[G.R. No. 78953. July 31, 1991.

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. MELCHOR J. JAVIER, JR. and THE COURT OF TAX
APPEALS, respondents.

Elison G. Natividad for accused-appellant.

ID.; ID.; FILING OF FRAUDULENT RETURN; MUST BE ACTUAL AND INTENTIONAL THROUGH WILLFUL AND
DELIBERATE MISLEADING OF THE GOVERNMENT AGENCY. In Aznar v. Court of Tax Appeals (L-20569,
promulgated on August 23, 1974, 58 SCRA 519), fraud in relation to the filing of income tax return, was
discussed in this manner: . . . 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. It necessarily follows that a mere mistake cannot be considered as
fraudulent intent, and if both petitioner and respondent Commissioner of Internal Revenue committed
mistakes in making entries in the returns and in the assessment, respectively, under the inventory
method of determining tax liability, it would be unfair to treat the mistakes of the petitioner as tainted
with fraud and those of the respondent as made in good faith. Fraud is never imputed and the courts
never sustain findings of fraud upon circumstances which, at most, create only suspicion and the mere
understatement of a tax is not itself proof of fraud for the purpose of tax evasion.

3. ID.; ID.; ID.; NOT PRESENT IN CASE AT BAR. In the case at bar, there was no actual and
intentional fraud through willful and deliberate misleading of the government agency concerned, the
Bureau of Internal Revenue, headed by the herein petitioner. The government was not induced to give
up some legal right and place itself at a disadvantage so as to prevent its lawful agents from proper
assessment of tax liabilities because Javier did not conceal anything. Error or mistake of law is not fraud.
The petitioner's zealousness to collect taxes from the unearned windfall to Javier is highly
commendable. Unfortunately, the imposition of the fraud penalty in this case is not justified by the
extant facts. Javier may be guilty of swindling charges, perhaps even for greed by spending most of the
money he received, but the records lack a clear showing of fraud committed because he did not conceal
the fact that he had received an amount of money although it was a "subject of litigation." As ruled by
respondent Court of Tax Appeals, the 50% surcharge imposed as fraud penalty by the petitioner against
the private respondent in the deficiency assessment should be deleted.

[G.R. No. 72443. January 29, 1988.]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. AIR INDIA and THE COURT OF TAX APPEALS,
respondents.

We have gone through the allegations of the petitioner as well as the Memorandum submitted by the
Solicitor General on behalf of the Commissioner and on the basis of the same. We are not convinced
that the private respondent can be considered to have willfully neglected to file the required tax return
thereby warranting the imposition of the 50% fraud penalty provided in Section 72. At the most, there is
the barren claim that such failure was fraudulent in character, without any evidence or justification for
the same. The willful neglect to file the required tax return or the fraudulent intent to evade the
payment of taxes, considering that the same is accompanied by legal consequences, cannot be
presumed. At this point, We call attention to the pronouncement of this Court in Aznar v. Court of Tax
Appeals, 11 to wit

"The lower court's conclusion regarding the existence of fraudulent intent to evade payment of taxes
was based merely on a presumption and not on evidence establishing a willful filing of false and
fraudulent returns so as to warrant the imposition of the fraud penalty. 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 give up some legal right. Negligence,
whether slight or gross, is not equivalent to the fraud with intent to evade the tax contemplated by the
law. It must amount to intentional wrongdoing with the sole object of avoiding the tax. It necessarily
follows that a mere mistake cannot be considered as fraudulent intent, and if both petitioner and
respondent Commissioner of Internal Revenue committed mistakes in making entries in the returns and
in the assessment, respectively, under the inventory method of determining tax liability, it would be
unfair to treat the mistakes of the petitioner as tainted with fraud and those of the respondent as made
in good faith."

[C.T.A. EB CRIM. NO. 006. December 3, 2010.]

(C.T.A. CRIM. CASE NOS. O-033 & O-034)

PEOPLE OF THE PHILIPPINES, respondent, vs. GLORIA V. KINTANAR, petitioner.

For purposes of determining merely the civil liability of the taxpayer for fraud penalties arising from
willful failure to file returns, the Supreme Court, in the case of Commissioner of Internal Revenue vs. Air
India, 19 ruled:

The tax liability of the private respondent thus settled, We come now to the propriety of the 50%
surcharge and the interest imposed upon it by the Commissioner of Internal Revenue.

