Tax CASE Digest CIR VS. PASCOR REALTY GR NO.

178697, June 29, 1999 FACTS: It appears that by virtue of Letter of Authority No. 001198, then BIR Commissioner Jose U. Ong authorized Revenue Officers Thomas T. Que, Sonia T. Estorco and Emmanuel M. Savellano to examine the books of accounts and other accounting records of Pascor Realty and Development Corporation (PRDC) for the years ending 1986, 1987 and 1988. The said examination resulted in a recommendation for the issuance of an assessment in the amounts of P7,498,434.65 andP3,015,236.35 for the years 1986 and 1987, respectively. On March 1, 1995, the Commissioner of Internal Revenue filed a criminal complaint before the Department of Justice against the PRDC, its President Rogelio A. Dio, and its Treasurer Virginia S. Dio, alleging evasion of taxes in the total amount of P10,513,671.00. Private respondents PRDC, et. al. filed an Urgent Request for Reconsideration/Reinvestigation disputing the tax assessment and tax liability. ISSUE: (1) Whether or not the criminal complaint for tax evasion can be construed as an assessment. (2) Whether or not an assessment is necessary before criminal charges for tax evasion may be instituted. HELD: 1. No. Petitioner argues that the filing of the criminal complaint with the Department of Justice cannot in any way be construed as a formal assessment of private respondents tax liabilities. This position is based on Section 205 of the National Internal Revenue Code (NIRC), which provides that remedies for the collection of deficient taxes may be by either civil or criminal action. Likewise, petitioner cites Section 223(a) of the same Code, which states that in case of failure to file a return, the tax may be assessed or a proceeding in court may be begun without assessment. No. Section 222 of the NIRC specifically states that in cases where a false or fraudulent return is submitted or in cases of failure to file a return such as this case, proceedings in court may be commenced without an assessment.

Q. What is an assessment? Is it a condition precedent before the institution of a criminal complaint? A. An assessment contains not only a computation of tax liabilities but also a demand for payment within a prescribed period. It also signals the time when penalties and interests begin to accrue against the taxpayer. To enable the taxpayer to determine his remedies thereon, due process requires that it must be served on and received by taxpayers. NO, an assessment is not necessary before a criminal complaint can be had. 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 theCIR is unsatisfied, an assessment signed by him 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 the long and winding process described above. 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 CIR 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 NIRC. Sec. 222 of the Tax 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. Furthermore, Sec. 205 of the same Code clearly mandates that the civil and criminal aspects of the case may be pursued simultaneously. The CIR has discretion on whether to issue an assessment or to file a criminal case against the taxpayer or to do both. To reiterate, said Sec. 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. Marcos II vs. CA, June 5, 1997, 273 SCRA 47 Facts: Marcos II assailed the decision of the CA declaring the deficiency income tax assessments and estate tax assessments upon the estate and properties of his late father final despite the pendency of the probate proceedings of the will of the late President. On the other hand, the BIR argued that the States authority to collect internal revenue taxes is paramount. Q. Can the BIR collect estate taxes without the approval of a probate court? A. Yes, the approval of the court, sitting in probate, or as a settlement tribunal over the deceased is not a mandatory requirement in the collection of estate taxes. The enforcement of tax laws and the collection of taxes are of paramount importance for the sustenance of government. Taxes are the lifeblood of the government and should be collected without unnecessary hindrance. However, such collection should be made in accordance with law as any arbitrariness will negate the reason for the government itself. It is, therefore, necessary to reconcile the apparent conflicting interests of the authorities and the taxpayer so that the real purpose of taxation, which is the promotion of the common good, may be achieved. Meralco Securities Corporation vs Savellano, 117 SCRA 805

2.

Furthermore, Section 205 of the same Code clearly mandates that the civil and criminal aspects of the case may be pursued simultaneously. Said Section 222 states that an assessment is not necessary before a criminal charge can be filed. This is the general rule. Private respondents failed to show that they are entitled to an exception. Moreover, the criminal charge need only be supported by a prima facie showing of failure to file a required return. This fact need not be proven by an assessment. CIR v PASCOR, 309 SCRA 402 Facts: Under authority by the CIR, revenue officers examined Pascors accounting books and discovered deficiency taxes for two fiscal years. The CIR, based on the reports made by the revenue officers, executed an affidavit and filed a criminal complaint for tax evasion. Respondents Rogelio Dio and Virginia Dio, officers of the corporation, assails the action of the CIR by stating that a deficiency tax assessment hould have been first filed by the CIR, rather than instituting a criminal complaint at once.

