy which the respondent issued on March 7, 1955.

Issue:
Whether or not the attachment made by the court in a civil case over certain properties of a taxpayer bar the
government from enforcing a warrant of distraint and levy over said properties in order to collect the taxes due?

Held:
No. There was a valid reason for the non-distraint of the property. In this case it was due to the attachment of the
properties in another case. However, such property levied by a competent court may, with the consent thereof, be
subsequently distrained, subject to the prior lien of the attachment creditor. The attachment merely deprives the
Collector the power to divest the Court of its jurisdiction over said property but it does not impair such rights as the
Government may have for the collection of taxes.

8.
Marcos ll v Court of Appeals
GR No. 120880 June 5, 1997

Facts: Petitioner Bongbong Marcos sought for the reversal of the decision of the CA granting CIR's petition to levy the
properties of the late President Marcos to cover payment of his tax delinquencies during the time of his exile in the US.
BIR assessed the Marcos family. However, the assessment were not protested administratively by Imelda Marcos and the
heirs thus, that they became final and unappealable after the period for filing of opposition has prescribed.

Marcos claims that the properties could not be levied to cover payment of the tax dues because they are still pending
probate with the court, and settlement of tax deficiency cannot be paid without order from the probate court. Petitioner
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also pointed out that applying Memorandum Circular No. 38-68, the BIR's Notices of Levy on the properties of the
Marcoses were issued beyond the allowed period.

Issue: Whether or not the contentions of the petitioner are tenable.

Ruling: The court said the deficiency income tax assessments and estate tax assessment are already final and
unappealable. The levy of real properties is a tax remedy resorted to by the government under Section 213 and 218 of
the National Internal Revenue Code. This summary tax remedy is distinct and separate from the other tax remedies such
as Judicial Civil actions and Criminal actions. Resorting to one remedy will not affect the other or preclude the filing of
the other remedy.

The approval of the probate court over the deceased's estate is not a mandatory requirement in the collection of estate
taxes. On the contrary, under Section 87 of the NIRC, it is the probate or settlement court which is ordered not to
authorize the executor or judicial administrator of the decedent's estate to deliver any distributive share to any party
interested in the estate, unless it there is a Certification by the Commissioner of Internal Revenue that the estate taxes
have been paid. This provision clearly contradicts the contention of the petitioner that it is the probate court that allows
the assessment. With regard to the issue of prescription, the omission to file an estate tax return, and the subsequent
failure to contest or appeal the assessment made by the BIR is fatal to the petitioner's cause, as under Sec.223 of the
NIRC, in case of failure to file a return, the tax may be assessed within 10 years after the omission, and any tax so
assessed may be collected by levy upon real property within now 5 years following the assessment of the tax. Since the
estate tax assessment had become final and unappealable by the petitioner's default as regards protesting the validity of
the said assessment, there is no reason why the BIR cannot continue with the collection of the said tax.

9.
G.R. No. L-22356 July 21, 1967
REPUBLIC OF THE PHILIPPINES vs. PEDRO B. PATANAO

Facts: In the complaint filed by the Republic of the Philippines, through the Solicitor General, against Pedro B. Patanao, it
is alleged that defendant was the holder of an ordinary timber license with concession at Esperanza, Agusan, and as such
was engaged in the business of producing logs and lumber for sale during the years 1951-1955; that defendant failed to
file income tax returns for 1953 and 1954, and although he filed income tax returns for 1951, 1952 and 1955, the same
were false and fraudulent because he did not report substantial income earned by him from his business; that in an
examination conducted by the Bureau of Internal Revenue on defendant's income and expenses for 1951-1955, it was
ascertained that the sum of P79,892.75, representing deficiency; income taxes and additional residence taxes for the
aforesaid years, is due from defendant; that on February 14, 1958, plaintiff, through the Deputy Commissioner of Internal
Revenue, sent a letter of demand with enclosed income tax assessment to the defendant requiring him to pay the said
amount; that notwithstanding repeated demands the defendant refused, failed and neglected to pay said taxes; and that
the assessment for the payment of the taxes in question has become final, executory and demandable, because it was
not contested before the Court of Tax Appeals in accordance with the provisions of section 11 of Republic Act No. 1125.

Defendant moved to dismiss the complaint on two grounds, namely: (1) that the action is barred by prior judgment,
defendant having been acquitted in criminal cases Nos. 2089 and 2090 of the same court, which were prosecutions for
failure to file income tax returns and for non-payment of income taxes; and (2) that the action has prescribed.

Issue: Whether the action is barred by prior judgment, defendant having been acquitted.

