CHAPTER XXIX – ASSESSMENT AND PROTEST

161. Lantin vs. Commissioner (644)

CTA Case No. 1951 – The case cannot be found. I already checked the CTA website but to no
avail, maybe because this case is a very old one. It was promulgated on April 10, 1969.

Book: A letter containing a computation of supposed tax liabilities, giving the taxpayer an
opportunity to show the incorrectness of the findings of the examiner, or urging the taxpayer to
produce his books or records for verification or to present his side is not an assessment.

162. Guagua Electric Light vs. Commissioner (644) (Taken from Case No. 111)

Facts: Guagua Electric Light Plant Co. is a grantee of municipal franchises by the municpal
councils of Guagua and Sexmoan, Pampanga. It reported a gross income of P1,133,003.44 for
1947 go 1956 and paid thereon a franchise tax of P56,664.97 computed at 5% in accordance with
Sec. 259 of the Tax Code.

Believing that it should pay a lower franchise tax as provided by its franchises, it filed a claim
for refund on 25 March 1957 for overpayment. The Commissioner denied the refund of franchise
tax for the period prior to the 4th quarter of 1951 on the ground that the right to refund has
prescribed. The Commissioner allowed the refund of P16,593.87. Later however, due to the
holding in Hoa Hin Co. vs. David, the Commissioner assessed against the company deficiency
franchise tax subject to a 25% surcharge, and thereby including the amount previously allowed
by the Commissioner to be refunded.

Issue: Whether the tax “refunded erroneously” should be imposed against the company; if the
right to recover has prescribed?

Ruling: Guagua Electric would be paying the same deficiency tax for the period of 1 January to
30 November 1956 if it is required to pay P16,593.87 in addition to the sum of P19,938.12, the
difference between the tax computed at 5% pursuant to Sec. 259 of the Tax Code and the
franchise tax paid at 1% and 2% under the franchise. Further, by insisting on the payment of
P16,593.87 (September 1951 to November 1956), the Commissioner is trying to collect the same
deficiency tax where the right to assess the same, according to him, has been lost by prescription.
The demand on the taxpayer to pay the sum of P16,593.87 is in effect an assessment of
deficiency franchise tax. The right to assess, thus, and to collect is governed by Sec. 331 of the
Tax Code rather than by Art. 1145 of the Civil Code, as a special law prevails over a general law.
Guagua Electric is absolved from the payment of P16,593.87.

Book: A demand for payment of franchise tax, representing the difference between the tax
computed at 5% pursuant to Sec. 259 of the Tax Code and the tax at 1% or 2% under its
franchises covering the period, which was previously refunded erroneously by BIR is an
assessment for deficiency tax.
163. Commissioner vs. Pascor Realty and Development Corporation (644) (Taken from
Case No. 103)

Facts: The CIR authorized certain BIR officers to examine the books of accounts and other
accounting records of Pascor Realty and Development Corp. for 1986, 1987, and 1988. The
examination resulted in recommendation for the issuance of an assessment. The Commissioner
filed a criminal complaint for tax evasion against PRDC, its president and treasurer before the
DOJ and they received a subpoena. Pascor filed a request for reconsideration/reinvestigation
which the CIR denied prompting the respondents to elevate the CIR’s decision to the CTA. CIR
filed a Motion to Dismiss on the ground that CTA has no jurisdiction over the subject matter
since no formal assessment has been issued against PRDC. The CTA denied the Motion stating
that the criminal case for tax evasion is already an assessment. The complaint, more particularly,
the Joint Affidavit of Revenue Examiners Lagmay and Savellano attached thereto, contains the
details of the assessment like the kind and amount of tax due, and the period covered. The CA
agreed with the decision of the CTA.

Issue: Whether an assessment is necessary before criminal charges for tax evasion may be
instituted?

Ruling: No. The SC reiterated the rule that an assessment is not necessary before criminal
charges can be filed. A criminal charge need not only be supported by a prima facie showing of
failure to file a required return and such 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.

Book: 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.

164. Commissioner vs. Western Pacific Corporation (645)

Facts: Respondent was assessed for P3,731.00, as deficiency income tax for the year 1953 which
was brought about by the disallowance of P8,265.82, listed in respondent's return for 1953, as
expense items, and P10,387.50, as written off "bad debts." The assessment was received by
respondent on the same date (March 2, 1959). On March 5, 1959, the CIR wrote a letter of
demand for the payment of the amount, including a breakdown of said assessment. Under date of
June 29, 1959, respondent requested for non-assessment, claiming that there has been
prescription in making the assessment, that the expense items and bad debts were allowable
deduction. The Commissioner on July 30, 1959 denied the same, and demanded for payment
within 30 days from receipt of said demand. On September 19, 1959, respondent requested that it
be permitted until September 25, 1959, to submit formal objections to the assessment. The
formal objections appearing in the letter of September 22, 1959, were identical to those of the
June 29, 1959 communication. The last letter of the Commissioner, dated October 28, 1959,
among others, requested payment of the assessment within 10 days from receipt.