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

"Sec. 72. Surcharges for failure to render returns and for rendering false and fraudulent returns.
In case of willful neglect to file the return or list required under this Title within the time prescribed
by law, or in case a false or fraudulent return or list is willfully made, the Commissioner of Internal
Revenue shall add to the tax or to the deficiency tax, in case any payment has been made on the basis of
such return before the discovery of the falsity or fraud, a surcharge of fifty per centum of the amount of
such tax or deficiency tax. In case of any failure to make and file a return or list within the time
prescribed by law or by the Commissioner or other internal revenue officer, not due to willful neglect,
the Commissioner of Internal Revenue shall add to the tax twenty-five per centum of its amount, except
that, when a return is voluntarily and without notice from the Commissioner or other officer filed after
such time, and it is shown that the failure to file it was due to a reasonable cause, no such addition shall
be made to the tax. The amount so added to any tax shall be collected at the same time in the same
manner and as part of the tax unless the tax has been paid before the discovery of the neglect, falsity, or
fraud, in which case the amount so added shall be collected in the same manner as the tax."

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

We have gone through the allegations of the petitioner as well as the Memorandum submitted by the
Solicitor General on behalf of the Commissioner and on the basis of the same. We are not convinced
that the private respondent can be considered to have willfully neglected to file the required tax return
thereby warranting the imposition of the 50% fraud penalty provided in Section 72. At the most, there is
the barren claim that such failure was fraudulent in character, without any evidence or justification for
the same. The willful neglect to file the required tax return or the fraudulent intent to evade the
payment of taxes, considering that the same is accompanied by legal consequences, cannot be
presumed. At this point, We call attention to the pronouncement of this Court in Aznar v. Court of Tax
Appeals, to wit

"The lower court's conclusion regarding the existence of fraudulent intent to evade payment of taxes
was based merely on a presumption and not on evidence establishing a willful filing of false and
fraudulent returns so as to warrant the imposition of the fraud penalty. 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 give up some legal right. Negligence,
whether slight or gross, is not equivalent to the fraud with intent to evade the tax contemplated by the
law. It must amount to intentional wrongdoing with the sole object of avoiding the tax. It necessarily
follows that a mere mistake cannot be considered as fraudulent intent, and if both petitioner and
respondent Commissioner of Internal Revenue committed mistakes in making entries in the returns and
in the assessment, respectively, under the inventory method of determining tax liability, it would be
unfair to treat the mistakes of the petitioner as tainted with fraud and those of the respondent as made
in good faith." TIDcEH

There being no cogent basis to find willful neglect to file the required tax return on the part of the
private respondent, the 50% surcharge or fraud penalty imposed upon it is improper

Based on the Supreme Court case of Aznar vs. [C.T.A. EB CASE NO. 300. September 12, 2008.]

(C.T.A. Case No. 6549)

CORPORATE INVESTMENTS PHILIPPINES, INC., petitioner, vs. COMMISSIONER OF INTERNAL REVENUE,

respondent.

DECISION
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 (1) falsity, (2) fraud, (3) omission. 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 aggregates 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. 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. 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 aggregates 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. 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. EDCcaS

The ordinary period of prescription of 5 years within which to assess tax liabilities under Sec. 331 [now
Section 203] 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 provided for in Sec. 332 (a) [now Section 222a)] NIRC, from the time of the discovery of the
falsity, fraud or omission even seems to be inadequate and should be the one enforced.

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. (Emphasis
Supplied).

Thus, the difference between "false return" and "fraudulent return" is emphasized in this case. False
return implies deviation from the truth, whether intentional or not; fraudulent return implies intentional
or deceitful entry with intent to evade the taxes due.

in the case of Estate of Fidel F. Reyes and Estate of Teresita R. Reyes vs. Commissioner of Internal
Revenue. 3 Pertinent portion of Reyes case is quoted as follows:

Petitioners submit that the tax returns are not false or fraudulent in accordance with Section 222 of the
1997 NIRC. There was no attempt on their part to conceal any vital information affecting their taxability.
They merely committed a mistake as shown in the following circumstances: a) utilization of the market
value as per tax declaration of the properties instead of the zonal values in determining the gross value
of the estates; b) erroneous classification of some properties into conjugal and/or capital/paraphernal;
(c) miscalculation of vanishing deductions in the estate tax return of Teresita R. Reyes; and (d)
misdeclaration of the properties which should not have comprised the estate of Fidel Reyes.