Held: In applying the principle underlying the civil liability of an offender under the Penal Code to a case involving the
collection of taxes, the court a quo fell into error. The two cases are circumscribed by factual premises which are
diametrically opposed to each either, and are founded on entirely different philosophies. Under the Penal Code the civil
liability is incurred by reason of the offender's criminal act. Stated differently, the criminal liability gives birth to the civil
obligation such that generally, if one is not criminally liable under the Penal Code, he cannot become civilly liable
thereunder.
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The situation under the income tax law is the exact opposite. Civil liability to pay taxes arises from the fact, for instance,
that one has engaged himself in business, and not because of any criminal act committed by him. The criminal liability
arises upon failure of the debtor to satisfy his civil obligation. The incongruity of the factual premises and foundation
principles of the two cases is one of the reasons for not imposing civil indemnity on the criminal infractor of the income
tax law. Another reason, of course, is found in the fact that while section 73 of the National Internal Revenue Code has
provided the imposition of the penalty of imprisonment or fine, or both, for refusal or neglect to pay income tax or to
make a return thereof, it failed to provide the collection of said tax in criminal proceedings.

The only civil remedies provided, for the collection of income tax, in Chapters I and II, Title IX of the Code and section 316
thereof, are distraint of goods, chattels, etc. or by judicial action, which remedies are generally exclusive in the absence
of a contrary intent from the legislator.

11.
Commissioner of Internal Revenue vs. NLRC
238 SCRA 42, G.R. No. 74965. November 9, 1994

Facts: On January 12, 1984, the CIR demanded payment from private respondent Maritime Company of the Philippines
of deficiency common carriers tax, fixed tax, commercial brokers tax, documentary stamp tax, income tax and
withholding. The assessment became final and executory. The CIR issued warrants of distraint of personal property and
levy of real property, when private respondent failed to pay the tax, which was duly served on January 23, 1985.

On April 16, 1985, a receipt of goods, articles and things was executed covering 6 barges as proof of constructive distraint
of property but the same was not signed by any representative of private respondent because of the refusal of the
persons actually in possession of the barges.

It appeared that 4 of the 6 barges constructively distrained were also levied upon by a deputy sheriff of Manila on July
20, 1985 and sold at public auction to satisfy a judgment for unpaid wages and other benefits of employees of private
respondent.

Issue:
Whether or not the BIR has a better right over the barges as against the employees.

Held: YES. It is settled that the claim of the government predicated on a tax lien is superior to the claim of a private
litigant predicated on a judgment. The tax lien attaches not only from the service of the warrant of distraint of personal
property but from the time the tax became due and payable. The distraint on the subject properties of the Maritime
Company as well as the notice of their seizure were made by petitioner long before the writ of the execution was issued
by the Court.

There is no question then that at the time the writ of execution was issued, the two (2) barges were no longer properties
of the Maritime Company. The power of the court in execution of judgments extends only to properties unquestionably
belonging to the judgment debtor. Execution sales affect the rights of the judgment debtor only, and the purchaser in an
auction sale acquires only such right as the judgment debtor had at the time of sale. The sheriff is not authorized to
attach or levy on property not belonging to the judgment debtor.

The contention of the NLRC that taxes are absolutely preferred claims only with respect to movable or immovable
properties on which they are due is erroneous and that since the taxes sought to be collected in this case are not due on
the barges the government's claim cannot prevail over the claims of employees who "enjoy first preference." This
preference only applies in cases of bankruptcy or judicial liquidation of the employer.

12.
Maria B. Castro v CIR
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GR No. L-12174 April 26, 1962

Facts: Petitioner, who manages her own property is a duly licensed merchant. She filed with the BIR he68r war profits tax
returns. On November 22, 1947, Criminal Case was filed against her in the court of First Instance for violation of Section 4
in connection with Section 8 of the War Profits Tax Law for allegedly defrauding the Philippine Government in a total
amount of P1,048,687.76. the criminal action was filed and simultaneously on the filing of the action, the petitioner
received for the first time the noticed of assessment dated November 19, 1947 by registered mail from the CIR. After
investigation on the issue, that reached even the Office of the President, CIR recommended payment of a total of
P3,593,950.78 as total deficiency of petitioner.

To enforce collection, the properties of petitioner were advertised on October 18, 1950 for the sale at public auction. For
lack of bidders on the scheduled dates of sale, the following properties with their corresponding assessed value were
forfeited to the Government under Section 328 of the National Internal Revenue Code. The Right of Legal redemption
was not exercised by the petitioner with regard to her properties.

Issue: Whether or not the levy of the government of her properties constitute a full discharge of her tax liabilities

Ruling: The petitioner, according to the court has no grounds to complaint that the properties forfeited were
undervalued. The relation between assessed value and market value is not a matter of notice. The CTA appraised the
forfeited properties double their assessed value and credited her of the amount. No evidence was presented that they
are worth more. The burden to prove lay on the taxpayer that the value should be more than what it is.

13.
G.R. No. L-23534 May 16, 1967
JOSE A. ARCHES vs. ANACLETO I. BELLOSILLO and JAIME ARANETA

Facts: Petitioner-appellant Jose Arches filed on February 27, 1954 his income tax return for 1953. Within five years
thereafter, or on February 26, 1959, deficiency income tax and residence tax assessments were issued against him.