Respondent appealed to the CTA, which absolved respondent but not based on prescription.

Issue: Whether the action has prescribed?

Ruling: Yes. The Court ruled that the assessment made by the Commissioner should be
maintained, for the simple reason that when the petition for review was brought to the CTA, it no
longer had jurisdiction to entertain the same. The assessment had long become final. A petition
for review should be presented, within the reglementary period, which is 30 days from receipt of
the assessment. The 30 day period is jurisdictional. The assessment was received on March 2,
1959. It was only on June 29, 1959, when said corporation formally assailed the assessment, on
the grounds of prescription in making the assessment and the impropriety of the disallowance of
the listed deductions. From March 3 to June 29, 1959, manifestly more than the 30 days had
lapsed and the assessment became final, executory, and demandable. Failure to comply with the
30-day statutory period would bar appeal and deprive the CTA of its jurisdiction. The decision of
the CTA is set aside for having been rendered without jurisdiction, the assessment in question
having been already final, executory, and demandable before the petition for review was
presented.

Book: If the date on which the assessment is due to prescribe falls on a Saturday, the following
day being a Sunday, it is understood that the Government has until the next succeeding business
day or Monday within which to assess the tax.

165. National Marketing Corporation vs. Tecson (645)

Facts: In December 21, 1965, the petitioner, a judgement creditor and successor to all the
properties, assets, rights and chosen-in-action of Price Stabilization Corporation, filed a
complaint with the CFI in order to revive the judgement rendered by the same court in November
14, 1955 in the case Price Stabilization Corp. vs. Miguel D. Tecson, ordering the latter and Alto
Surety and Insurance Co. Inc to pay the former a price of P7,000.00 plus 7% interest from May
25, 1960 until the amount is fully paid, plus P500.00 for attorney's fee and plus cost; and that
Tecson should indemnify his co-defendant Alto Surety and Insurance Co., Inc. on the cross-
claim for all the amounts it would be made to pay in the decision, in case Alto Surety and
Insurance Co., Inc. pay the amount adjudged to Price Stabilization Corp.

Issue: Whether the present action for the revival of a judgement is barred by the statue of
limitations?
Ruling: The SC affirmed the ruling of the RTC and CA dismissing the complaint as it is beyond
the 10-year period pursuant to Art. 114 of Civil Code which states that an action upon judgement
"must be brought within 10 years from the right of action accrues" and Art. 13 which states that
"when the law speaks of years, it shall be understood that years are of 365 days each"; 1960 and
1964 being leap years, the month of February in both had 29 days, so that 10 years of 365 days
each, or an aggregate of 3,650 days, from December 21, 1955 expired on December 19, 1965.

Book: In counting the 3-year period where there is a leap year (which has 366 days), the SC
ruled that the Administrative Code explicitly ordains that the term “year” shall be understood to
have 365 days.

166. CIR vs. Primetown Property Group (645) (Taken from Case No. 332)

Facts: On March 11, 1999, Gilbert Yap, the Vice President of Primetown, applied for refund of
the income tax which they have paid on 1997. According to Yap, the company accrued losses
amounting to P71,879,228. These losses enabled them to be exempt from paying income tax,
which respondent paid diligently. Respondents submitted requirements but the petitioners
ignored their claim. On April 14, 2000, respondents filed for a review with the CTA. The said
Court, however, denied the petition stating that the petition was filed beyond the 2-year
prescriptive period for filing judicial claim for tax refund.

Issue: Whether the 2-year or 730-day prescriptive period ends on April 13, 2000 or April 14,
2000 considering that the last payment of tax was on April 14, 1998 and that year 2000 was a
leap year?

Ruling: In the case at bar, Art. 13 of the New Civil Code, which states that a year shall compose
365 days, shall be repealed by E.O. 292, Sec. 31 of the Administrative Code of 1987, which
states that a year shall be composed of 12 months regardless of the number of days in a month.
The two-year prescriptive period ends on April 14, 2000. Respondents filed the petition on April
14, 2000 which is the last day prescribed to file a petition. We therefore hold that respondent's
petition which was filed on April 14, 2000 was filed on the last day of the 24th calendar month
from the day respondent filed its final adjusted return. Hence, it was filed within the
reglementary period.