Facts: In 1967, the late Juan G. Maniago submitted to the Commissioner confidential denunciation against the Meralco Securities Corp. for tax evasion for not having paid income tax on 25% of the dividends it received from the Manila Electric Co. for years 1962 to 1966. The Commissioner caused the investigation of the denunciation and found that no deficiency corporate tax was due from Meralco Securities. Maniago was informed of the findings. The Secretary of Finance sustained the Commissioners action. Maniago filed a petition for mandamus against the Commissioner so as to compel it to impose the alleged deficiency tax assessment against Meralco Securities and to award him the corresponding informers award. Q. Can the Commissioner be compelled to impose the alleged deficien cy tax assessment? A. NO. Mandamus only lies to enforce the performance of a ministerial act or duty and not to control the performance of discretionary power. Mandamus may not be made against the Commissioner to compel him to impose a tax assessment not found by him to be due or proper, for that would be tantamount to a usurpation of executive functions. Purely administrative and discretionary functions may not be interfered with by the Courts. The discretionary power vested in the proper executive official, in the absence of arbitrariness or grave abuse so as to go beyond the statutory authority, is not subject to the contrary judgment or control of others. The question of whether or not to impose a deficiency tax assessment on Meralco Securities Corporation undoubtedly comes within the purview of the words "disputed assessments" or of "other matters arising under the National Internal Revenue Code ", hence, falling within the jurisdiction of the Court of Tax Appeals and not of the Court of First Instance. The Court of Tax Appeals has exclusive appellate jurisdiction to review, on appeal, any decision of the Collector of Internal Revenue in cases involving disputed assessments and other matters arising under the National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue.Moreover, since the office of the Commissioner of Internal Re venue is charged with the administration of revenue laws, which is the primary responsibility of the executive branch of the government, mandamus may not lie against the Commissioner to compel him to impose a tax assessment not found by him to be due or proper for that would be tantamount to a usurpation of executive functions. What may be the subject of judicial review is the decision of the Commissioner on the protest against assessment and not the assessment itself. Aznar vs. Commissioner, 58 SCRA 519 Our stand that the law should be interpreted to mean a separation of the three different situations of false return, fraudulent return with intent to evade tax, and failure to file a return is strengthened immeasurably by the last portion of the provision which segregates the situations into three different classes, namely -"falsity," "fraud" and "omission." That there is a difference between "false return" and "fraudulent return" cannot be denied. A false return implies deviation from the truth, whether intentional or not. A fraudulent return implies intentional or deceitful entry with intent to evade the taxes due. 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 the fraud with intent to evade the tax

contemplated by law. It must amount to intentional wrong-doing with the sole object of avoiding the tax. CIR vs. Benigno Toda Jr., GR 147188, Sept. 14, 2004, 438SCRA 290 Facts: The BIR sent an assessment notice and demand letter to the CibelesIn surance Corporation (CIC) for deficiency income tax for the year 1989 arising from an alleged simulated sale of a 16-storey commercial building known as Cibeles Building in Makati City. Prior to the transaction, the CIC authorized Benigno Toda, Jr., President and owner of 99.991% of its issued and outstanding capital stock, to sell the Cibeles Building and the two parcels of land on which the building stands. Toda purportedly sold the property for P100 million to Altonaga, who, in turn, sold the same property on the same day to Royal Match Inc. (RMI) for P200 million. These two transactions were evidenced by Deeds of Absolute Sale notarized on the same day by the same notary public. For the sale of the property to RMI, Altonaga paid capital gains tax in the amount of P10 million. Toda sold his entire shares of stocks in CIC to Le Hun T. Choa for P12.5 million. Three and a half years later Toda died. The new CIC asked for a reconsideration asserting that the assessment should be directed against the old CIC, and not against the new CIC, which is owned by an entirely different set of stockholders; moreover, Toda had undertaken to hold the buyer of his stockholdings and the CIC free from all tax liabilities for the fiscal years1987-1989. The BIR then proceeded against the estate of Toda. The administrator of the estate of Toda paid the deficiency taxes under protest. However, this protest was denied by the CIR stating that a fraudulent scheme was deliberately perpetuated by the CIC wholly owned and controlled by Toda by covering up the additional gain of P100 million, which resulted in the change in the income structure of the proceeds of the sale of the two parcels of land and the building thereon to an individual capital gains, thus evading the higher corporate income tax rate of 35%.Q. Is the scheme perpetuated by Toda a case of tax evasion or tax avoidance? Ruling: It is a tax evasion scheme. Tax avoidance is the tax saving device within the means sanctioned by law. This method should be used by the taxpayer in good faith and at arms length. Tax evasion, on the other hand, is a scheme used outside of those lawful means and when availed of, it usually subjects the taxpayer to further or additional civil or criminal liabilities. Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e., the payment of less than that known by the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is due; (2) an accompanying state of mind which is described as being evil, in bad faith, willfull, or deliberate and not accidental; and (3) a course of action or failure of action which is unlawful. The scheme resorted to by CIC in making it appear that there were two sales of the subject properties, i.e., from CIC to Altonaga, and then from Altonaga to RMI cannot be considered a legitimate tax planning (one way of tax avoidance). Such scheme is tainted with fraud. Fraud in its general sense is deemed to comprise anything calculated to deceive, including all acts, omissions, and concealment involving a breach of legal or equitable duty, trust or confidence justly reposed, resulting in the damage to another, or by which an undue and unconscionable advantage is taken of another. Here, it is obvious that the objective of the sale to Altonaga was to reduce the amount of tax to be paid especially that the transfer from him to RMI would then subject the income to only 5% individual capital gains tax, and not the35% corporate income tax.