Said assessments not having been disputed, the Republic represented by the Bureau of Internal Revenue Regional,
Director, filed suit on December 29, 1960, in the municipal court of Roxas City, to recover from petitioner-appellant the
sum of P4,441.25 as deficiency income tax and additional residence tax for 1953. Arches then moved to dismiss the
complaint on the ground that it did not expressly show the approval of the Revenue Commissioner, as required by
Section 308 of the Tax Code, and on the further ground of prescription of the action.

The municipal court denied the motion. Petitioner-appellant, his motion to reconsider having been denied also, resorted
to the Court of First Instance of Capiz on a petition for certiorari and prohibition assailing the order denying his motion to
dismiss. The trial court dismissed the petition.

Issue: Whether or not the Trial Court correctly dismissed the petition on the ground that it lack jurisdiction over the
claim.

Held: Assuming, therefore, in gratia argumenti, that the suit is being erroneously but not invalidly entertained, for
lack of express approval of the Commissioner or the Regional Director, certiorari would still not lie. An order denying a
motion to dismiss is interlocutory and the remedy of the unsuccessful movant is to await the judgment on the merits and
then appeal therefrom. And, as the Court of First Instance rightly observed, there was no showing of a special reason or
urgent need to stop the proceedings at such early stage in the municipal court.

Petitioner-appellant would also raise the question of prescription. Again, this is not jurisdictional. And, the Court have
already ruled that the proper prescriptive period for bringing civil actions is five years from the date of the assessment,
under Section 332 of the Tax Code. The three-year period urged by petitioner-appellant under Section 51 (d) refers only
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to the summary remedies of distraint and levy. Here, the action was commenced one year, ten months and three days
after the assessments were made; hence, well within the period.

14.
AZNAR vs. COURT OF TAX APPEALS
GR No. 20569, 23 August 1974

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.

15.
Commissioner of Internal Revenue vs. Ayala Securities Corporation.
101 SCRA 231, No. L -29485. November 21, 1980

Facts: A 25% surtax was imposed on Ayala, by the Commissioner, for its failure to file a return reflecting their
accumulated earnings. The CTA reversed the Commissioners decision and held that the assessment made was beyond
the five-year prescriptive period under Section 331 of the Tax Code.

Issue: Whether or not the right to assess and collect the 25% surtax has prescribed after 5 years.

Held: NO. There is no time limit on the right of the Commissioner to assess the 25% surtax because there is no statutory
provision limiting such right or one providing for prescription. Hence, the collection of surtax is imprescriptible. The
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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.

Although petitioner filed an income tax return, no return was filed covering its surplus profits which were improperly
accumulated. In fact no return could have been filed because it would not be proper for the law to compel a corporation
to report improper accumulation of surplus. Section 331 limiting the right to assess internal revenue taxes within five
years from the date the return was filed or was due does not apply.

Section 332 has reference to national internal revenue taxes which require the filing of returns. There can be no failure or
omission to file a return where no return is required to be filed by law or by regulations. Therefore the ten-year period
for making an assessment under Section 332 does not apply to internal revenue taxes which do not require the filing of a
return.

It follows that in the absence of express statutory provision, the right of the government to assess unpaid taxes is
imprescriptible. Since there is no express statutory provision limiting the right of the Commissioner to assess the tax on
unreasonable accumulation of surplus provided in Section 25 of the Revenue Code, said tax may be assessed at any time.

16.
SMI-ED Phils Technology Inc. v CIR
GR No. 175410 May 5, 2010

Facts: SMI-ED Philippines is a PEZA -registered corporation authorized to engage in the business of manufacturing high-
density microprocessor unit package. After its registration, petitioner constructed buildings and purchased machineries
and equipment. Petitioner failed to commence operations. Its factory was temporarily closed. On August 2000, it sold its
buildings and some installed machineries and equipment to Ibiden Philippines Inc., another PEZA-registered enterprise.
Petitioner corporation was dissolved. In its quarterly income tax return for 2000, SMI-ED subjected the entire gross sales
of its properties to 5% final tax on PEZA-registered corporations. Petitioner paid taxes amounting to P446,677,500.00.

In 2001, after requesting for cancellation of its PEZA registration and amending its Articles of Incorporation to shorten its
corporate term, it filed an administrative claim for refund for the amount paid with the BIR alleging that it was
erroneously paid. The BIR did not act on the claim, which prompted the petitioner to file a petition for review before the
CTA.

Issue: Whether or not the CTA valid acquired jurisdiction.

