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Philippine National Oil Company v. CA liability should have been collected in full.

When this
CIR vs. PASCOR GR No. 109976/112800, 26 April 2005 was denied by the BIR, he filed a motion for
309 SCRA 402 reconsideration.
GR No. 128315 June 29, 1999 LEGAL DOCTRINE:  Thereafter, while his MR was pending, Savellano filed a
"An assessment is not necessary before a criminal charge can be petition for review with the CTA alleging that BIR
filed."  The discretionary power of the BIR Commissioner to Commissioner Tan acted “with grave abuse of
enter into compromises cannot be superior over the discretion and/or whimsical exercise of jurisdiction” in
FACTS: The BIR examined the books of account of Pascor Realty power of judicial review by the courts, his authority to entering into a compromise agreement that resulted in
and Devt Corp for years 1986, 1987 and 1988, from which a tax compromise granted to the BIR Commissioner is never “a gross and unconscionable diminution” of his reward.
liability of 10.5 Million Pesos was found. Based on the meant to be absolute, uncontrolled and unrestrained.  Years after, the new BIR commissioner demanded that
recommendations of the examiners, the CIR filed an information PNB pay the deficiency withholding tax on PNOC’s
with the DOJ for tax evasion against the officers of Pascor. Upon FACTS: money placements. With this, Savellano filed a motion
receipt of the subpoena, the latter filed an urgent request for to withdraw his motion for suspension of the
reconsideration/reinvestigation with the CIR, which was  In a sworn statement by private respondent Tirso proceeding since the BIR already resolved his MR.
immediately denied upon the ground that no formal assessment Savellano to the BIR, Savellano informed BIR that PNB  CTA rendered a decision declaring the compromise
has yet been issued by the Commisioner. Pascor elevated the had failed to withhold the 15% final tax on interest agreement between BIR, PNOC and PNB to be without
CIR's decision to the CTA on a petition for review. The CIR filed a earnings and/or yields from the money placements of force and effect, and directed the BIR to enforce the
Motion to Dismiss on the ground of lack of jurisdiction of CTA as PNOC with the said bank in violation of PD 1931, which tax assessment it issued against PNB.
there was no formal assessment made against the respondents. withdrew all tax exemptions of GOCCs.  On appeal, the CA affirmed the decision of the CTA.
The CTA dismissed the motion, hence this petition.  Thereafter, BIR requested to PNOC to settle its liability Hence, this petition.
for taxes on the interests earned by its money
ISSUE: Is a formal assessment necessary in the filing of a criminal placements with PNB and which PNB did not withhold. ISSUE:
complaint?  PNOC wrote to the BIR and made an offer to
compromise its tax liability. It proposed to set-off its Whether the Court of Tax Appeals had jurisdiction to question
HELD: No. Section 222 of the NIRC states that an assessment is tax liability against a claim for tax refund/credit of the compromise agreement entered into by the Commissioner of
not necessary before a criminal charge can be filed. This is the NAPOCOR, then pending with the BIR. The amount of International Revenue. YES, the CTA had jurisdiction to question
general rule. Private respondents failed to show that they are the claim for tax refund/credit was supposedly a the compromise agreement.
entitled to an exception. Moreover, the criminal charge need receivable amount of PNOC from NAPOCOR.
only be supported by a prima facie showing of failure to file a  Soonafter, BIR sent a demand letter to PNB, as RATIO
required return. This fact need not be proven by an assessment. withholding agent, for the payment of the final tax on
The issuance of an assessment must be distinguished from the interest earnings and/or yields from PNOC’s money  It is generally true that purely administrative and
the filing of a complaint. Before an assessment is issued, there is, placements with the bank, PNOC was informed of said discretionary functions may not be interfered with by
by practice, a pre-assessment notice sent to the taxpayer. The demand letter to PNB. the courts; but when the exercise of such functions by
taxpayer is then given a chance to submit position papers and  Hence, in another letter, PNOC reiterated its proposal the administrative officer is tainted by a failure to
documents to prove that the assessment is unwarranted. If the to settle its tax liability through the set-off earlier abide by the command of the law, then it is incumbent
commissioner is unsatisfied, an assessment signed by him or her suggested, to which the BIR replied that the proposal on the courts to set matters right, with this Court
is then sent to the taxpayer informing the latter specifically and for set off was premature since NAPOCOR’s claim was having the last say on the matter. The manner by
clearly that an assessment has been made against him or her. In still under process. which BIR Commissioner Tan exercised his
contrast, the criminal charge need not go through all these. The  PNOC made another offer to the BIR to compromise its discretionary power to enter into a compromise was
criminal charge is filed directly with the DOJ. Thereafter, the tax liability by paying 30% of the basic tax due in brought under the scrutiny of the CTA amidst
taxpayer is notified that a criminal case had been filed against accordance with E0 44. BIR accepted the compromise. allegations of “grave abuse of discretion and/or
him, not that the commissioner has issued an assessment. It  Privant respondent Savellano received an informer’s whimsical exercise of jurisdiction.” The discretionary
must be stressed that a criminal complaint is instituted not to reward from the BIR in installments. Thereafter, power of the BIR Commissioner to enter into
demand payment, but to penalize the taxpayer for violation of Savellano demanded the payment of the remaining compromises cannot be superior over the power of
the Tax Code. balance of his reward, but the BIR contended that it judicial review by the courts. The discretionary
already fully paid the informer’s reward, which is authority to compromise granted to the BIR
equivalent to 15% of the amount of tax actually Commissioner is never meant to be absolute,
collected by the BIR pursuant to the compromise uncontrolled and unrestrained. No such unlimited
agreement with PNOC. power may be validly granted to any officer of the
 Savellano submitted another letter to the BIR government, except perhaps in cases of national
questioning the legality of the compromise agreement emergency.