Commissioner of Internal Revenue vs. Hantex Trading Co., Inc. (March 31, 2005) FACTS: Lt. Vicente Amoto, Acting Chief of CounterIntelligence Division of theEconomic Intelligence and Investigation Bureau, received confidential information that the respondent had imported synthetic resin amounting to P115,599,018.00but only declared P45,538,694.57. According to the informer, based on photocopies of 77 Consumption Entries furnished by another informer, the 1987 importations of the respondent were understated in its accounting records. An audit investigation was conducted and the respondents president refused to cooperate since he contended that save for the current investigation, they have always cooperated in the previous investigations before. Payment was demanded from the respondent but it protested the assessment. The matter was elevated to the CTA and it ruled in favor of the CIR, but was later on reversed by the CTA. Q. Is an assessment based on the machine copies Consumption Entries competent evidence? of the

The search warrant in question was issued for at least four distinct offenses under the Tax Code. As ruled in Stonehill Such is the seriousness of the irregularities committed in connection with the disputed search warrants, that this Court deemed it fit to amend Section 3 of Rule 122 of the former Rules of Court that a search warrant shall not issue but upon probable cause in connection with one specific offense. Not satisfied with this qualification, the Court added thereto a paragraph, directing that no search warrant shall issue for more than one specific offense. 3. The search warrant does not particularly describe the things to be seized. The documents, papers and effects sought to be seized are described in the Search Warrant Unregistered and private books of accounts (ledgers, journals, columnars, receipts and disbursements books, customers ledgers); receipts for payments received; certificates of stocks and securities; contracts, promissory notes and deeds of sale; telex and coded messages; business communications, accounting and business records; checks and check stubs; records of bank deposits and withdrawals; and records of foreign remittances, covering the years 1966 to 1970. The description does not meet the requirement in Art III, Sec. 1, of the Constitution, and of Sec. 3, Rule 126 of the Revised Rules of Court, that the warrant should particularly describe the things to be seized. A search warrant may be said to particularly describe the things to be seized when the description therein is as specific as the circumstances will ordinarily allow or when the description expresses a conclusion of fact not of law by which the warrant officer may be guided in making the search and seizure or when the things described are limited to those which bear direct relation to the offense for which the warrant is being issued.

A. NO, The photocopies of the consumption entries is incompetent. The best evidence envisaged in Sec. 16 of the 1977 NIRC, as amended, includes the corporate and accounting records of other taxpayers engaged in the same line of business, including their gross profit and net profit sales. The general rule is that administrative agencies such as the BIR are no bound by the technical rules of evidence. The best evidence obtainable under Sec. 16 of the 1977 NIRC, asamended, does not include mere photocopies of records/documents. The general rule is that in the absence of the accounting records of a taxpayer, his tax liability may be determined by estimation; Rule does not apply where the estimation is arrived at arbitrarily and capriciously. Bache & Co. v Ruiz On 24 Feb 1970, Commissioner Vera of Internal Revenue, wrote a letter addressed to J Ruiz requesting the issuance of a search warrant against petitioners for violation of Sec 46(a) of the NIRC, in relation to all other pertinent provisions thereof, particularly Sects 53, 72, 73, 208 and 209, and authorizing Revenue Examiner de Leon make and file the application for search warrant which was attached to the letter. The next day, de Leon and his witnesses went to CFI Rizal to obtain the search warrant. At that time J Ruiz was hearing a certain case; so, by means of a note, he instructed his Deputy Clerk of Court to take the depositions of De Leon and Logronio. After the session had adjourned, J Ruiz was informed that the depositions had already been taken. The stenographer read to him her stenographic notes; and thereafter, J Ruiz asked respondent Logronio to take the oath and warned him that if his deposition was found to be false and without legal basis, he could be charged for perjury. J Ruiz signed de Leons application for search warrant and Logronios deposition. The search was subsequently conducted. ISSUE: Whether or not there had been a valid search warrant. HELD: The SC ruled in favor of Bache on three grounds. 1. J Ruiz failed to personally examine the complainant and his witness. Personal examination by the judge of the complainant and his witnesses is necessary to enable him to determine the existence or non-existence of a probable cause. 2. The search warrant was issued for more than one specific offense.