According to the petitioners, "intention to evade taxes" under Section 222(a) of the 1997 NIRC refers to
both false and fraudulent return. Error or mistake of law is not fraud. The final assessment notice (FAN)
dated November 29, 2002 was made after four (4) years and 11 months from the date of the filing of the
estate tax return of the estate of Fidel Reyes on December 29, 1997; while respondent issued the FAN
against the estate of Teresita Reyes on November 29, 2002 or three (3) years nine (9) months and
twenty eight (28) days from February 24, 1999 which was the filing of the estate tax return of the latter.
Due to the absence of any falsity or fraudulent intent in the filing of the returns, respondent was
supposed to assess petitioners of deficiency estate taxes within a period of three (3) years from the
filing of the respective estate tax returns. Thus, respondent is already barred from assessing petitioners
of deficiency/delinquency estate taxes. CDAEHS

[C.T.A. EB CASE NO. 189. March 21, 2007.]

(C.T.A. Case No. 6747)

ESTATE OF FIDEL F. REYES and ESTATE OF TERESITA R. REYES, petitioners, vs. COMMISSIONER OF
INTERNAL REVENUE, respondents.

Section 248 (B) imposes the surcharge of fifty percent (50%) only in two instances. First, in case of willful
neglect to file the return within the period prescribed, and second, in case a false or fraudulent return is
willfully made. Thus, it is not enough that the taxpayer failed to file the required tax return or that the
return is false to justify the imposition of the 50% for fraud. The law is clear that "a false or fraudulent
return is willfully made". It must be emphasized that respondent did not present evidence to directly
prove that there was a willful intention on the part of petitioners to evade the payment of taxes. What is
evident in this case is the negligence and mistake of the petitioners in the interpretation of the law that
caused the deficiencies found by the respondent in his assessments. However, We find no actual and
intentional fraud through willful and deliberate misleading of the government agency concerned, the
Bureau of Internal Revenue. The government was not induced to give up some legal right and place
itself at a disadvantage so as to prevent its lawful agents from proper assessment of tax liabilities
because petitioners did not conceal anything. Error or mistake of law is not fraud (Commissioner of
Internal Revenue vs. Javier, Jr., 199 SCRA 824).

The word "willfully" carries the idea, when used in connection with an act forbidden by law, that the act
must be done knowingly or intentionally; that, with knowledge, the will consented to, designed, and
directed the act (US. vs. Bull, 15 Phil. 19). Further, a willful act may be described as one done
intentionally, knowingly, and purposely, without justifiable excuse, as distinguished from an act done
carelessly, thoughtlessly, heedlessly, or inadvertently. A willful act differs essentially from a negligent
act. The one is positive and the other negative (Black's Law Dictionary, 6th Edition, p. 1599). The
Supreme Court has ruled that the word willful in a statute means "not merely voluntary but with a bad
purpose; in other words, corruptly" (US vs. Ah Chong, 15 SCRA 498) and "premeditated; malicious; done
with intent, or with bad motive or purpose, or with indifference to the natural consequence"
(Commissioner of Internal Revenue vs. Court of Appeals, 257 SCRA 224). ASHaTc

[CA-G.R. SP No. 70025. April 19, 2004.]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. AYALA HOTELS, INC., respondent.

In order to render a return made by a taxpayer a "false return" within the meaning of Section 222, of the
Tax Code, there must appear, a design to mislead or deceive on the part of the taxpayer, or at least
culpable negligence. A mistake, not culpable in respect of its value would not constitute a false return.
14

Moreover, the factual setting of the Aznar Case is entirely different from that of the case at bar. In the
said case, the taxpayer was assessed deficiency income taxes for the years 1946 to 1951, covering more
than five taxable years. On the other hand, in this case, respondent was assessed deficiency income
taxes only for the year 1993.

There is a false or fraudulent return if any of the following are present:

1. There is intentional substantial under declaration of income.

2. There is intentional substantial overstatement of deductions.

3. There is intentional under declaration of selling price and overvaluation of cost or property sold.

4. Recurrence of the understatement of income or overstatement of deductions for more than one
taxable year. (emphasis supplied) 15

In the Aznar Case the taxpayer undoubtedly filed several false tax returns warranting the application of
the ten-year prescriptive period. Clearly, in this case, even if respondent made an understatement of
income in its ITR, the same cannot constitute a "false" or "fraudulent" return, since the subject
deficiency assessment pertains only to one taxable year. Moreover, no proof was presented to show
that such understatement of income was done intentionally to evade taxes.