Book: The Administrative Code of 1987, being the more recent law than the Civil Code, governs
the computation of legal periods.

167. Luang vs. CIR (646)

Facts: Petitioner is a Filipino businessman who owned a refilling station of Unioil Petroleum
Philippines, Inc. Respondent is the Commissioner of the BIR.

Petitioner sent a letter dated June 21, 2005 to the BIR to inform said office that his business
operations would cease by the middle of the year 2005 and that taxes were to be incurred only up
to June 30, 2005. Said letter was also meant to inform the BIR of the cessation of reportorial
requirements that must be complied with by the taxpayer pursuant to the operation of a business
entity. Petitioner filed his 2nd quarter VAT return on July 26, 2005.

Petitioner received a copy of a Formal Letter of Demand and a FAN on November 5, 2008 for
alleged deficiency VAT, deficiency income tax, and compromise penalties for the year 2005.
Based on the FAN, the BIR is assessing petitioner for alleged deficiency taxes, inclusive of
interest and surcharge.

Petitioner then filed a Protest to the FAN on December 5, 2008 or 30 days after receipt of the
FAN, arguing that the findings therein are devoid of any legal and factual bases, and moving that
the same be cancelled and withdrawn.

The 180-day period lapsed on July 31, 2009 without respondent acting on the protest. Petitioner
filed the present Petition for Review with this Court on August 28, 2009. In her Answer,
respondent raised: (1) the assessments for calendar year 2005 in the amounts of P401,197.62 and
P7,286,048.42 for deficiency income and VAT, respectively, were issued in accordance with law
and regulations and (2) tax assessments by tax examiners are presumed correct and made in good
faith. It is the taxpayer and not the Bureau of Internal Revenue who has the duty of proving
otherwise.

Issue: Whether respondent complied with the due process requirement as provided under the
NIRC of 1997, as amended, and R.R. No. 12-99, with regard to the issuance of a deficiency tax
assessment?

Ruling: This Court finds for petitioner. Respondent's witness, Mr. Alberto E. Pengson, testified
that after issuing and sending a Letter Notice (LN) to petitioner, he also sent a Post-Reporting
Notice (PRN) dated January 23, 2008 through registered mail. During Mr. Pengson's cross-
examinations, conducted by counsel for petitioner on May 11, 2011 and June 29, 2011, Mr.
Pengson, however, confirmed that he has no document or evidence to prove that the PAN was
actually received by petitioner,

While there is a disputable presumption that a mailed letter is deemed received by the addressee
in the ordinary course of mail, a direct denial of the receipt of mail shifts the burden upon the
party favored by the presumption to prove that the mailed letter was indeed received by the
addressee. Jurisprudence is replete with cases holding that if the taxpayer denied receiving an
assessment from the BIR, it is incumbent upon the latter to prove by competent evidence that
such notice was indeed received by the addressee. The onus probandi is therefore shifted to
respondent to prove by contrary evidence that petitioner received the assessment notice in the
due course of mail. In other words, an assessment notice is not considered validly issued if the
taxpayer denied receipt thereof. In the present case, petitioner categorically denied receiving the
PAN in his Petition for Review. While respondent's witness, Mr. Pengson, identified a copy of
an undated PAN during trial, Mr. Pengson failed to establish during his cross-examination by the
counsel for petitioner that said PAN was received by petitioner. Respondent failed to prove that
the PAN was delivered to petitioner by registered mail since no copy of the registry return
receipt was presented as evidence. Likewise, respondent failed to prove that the PAN was
personally received by petitioner. Since it was not clearly established by respondent that
petitioner actually received the PAN, either personally or by registered mail, the Court cannot
uphold respondent's position that due process was observed in this case.

Book: If the taxpayer denied receiving an assessment from the BIR, it is incumbent upon the
BIR to prove by competent evidence that such notice was indeed received by the addressee. The
onus probandi is therefore shifter to the CIR. Failure to strictly comply with notice requirements
prescribed under Sec. 228 of the Tax Code and R.R. 12-99 is tantamount to a denial of due
process.