Ruling: The term assessment refers to the determination of amount due from the taxpayer. The duty and power to assess
are lodged with the BIR. If the BIR renders unfavorable decision or fails to act on the dispute, the decision of the BIR or
inaction may be brought to the CTA. The CTA then acquires jurisdiction. The needs to first make the assessment. Once
assessment is made, the taxpayer can now dispute the assessment before the BIR. If decision is unfavorable, then CTAs
jurisdiction may be sought. When the decision is brought on appeal to the CTA, the latter reviews the correctness of the
assessment.

On review, the CTA had to make its own determination of the tax liability; the CTA may not make such determination
unless BIR makes its first assessment first. N As a general rule, taxes are self-assessed. BIR need not make an assessment.
In the case where a taxpayer finds out that he erroneously paid, he may then request for refund with the BIR. When
there is inaction on the part of BIR, the taxpayer may now bring it to the CTA. Here, inaction from the BIR now is within
the jurisdiction of the CTA. In other words, CTA may acquire jurisdiction even if there is no assessment from the BIR.

In this case, CTA acquired jurisdiction when the taxpayer brought that case due to inaction from BIR. As already
established, the CTA has no assessment powers. Here, CTA was not making any assessment, it was merely determining
the proper category of tax that petitioner should pay.
WEEK 5 PARTIAL CASES
17.
G.R. No. 178087 May 5, 2010
COMMISSIONER OF INTERNAL REVENUE vs. KUDOS METAL CORPORATION

Facts: 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.

On December 10, 2001, Nelia 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. This was followed by a second Waiver of Defense of Prescription 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 appeal, the CTA En Banc affirmed the cancellation of the assessment notices.

Issue: Whether the CTA erred in ruling that the Governments right to assess unpaid taxes of respondent prescribed.

Held: 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.

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.

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. As such, the doctrine of estoppel cannot give validity to an act that
is prohibited by law or one that is against public policy. 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. Simply put, the doctrine
of estoppel must be sparingly applied.

18.
RCBC vs. CIR
WEEK 5 PARTIAL CASES
G.R. No. 170257, September 7, 2011

FACTS : On January 23, 1997, RCBC executed 2 waivers of Defense of Prescription under the statute of limitation of the
NIRC covering the Internal Revenue Taxes due for 1994 and 1995 extending the assessment up to Dec. 31, 2000. Later on
January 27, 2000, RCBC received a formal letter of demand together with assessment notices for deficiency taxes. RCBC
filed a Protest and then, a Petition for Review before the CTA pursuant to Sec. 228 of the 1997 Tax Code. Then on
December 6, 2000, it again received a letter of demand which drastically reduced the deficiency tax except from the
onshore tax and document stamp tax (DST).

RCBC argued the validity of the waivers for not being signed and for the onshore tax, it should not be primarily liable
since it is only a withholding agent. The CTA terminated the assessment for other deficiencies except for the FCDU shore
tax and DST charging 20% deficiency tax. Being denied in CTA en banc, it raised the matter to the Supreme Court. While
the case is pending, the DST deficiency was paid after the BIR approved its application for abatement.

ISSUES: Whether or not RCBC as payee bank can be held liable for deficiency on shore tax which is mandatory by law to
be collected at source in the form of a final withholding tax.

HELD: As held in Chamber of Real Estate and Builder's Association Inc. v. Executive Sec., the purpose of the withholding
tax system are: 1) to provide the taxpayer with a convenient way of paying his tax liability; 2)to ensure the collection of
tax; 3)to improve the governments cash flow.

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. The liability of the withholding
agent is independent from that of the taxpayer. 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. RCBC cannot evade its liability for FCDU Onshore Tax by shifting the blame on the payor-borrower as the
withholding agent.

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 and shall be accorded the highest respect and shall be presumed valid, in the
absence of any clear and convincing proof to the contrary

19.
St. Stephens Association vs Collector of Internal Revenue
GR No. L-11238. August 21, 1958

Facts: Petitioners wrote the Collector a letter requesting the cancellation and withdrawal of the assessment notice,
received by them on 12 November 1954, because the amount of P9,252.48 was erroneously entered by the bookkeeper
as a donation from the Association to the School. When in truth the said amount was obtained by the Association by
means of small contributions from the public and is allocated to the School for its maintenance.

The Collector denied the request and insisted that the assessment be paid his letter of 6 April 1955 which was received
by petitioners on 21 April 1955. Petitioners replied and asked for reconsideration. On 25 July 1955, petitioners received
the letter of the Collector dated 11 July 1955; again denying their request and stating in its last paragraph that: This
decision becomes final thirty days after your receipt hereof unless an appeal is taken to the Court of Tax Appeals within
the same period

Within thirty days from the receipt of the above letter, or on 13 August 1955, petitioners filed a petition for review with
the CTA however it dismissed the petition for lack of jurisdiction because the period for petitioners' appeal started to run
WEEK 5 PARTIAL CASES
from their receipt of the assessment notice in question; that said period was interrupted by the filing of petitioners' two
requests for the cancellation of the assessment, but started to run again when said requests were denied; and that from
12 November 1954, receipt of notice, to 13 August 1955, filing of petition, deducting the time when their two requests
for cancellation were pending with the respondent Collector, 37 days had elapsed and therefore, their petition was filed
out of time and did not confer jurisdiction upon the CTA.

