COMMISSIONER OF INTERNAL REVENUE v.

PHILIPPINE DAILY INQUIRER

G.R. No. 213943 March 22, 2017

FACTS:

Philippine Daily Inquirer (PDI) is a newspaper publication. It filed its Annual Income Tax
Return (ITR) for taxable year 2004, on April 15, 2005. Its quarterly VAT returns were filed on
April 20, July 16, October 18 of 2004 and January 21, 2005, respectively.

PDI, on Aug. 10, 2006, received a Letter Notice from Region 020 Large Taxpayer’s Service of
BIR dated June 30, 2006. The BIR alleged that there was under-declaration of domestic
purchases based on the computerized matching it conducted on the data and information given
by third party sources against PDI’s declaration on its VAT returns.
[The income and value-added tax liabilities were generated through the Reconciliation of
Listing for Enforcement (RELIEF) system-Summary List of Sales and Purchases (SLSP)
and Third Party Matching. Through the system, respondent was able to detect tax leaks
through the matching of data available in the Integrated Tax Systems (ITS) with the
information gathered from third party sources.]

PDI was invited by the BIR to reconcile the deficiencies which the former did so and submitted
its reconciliation reports. PDI executed its first waiver of the Statute of Limitation on March 21,
2007 consenting to the assessment and/or collection of taxes for the year 2004 which may be
found due after the investigation, at any time before or after the lapse of the period of limitations
fixed by Sections 203 and 222 of the National Internal Revenue Code (NIRC) but not later than
30 June 2007. The waiver was received by Valeroso two days later.

PDI, on May 30, 2007, submitted additional partial reconciliation and explanation on the
discrepancies. However, PDI was invited to an informal conference and to present any objections
it may have on the results of the evaluation relative to the matching of sales of its suppliers
against its purchases for the taxable year 2004. PDI received this invitation on May 28, 2007.

On June 5, 2007, PDI executed a second waiver of the Statute of Limitation which was accepted
on June 8, 2007. The Preliminary Assessment Notice (PAN) dated Oct. 15, 2007 yielded a
deficiency income tax and VAT for taxable year 2004 amounting to P 2,981,475.66 and P
1,438,669.23, respectively.

PDI sought reconsideration of the PAN and expressed its willingness to execute another waiver
(3rd waiver) which it did on the same date which in effect extends BIR’s right to assess and/or
collect from it until April 30, 2008.

On April 17, 2008, PDI received a Formal Demand Letter and an Audit Result or Assessment
Notice from the BIR for Deficiency in VAT and Income Tax amounting to P 3,154,775.56 and P
1,524,229.99, respectively.

Accordingly, PDI filed its protest and later on filed a Petition for Review before the CTA First
Division against CIR. CIR alleged that PDI made a false return and held that the three-year
prescriptive period based on Section 203, in relation to Section 222(a) of the NIRC, as amended,
should apply in this case. Hence, the ten-year prescriptive period shall apply to this case because
PDI filed a false or fraudulent return. The CTA First Division declared that the assessment of
Internal Revenue Taxes against PDI has already prescribed based on the three-year prescriptive
period.

CTA FIRST DIVISION:

The CTA First Division ruled that the period of limitation in the assessment and
collection of taxes is governed by Sec. 203 of the NIRC which provides that Internal
Revenue Taxes shall be assessed within 3 years after the last day prescribed by law for
filing of the return, and no proceeding in court without assessment for the collection of
such taxes shall be begun after the expiration of such period.

In sum, the CTA First Division granted the petition for review and ordered that the
Letter Notice for calendar year 2004 issued by thee BIR be cancelled and set aside.

ISSUES:
1. Whether the assessment of the BIR against PDI has already prescribed.

RULING:
1. Yes. Under Section 203 of the NIRC, the prescriptive period to assess is set at three
years. This rule is subject to the exceptions provided under Section 222 of the NIRC. The
exceptions include (a) In the case of a false or fraudulent return with intent to evade tax
or of failure to file a return, the tax may be assessed, or a proceeding in court for the
collection of such tax may be filed without assessment, at any time within ten (10) years
after the discovery of the falsity, fraud or omission. The court, however in its past
decisions, ruled that mere understatement of tax is not itself proof of fraud for purposes
of tax evasion. 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.

The waivers executed by PDI were meant to extend the three-year prescriptive period
however, due to its defects, it cannot legally extend the period within which the BIR
should assess and collect from PDI. Section 222(b) of the NIRC provides that the period
to assess and collect taxes may only be extended upon a written agreement between the
CIR and the taxpayer executed before the expiration of the three-year period. There are
certain formalities however, that must be met to validate the waivers. The waiver must
be:
a. In a prescribed form indicating the expiry date of the period agreed upon to
assess/collect
b. Signed by the taxpayer or his duly authorized representative
c. Duly notarized
d. CIR or the revenue official authorized by him must sign the waiver indicating
that the BIR has accepted and agreed to the waiver. Date of acceptance must
be indicated
e. Date of execution and acceptance
 f. Executed in three copies, original copy attached to the docket of the case,
second for the taxpayer and the third for the office accepting the waiver.

CIR failed to provide the office accepting the first and second waivers with their
respective third copies as the CTA found them still attached to the docket of the case. The
third waiver was not executed in three copies. Hence, these waivers did not validly
extend the three-year prescriptive period within which to assess/collect taxes from the
PDI. Clearly, the defects in the Waivers resulted to the non-extension of the period to
assess or collect taxes, and made the assessments issued by the BIR beyond the three-
year prescriptive period void.

PETITION IS DENIED.