168. Next Mobile vs. CIR (646)

Facts: On January 14, 2009, respondent issued a Formal Letter of Demand with Final
Assessment Notices for deficiency VAT and expanded withholding tax against petitioner for
taxable year 2005. In a letter dated March 5, 2009, petitioner formally protested the assessment.
After the SIR's review of the report of re-investigation covering all internal revenue taxes for
taxable year 2005, on August 11, 2009, petitioner received the decision of the BIR on its protest
which reduced the deficiency VAT payable to P2,785,754.67. Thus, on September 10, 2009,
petitioner filed this Petition for Review. In her Answer filed on October 19, 2009, respondent
interposed that the subject assessments are valid and correct and the petitioner has the burden of
proof to impugn their validity. Thus, similarly held, tax assessments by examiners are presumed
correct and made in good faith and the taxpayer has the duty to prove otherwise.

In the assailed Decision dated March 25, 2013, the Special Third Division ruled in favor of
respondent CIR. As recourse, petitioner filed a Motion for Reconsideration on April 23, 2013. In
the assailed Resolution dated August 12, 2013, the Third Division denied petitioner's motion for
lack of merit.

Issue: Whether the CTA Division erred in ruling that the deficiency VAT assessment against
petitioner was issued within the prescriptive period on the ground that the VAT returns filed by
petitioner are false?

Ruling: No. We find the instant Petition for Review unmeritorious. There is a difference
between a false return and a fraudulent return. While the first merely implies deviation from the
truth, whether intentional or not, the second implies intentional or deceitful entry with intent to
evade the taxes due. The ordinary period of prescription of 5 years within which to assess tax
liabilities under Sec. 331 of the NIRC should be applicable to normal circumstances, but
whenever the government is placed at a disadvantage so as to prevent its lawful agents 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 10 years provided for in Sec. 332 (a) NIRC,
from the time of the discovery of the falsity, fraud or omission even seems to be inadequate and
should be the one enforced.

Book: If the taxpayer denied receiving an assessment from the BIR, it is incumbent upon the
BIR to prove by competent evidence that such notice was indeed received by the addressee. The
onus probandi is therefore shifter to the CIR. Failure to strictly comply with notice requirements
prescribed under Sec. 228 of the Tax Code and R.R. 12-99 is tantamount to a denial of due
process.

169. Phil. Aerospace Development vs. CIR (646)

Facts: Petitioner Philippine Aerospace Development Corporation is a GOCC created and

existing under the laws of the Philippines. Respondent, on the other hand, is the CIR.

On March 1, 2005, respondent, through BIR Revenue Region No. 8, issued Letter of Authority
No. 45299, authorizing revenue officers of RDO No. 51, Pasay City, to examine the books of
account and other accounting records of petitioner for all its internal revenue taxes for the period
covering January 2003 to December 2003. On December 27, 2006, petitioner received a
Preliminary Assessment Notice dated December 22, 2006 for taxable year 2003, assessing
petitioner for deficiency taxes.

On January 12, 2007, petitioner received a Formal Assessment Notice dated January 12, 2007,
assessing petitioner for deficiency income tax and VAT for taxable year 2003.

On February 16, 2007, petitioner filed its protest to the Formal Assessment Notice through a
letter dated February 15, 2007.

On September 11, 2007, petitioner received a letter dated September 5, 2007 from the Regional
Director of BIR Revenue Region No. 8, denying petitioner's protest. Consequently, petitioner
sent a letter dated October 10, 2007, and moved for the reconsideration of the BIR's decision
contained in the letter dated September 5, 2007.

On August 8, 2008, petitioner received a Final Decision on Disputed Assessment (FDDA) dated
August 1, 2008, denying its protest on the ground that petitioner failed to submit supporting
documents to substantiate its protest. BIR Revenue Region No. 8 assessed petitioner for
deficiency taxes.

Hence, on September 8, 2008, petitioner timely filed the instant Petition for Review before this
Court assailing the FDDA issued by respondent on August 1, 2008.

On December 24, 2008, respondent filed her Answer praying for the dismissal of the Petition for
Review for lack of merit, and interposed the following Special and Affirmative Defenses, among
others: (1) assessments are presumed correct and official functions are regularly done and (2) the
burden of proving that the assessments are not correct rests on the petitioner.

Issue: Whether the deficiency tax assessments contained in the Final Decision on Disputed
Assessment dated August 1, 2008 issued by respondent against petitioner have factual and legal
bases?

Ruling: The Court finds the instant petition partly meritorious. Perusal of the records reveals that
the purchase from Rolls-Royce amounting to P27,030,000.00 does not tally with the discrepancy
found by respondent's examiner in the amount of P18,493,926.37. Further, petitioner failed to
substantiate the amount of inventories allegedly turned-over by its former subsidiaries. Thus,
considering petitioner's failure to reconcile the discrepancy of P18,493,926.37, respondent's
disallowance of the said amount shall be upheld in line with the principle that tax assessments by
tax examiners are presumed correct and made in good faith, and all presumptions are in favor of
the correctness of a tax assessment unless proven otherwise. Failure to present proof of error in
the assessment will justify the judicial affirmance of said assessment.