Issue: Whether or not the counting of the 30 days by CTA was correct?

Held: NO. Where a taxpayer questions an assessment and asks the Collector to reconsider or cancel the same because
the taxpayer believes he is not liable for it, the assessment becomes a "disputed assessment" that the Collector must
decide. The taxpayer can appeal to the CTA only upon receipt of the decision of the Collector on the disputed
assessment. The period for appeal to the CTA in this case must be computed from the time petitioners received the
decision of the respondent Collector on the disputed assessment and not from the time petitioners received said
assessment.

In this case, the disputed the decision of the Collector on the disputed assessment is his letter of 6 April 1955, received
by petitioners on 21 April 21 1955, denying their first request for the withdrawal and cancellation of the assessment; or
his letter of 11 July 1955, received by petitioners on 25 July 1955, denying their second request that the assessment be
cancelled and withdrawn, and stating that: This decision becomes final thirty days after your receipt hereof unless an
appeal is taken to the Court of Tax Appeals within the same period.

From the above-quoted statement appearing in his letter of 11 July 1955, it is evident that the Collector himself
considered said letter as his final decision in the case, hence his warning that the same would become final in thirty days
unless petitioners appealed to the CTA within the same period.

Prior to his letter-decision of 11 July 1955, the Collector must have held the matter under advisement and considered his
preceding rulings as merely tentative in character, pending his final determination and resolution of the merits of the
arguments of fact and law submitted by petitioners in support of their requests for the cancellation and withdrawal of
the assessment. This must have been the reason why, in said letter-decision of 11 July 1955, the Collector included an
express statement that said decision was to become final in thirty days unless appealed from within the same period;
and it must also have been for this reason that, throughout the proceedings in the respondent Collector never claimed
that petitioners' appeal was filed out of time, and it was the Tax Court that motu proprio dismissed the petition because
it believed it was not filed within the period.

Petitioners having filed their appeal on the 19th day from the receipt of this decision, their appeal were filed on time and
the respondent Court erred in dismissing the same for lack of jurisdiction.

20.
CIR v Metro Star Superama
GR No. 185371

Facts: Petitioner Metro Star Superama was audited for taxable year 1999 and received a Preliminary 15-day Letter on
November 15, 2001. On April 11, 2002, it received a Formal Letter of Demand dated April 3, 2002. Denying that it
received a Pre-Assessment Notice and thus not accorded due process, Metro Star Superama filed a Petition with the CTA.

Issue: Whether or not Petitioner was accorded the required due process.

Ruling: The court ruled in the negative. Since the Petitioner denied receipt of the Pre-Assessment Notice, the burden of
proving the same now shifts to the BIR. In order to raise the presumption of receipt, it must show that 1) the letter was
properly addressed with postage prepaid and 2) that it was mailed. If receipt is denied, the BIR must then show actual
receipt through presentation of the registry receipt or, if the same cannot be located, at least a certification from the
Bureau of Posts.
WEEK 5 PARTIAL CASES

The Court added that the issuance of a Pre-Assessment Notice or PAN is a mandatory requirement save only on specified
instances. The old rule laid down in CIR vs. Menguito that only the FAN is mandatory no longer applies since the same
was ruled upon based on the old provision.

21.
G.R. No. 162852 December 16, 2004
PHILIPPINE JOURNALISTS, INC. vs. COMMISSIONER OF INTERNAL REVENUE

Facts: On August 10, 1995, Revenue District Office No. 33 of the Bureau of Internal Revenue (BIR) issued Letter of
Authority No. 871204 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 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)". The
document "waived the running of the prescriptive period provided by Sections 223 and 224 and other relevant
provisions of the NIRC and consented 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".

Issue: Whether the waiver is in accordance with RMO No. 20-90 to validly extend the three-year prescriptive period
under the NIRC.

Held: 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 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.

22.
CIR vs. Algue Inc.
G.R. No. L-28896 Feb 17, 1988

FACTS: 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
WEEK 5 PARTIAL CASES
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.

Philippine Sugar Estate Development Company appoints Algue as its agent authorizing it to sell its land, factories and oil
manufacturing process. Family members Guevara et al worked for the formation of Vegetable Oil Investment Corp
inducing persons to invest in it. After its incorporation largely through the promotion of Guevara et al, VOIC purchased
PSEDC properties. For the sale, Algue received as agent a commission of 126k and it was from this commission that the
75k promotional fees were paid to Guevara et al.

ISSUE: Whether or not Sunga the collector of Internal Revenue correctly disallowed the 75k deduction claimed by private
respondent Algue as legitimate business expensed in its income tax returns.