Book: If the taxpayer denied receiving an assessment from the BIR, it is incumbent upon the
BIR to prove by competent evidence that such notice was indeed received by the addressee. The
onus probandi is therefore shifter to the CIR. Failure to strictly comply with notice requirements
prescribed under Sec. 228 of the Tax Code and R.R. 12-99 is tantamount to a denial of due
process.

170. Waterfront vs. CIR (647)

Facts: On August 31, 2007, the BIR issued Letter of Authority No. 2007-00006956 for the
investigation of Petitioner's business operations and books of accounts for Calendar Year 2006.
The Formal Letter of Demand issued by BIR Large Taxpayers District Office-Cebu LTDO No.
123 was received by Petitioner on April 30, 2009. Petitioner submitted its formal protest letter
and written reply to the BIR in its letters of May 25, 2009 and July 23, 2009, respectively.
Respondent issued its Final Decision on Disputed Assessment on October 31, 2009 directing
Petitioner to either pay the assessments or to appeal the decision to the CTA within 30 days of
receipt of the decision. The Petitioner received the decision on November 9, 2009 seeking
collection of deficiency assessments. Petitioner stated that it has paid the deficiency VAT
assessment in the amount of P1,389,389.61 on December 1, 2009 through the BIR's Electronic
Filing and Payment System. Printed copies of EFPS Filing Reference, Confirmation Report and
BIR Payment Form No. 0605 are attached as Annexes H, H-1, H-2 and H-3 of the Petition for
Review. 7. Petitioner has paid the deficiency Expanded Withholding Tax Assessment of
P1,732.20 on December 1, 2009 through the BIR's Electronic Filing and Payment System.

On December 8, 2009, petitioner filed the instant Petition for Review with this Court to appeal
respondent's denial of its protest on deficiency income tax assessment. On February 10, 2010,
respondent filed her Answer and interposed the following Special and Affirmative Defenses,
among others: (1) Petitioner's protest on the assessment has no factual basis and (2) it is a well-
settled rule in taxation that assessments are prima facie presumed correct and made in good faith.
The taxpayer has the duty of proving otherwise, and in the absence of proof of any irregularities
in the performance of official duties, an assessment will not be disturbed.

Issue: Whether or petitioner is liable for deficiency Income Tax Assessment in the amount of
P2,579,289.48 for taxable year 2006 plus surcharges and interests?

Ruling: Upon a scrutiny of petitioner's Annual Income Tax Returns for the taxable years 2005
and 2006, this Court finds that the assessed amount of P1,506,576.00 on prior year's excess
credits would not give rise to a deficiency income tax liability on the part of the petitioner for the
following reasons: (1) the assessed amount does not in any way pertain to an expense or income
account which could affect petitioner's income tax due (before deduction for tax
credits/payments is made) for the taxable year 2006 and (2) had petitioner been able to declare in
its 2006 Annual ITR the prior year's excess tax credit of P11,278,461.95 instead of
P12,785,038.00, it would still have an overpayment of P7,983,293.75 as of December 31, 2006.

Respondent's contention that the adjustment made in taxable year 2008 ITR cannot be honored
since the adjustment affected taxable year 2007 which is under investigation is misplaced. It
must be stressed that, based on the above adjusted computation of total overpayment as of
December 31, 2006, the tax benefit derived therefrom redounded to the succeeding year 2007
which is beyond the scope of the present assessment. Since the tax benefit will be in the
succeeding year, at most, it may only be assessed in the said succeeding year 2007. Thus,
assessing petitioner for the alleged deficiency income tax for the year 2006 is not proper.

As to petitioner's creditable tax withheld at source in the amount of P212,950.27, respondent

disallowed the same because petitioner failed to submit the Certificate of Creditable Tax
Withheld at Source supporting the same. To refute the findings of respondent, petitioner
submitted various Certificates of Creditable Tax Withheld at Source before this Court marked as
Exhibits "Q-1" to "Q-101" but only for the creditable withholding taxes amounting to
P151,060.53.

Book: The assesed income tax of P1,500,000.00 due to excess tax credits would not give rise to
deficiency income tax considering that it does not affect or pertain to income or expense which
could affect the company’s income tax due for 2006, and Waterfront’s P8,000,000.00
overpayment in 2006 is significantly higher than the company’s tax assessment.