HELD: No, claimed deduction was an ordinary reasonable or necessary business expense. Amount has been legitimately
paid by Algue for actual services rendered. The payment was in the form of promotional fee and collected by the payees
for their in the creation of VOIC and its subsequent purchase of the properties of the PSEDC. It is immaterial that it was
paid to the family members owning Algue who rendered services as the promotional fee was not excessive. Although the
Solicitor General is correct when he said that the burden is on the taxpayer to prove the validity of claimed deduction.

In the present case, however, Supreme Court find that the onus has been discharged satisfactorily. Algue has proved that
the payment of fees was necessary and reasonable in the light of the efforts exerted by the payees in inducing investors
and prominent businessmen to venture in an experimental enterprise and involved themselves in a new business
requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently recompensed. It is said that taxes
are what we pay for civilization society. Without taxes, the government would be paralyzed for lack of the motive power
to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard earned income to the
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 succour. For all the awesome power of the tax collector, he may still be
stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not been observed.

23.
Advertising Associates, Inc. vs. Court of Appeals
G.R. No. L-59758. December 26, 1984

Facts: Advertising Associates, lnc. was assessed for P382,700.16 as 3% contractor's percentage tax on its rental income
from the lease of neon signs and billboards on business agents and independent contractors. The Commissioner required
Advertising Associates to pay P297,927.06 and P84,773.10 as contractor's tax for 1967-1971 and 1972, respectively,
including 25% surcharge on its income from billboards and neon signs. The basis of the assessment is the fact that the
taxpayer's articles of incorporation provide that its primary purpose is to engage in general advertising business.
Advertising Associates contested the assessments in its letters of 25 June 1973 (for the 1967-71 deficiency taxes) and 7
March 1974 (for the 1972 deficiency). The Commissioner reiterated the assessments in his letters of 12 July 1974 and 16
September 1974.

Advertising requested the cancellation of the assessments in its letters of 13 September 1974 and 21 November 1974.
For about four years there was no movement in the case. Then, on 31 March 1978, the Commissioner resorted to the
summary remedy of issuing two warrants of distraint, directing the collection enforcement division to levy on the
taxpayer's personal properties. The warrants were served upon the taxpayer on 18 April 1978 and 25 May 1978.
WEEK 5 PARTIAL CASES
More than a year later, the Commissioner wrote a letter dated 23 May 1979 in answer to the requests of the taxpayer for
the cancellation of the assessments and the withdrawal of the warrants of distraint. Such letter constitutes the decision
on the matter. That if the taxpayer does not agree, he may appeal to the CTA within 30 days from the receipt of the letter.
Advertising Associates received that letter on 18 June 1979. Nineteen days later or on 7 July 1979 taxpayer filed its
petition for review.

The CTA enjoined the enforcement of the warrants of distraint. The CTA did not resolve the case on the merits. It ruled
that the warrants of distraint were the Commissioner's appealable decisions. Since Advertising Associates appealed from
the decision of 23 May 1979, the petition for review was filed out of time. It was dismissed.

Issue: Whether or not the petition for review was filed on time.

Held: YES. The reviewable decision is that contained in Commissioners letter of 23 May 1979 and not the warrants of
distraint. No amount of quibbling or sophistry can blink the fact that said letter, as its tenor shows, embodies the
Commissioner's final decision. The Commissioner said so that his letter constitutes a decision on the matter. He even
directed the taxpayer to appeal it to the CTA.

24.
Commissioner v Villa
GR No L-23998 January 2, 1968

Facts: The respondent spouses Villa filed joint income tax returns for the years 1951 -1956. The BIR issued assessments
for deficiency of income tax for the said years. The spouses did not contest the assessments with the CIR, Instead, they
filed a petition for review with the CTA. The CTA took cognizance of the appeal and rendered favorable judgment to the
spouses. The CIR appealed to the Supreme Court questioning the jurisdiction of the CTA.

Issue:
1. Whether or not an appeal to the CTA proper in this case; and
2. Whether or not the CTA is vested with jurisdiction

Ruling:
The court ruled in the negative. The rule is that when a taxpayer disputes an assessment and asks the Collector to
reconsider or cancel the same because he believes he is not liable, the assessment becomes a disputed assessment that
the Collector must decide. The taxpayer can appeal to the Court of Tax Appeals only upon receipt of the decision of the
Collector on the disputed assessment. In this case the taxpayer appealed the assessment of the Commissioner of Internal
Revenue without previously contesting the same, the appeal was premature. The Court of Tax Appeals had no
jurisdiction to entertain the appeal. For, as stated, the jurisdiction of the Tax Court is to review by appeal decisions of
Internal Revenue on disputed assessments. The Tax Court is a court of special jurisdiction. As such, it can take cognizance
only of such matters as are clearly within its jurisdiction.

25.
G.R. No. 136975 March 31, 2005
COMMISSION OF INTERNAL REVENUE vs. HANTEX TRADING CO., INC.

Facts: The respondent is a corporation duly organized and existing under the laws of the Philippines. Being engaged in
the sale of plastic products, it imports synthetic resin and other chemicals for the manufacture of its products. For this
purpose, it is required to file an Import Entry and Internal Revenue Declaration (Consumption Entry) with the Bureau of
Customs under Section 1301 of the Tariff and Customs Code.

In 1989, an informant informed the Counter-Intelligence Division of the Economic Intelligence and Investigation Bureau
that Hantex Trading Co., Inc. underdeclared its importations in the year 1987. The said informant based its report from
WEEK 5 PARTIAL CASES
another informant and the photocopied documents provided to him. The photocopies were copies of Hantexs
Consumption Entries for the year 1987 where it was stated that Hantexs importations amounted to Php 115 M. Hantex
only declared Php 45 M.

The original copies of Consumption Entries cannot be produced because the copies in the possession of the Collection
Division (official repository of said records) were eaten by termites. Hantex did not want to produce the said records
because it alleged that it has been the subject of numerous investigations already and if they will provide their records,
there will be no end to the investigation.

As such, the Investigation Division, in determining Hantexs alleged tax deficiency, relied on the photocopied (xerox)
copies submitted to them by their informant. After investigation, it was found that Hantexs importations amounted to
Php 105 M. Hantex contested the findings as it averred that the same was based on incompetent evidence considering
that it was based merely on xerox copies which were not even authenticated or certified.

The Commissioner however argued that under the National Internal Revenue Code, under the best evidence rule, if the
taxpayer does not want to provide the required documents for taxation purposes, the taxing authorities can rely on
other evidences, in this case, the xerox copies, to determine tax liabilities.

Hantex however averred that the best evidence rule was not complied with or was erroneously availed of because the
said xerox copies were not properly authenticated. To this the Commissioner argued that the BIR is not bound by the
technical rules of evidence.

ISSUE: Whether or not it is proper to use the xerox copies of the Consumption Entries of Hantex Trading Co., Inc. as proof
of its tax liabilities.

HELD: It is true that the BIR is not bound by strict rules of evidence. It is also true that the best evidence rule under the
NIRC should not be equated to the best evidence rule under the Rules of Court. That being, the best evidence rule under
the NIRC may even mean that the best evidence obtainable may consist of hearsay evidence, such as the testimony of
third parties or accounts or other records of other taxpayers similarly circumstanced as the taxpayer subject of the
investigation which are inadmissible in a regular proceeding in the regular courts. However in this case, the xerox
copies are not the best evidence obtainable. The official copies of the Consumption Entries are not solely kept in the
Collection Division (where such records were destroyed by termites). The NSO (National Statistics Office) also keep such
records. In fact, there are at least four copies of such Consumption Entries. There was no showing that BIR tried to obtain
the copies held by NSO.

Further, it was not contested that Hantex was indeed subjected to various investigations for its 1987 tax liabilities. And
those tax investigations resulted to a finding that Hantex was only liable for the minimum tax due. Such findings, done by
the BIR and the BOC (Bureau of Customs) themselves, are presumed to be regularly done. There was even no showing
that the investigating officers were negligent.

In fine, then, the CIR acted arbitrarily and capriciously in relying on and giving weight to the machine copies of the
Consumption Entries in fixing the tax deficiency assessments against Hantex.The rule is that in the absence of the
accounting records of a taxpayer, his tax liability may be determined by estimation. CIR is not required to compute such
tax liabilities with mathematical exactness. Approximation in the calculation of the taxes due is justified. To hold
otherwise would be tantamount to holding that skillful concealment is an invincible barrier to proof. However, the rule
does not apply where the estimation is arrived at arbitrarily and capriciously.

26.
CIR vs. CENTRAL LUZON DRUG CORPORATION
G.R. No. 159647; April 15, 2005
WEEK 5 PARTIAL CASES
FACTS: Respondent is a domestic corporation primarily engaged in retailing of medicines and other pharmaceutical
products. Respondent granted twenty (20%) percent sales discount to qualified senior citizens on their purchases of
medicines pursuant to Republic Act No. 7432 and its Implementing Rules and Regulations. For the said period, the
amount allegedly representing the 20% sales discount granted by respondent to qualified senior citizens totaled
P904,769.00.

On April 15, 1997, respondent filed its Annual Income Tax Return for taxable year 1996 declaring therein that it incurred
net losses from its operations.

On January 16, 1998, respondent filed with petitioner a claim for tax refund/credit in the amount of P904,769.00
allegedly arising from the 20% sales discount granted by respondent to qualified senior citizens in compliance with R.A.
7432. Unable to obtain affirmative response from petitioner, respondent elevated its claim to the Court of Tax Appeals.
The CTA, in its assailed resolution, ordered herein petitioner to issue a Tax Credit Certificate in favor of respondent. On
appeal, the CA affirmed in toto the Resolution of the Court of Tax Appeals.

ISSUE: Whether respondent, despite incurring a net loss, may still claim the 20 percent sales discount as a tax credit?

RULING: Such credit can be claimed, even though an establishment operates at a loss. Since a tax credit is used to reduce
directly the tax that is due, there ought to be a tax liability before the tax credit can be applied. Without that liability, any
tax credit application will be useless. There will be no reason for deducting the latter when there is, to begin with, no
existing obligation to the government. However, as will be presented shortly, the existence of a tax credit or its grant by
law is not the same as the availment or use of such credit. While the grant is mandatory, the availment or use is not.

If a net loss is reported by, and no other taxes are currently due from, a business establishment, there will obviously be
no tax liability against which any tax credit can be applied. For the establishment to choose the immediate availment of a
tax credit will be premature and impracticable. Nevertheless, the irrefutable fact remains that, under RA 7432, Congress
has granted without conditions a tax credit benefit to all covered establishments.

Although this tax credit benefit is available, it need not be used by losing ventures, since there is no tax liability that calls
for its application. Neither can it be reduced to nil by the quick yet callow stroke of an administrative pen, simply
because no reduction of taxes can instantly be effected. By its nature, the tax credit may still be deducted from a future,
not a present, tax liability, without which it does not have any use. In the meantime, it need not move. But it breathes.

27.
PNB vs CIR
GR No. 206019. March 18, 2015

Facts: Gotesco entered into a loan agreement with PNB on 7 April 1995 secured by a real estate mortgage of a six-
hectare property. Gotesco subsequently defaulted on its loan obligations and PNB foreclosed the property. As PNB
prepared to consolidate its ownership over the foreclosed property, PNB withheld and remitted to the BIR withholding
taxes amounting to P74,400,028.49, or 6% of the bid price. Realizing that it made a mistake, PNB filed an administrative
claim for refund of excess withholding taxes on 27 October 2005. The next day, PNB filed its petition for review for the
claim for refund before the CTA.

PNB claimed that it inadvertently applied the 6% creditable withholding tax rate on the sale, when it should have applied
the 5% creditable withholding tax rate on the sale of ordinary asset under Section 2.57.2(J)(B) of RR No. 2-98, as
amended by RR No. 6-01.

The CTA denied PNBs claim for the refund of excess creditable withholding tax for insufficiency of evidence. The CTA
division agreed that the applicable rate is 5% and not 6% but it held that PNB failed to produce evidence that Gotesco
did not utilize or credit the withheld taxes from its tax liabilities. PNB filed an MR with the division attaching Gotescos
2003 ITR and the schedule of prepaid taxes.
WEEK 5 PARTIAL CASES

The CTA, denied the MR because PNB should have presented the Certificates of Creditable Tax Withheld at Source issued
to Gotesco as supporting documents to breakdown the creditable taxes withheld in Gotescos 2003 ITR. The CTA stated
that the Certificates will confirm whether or not that the amount being claimed by PNB was indeed not utilized by
Gotesco to offset its taxes.

Issue: Whether or not PNB is entitled to the refund of creditable withholding taxes erroneously paid to the BIR.

Held: Although PNB was not able to submit Gotescos Certificates, PNB submitted evidence sufficiently showing
Gotescos non-utilization of the taxes withheld subject of the refund. There is no need for PNB to present Gotescos
Certificates because the information contained in the said form may be very well gathered from other documents
already presented by PNB.

BIR Form 2307 or the certificates is basically a statement showing the amount paid for the subject transaction and the
amount of tax withheld. The probative value of BIR Form 2307 is to establish only the fact of withholding of the claimed
creditable withholding tax. There is nothing in BIR Form No. 2307 which would establish either utilization or non-
utilization, as the case may be, of the creditable withholding tax.

While perhaps it may be necessary to prove that the taxpayer did not use the claimed creditable withholding tax to pay
for his/its tax liabilities, there is no basis in law or jurisprudence to say that BIR Form No. 2307 is the only evidence that
may be adduced to prove such non-use.

In sum, PNB was able to establish that Gotesco did not use the claimed creditable withholding taxes, to reiterate: (1)
Gotescos 2003 Audited Financial Statements proved that Gotesco did not recognize the foreclosure sale and the
payment of PNB of the creditable withholding taxes; (2) Gotescos 2003 ITRs show that the withholding tax claimed for
refund was not used by Gotesco; (3) the testimony of Gotescos former accountant proving that Gotesco did not use the
creditable withholding taxes claimed by PNB; and (4) The Withholding Tax Remittance Returns (BIR Form 1606) proving
that the amount was withhenld and paid by PNB.

Ergo, the evidence on record sufficiently proves that the claimed creditable withholding tax was withheld and remitted to
the BIR, that such withholding and remittance was erroneous, and that the claimed creditable withholding tax was not
used by Gotesco to settle its tax liabilities.