it entered into with PNOC, and claimed that the tax
 In this case, the BIR Commissioner’s authority to of its products. For this purpose, it is required to file an Import paper, document or any evidence gathered by internal revenue
compromise, whether under E.O. No. 44 or Section 246 Entry and Internal Revenue Declaration (Consumption Entry) officers from other taxpayers who had personal transactions or
of the NIRC of 1977, as amended, can only be exercised with the Bureau of Customs under Section 1301 of the Tariff and from whom the subject taxpayer received any income; and
under certain circumstances specifically identified in Customs Code. Sometime in October 1989, Lt. Vicente Amoto, record, data, document and information secured from
said statutes. The BIR Commissioner would have to Acting Chief of Counter-Intelligence Division of the Economic government offices or agencies, such as the SEC, the Central
exercise his discretion within the parameters set by the Intelligence and Investigation Bureau (EIIB), received confidential Bank of the Philippines, the Bureau of Customs, and the Tariff
law, and in case he abuses his discretion, the CTA may information that the respondent had imported synthetic resin and Customs Commission. However, the best evidence
correct such abuse if the matter is appealed to them. amounting to P115,599,018.00 but only declared P45,538,694.57. obtainable under Section 16 of the 1977 NIRC, as amended, does
Thus, Hentex receive a subpoena to present its books of account not include mere photocopies of records/documents. The
 Although the general rule is that compromises are to which it failed to do. The bureau cannot find any original copies petitioner, in making a preliminary and final tax deficiency
be favored, and that compromises entered into in good of the products Hentex imported since the originals were eaten assessment against a taxpayer, cannot anchor the said
faith cannot be set aside, this rule is not without by termites. Thus, the Bureau relied on the certified copies of the assessment on mere machine copies of records/documents.
qualification. A court may still reject a compromise or respondent’s Profit and Loss Statement for 1987 and 1988 on file Mere photocopies of the Consumption Entries have no probative
settlement when it is repugnant to law, morals, good with the SEC, the machine copies of the Consumption Entries, weight if offered as proof of the contents thereof. The reason for
customs, public order, or public policy. The Series of 1987, submitted by the informer, as well as excerpts this is that such copies are mere scraps of paper and are of no
compromise agreement between the BIR and PNOC from the entries certified by Tomas and Danganan. The case was probative value as basis for any deficiency income or business
was contrary to law having been entered into by BIR submitted to the CTA which ruled that Hentex have tax taxes against a taxpayer.
Commissioner Tan in excess or in abuse of the deficiency and is ordered to pay, per investigation of the Bureau.
authority granted to him by legislation. E.O. No. 44 and The CA ruled that the income and sales tax deficiency Companies exempt from zero-rate tax
the NIRC of 1977, as amended, had identified the assessments issued by the petitioner were unlawful and baseless
situations wherein the BIR Commissioner may since the copies of the import entries relied upon in computing
compromise tax liabilities, and none of these situations the deficiency tax of the respondent were not duly authenticated
existed in this case. by the public officer charged with their custody, nor verified
under oath by the EIIB and the BIR investigators.
 In the case at bar, the compromise was contrary to
public policy. The primary duty of the BIR is to collect Issue: Whether or not the final assessment of the petitioner
taxes since taxes are the lifeblood of the Government against the respondent for deficiency income tax and sales tax
and their prompt and certain availability are imperious for the latter’s 1987 importation of resins and calcium
needs. In the present case, however, BIR Commissioner bicarbonate is based on competent evidence and the law.
Tan, by entering into the compromise agreement that
was bereft of any legal basis, would have caused the Held: Central to the second issue is Section 16 of the NIRC of
Government to lose almost P300 million in tax 1977, as amended which provides that the Commissioner of
revenues and would have deprived the Government of Internal Revenue has the power to make assessments and
much needed monetary resources. Allegations of good prescribe additional requirements for tax administration and
faith and previous execution of the terms of the enforcement. Among such powers are those provided in
compromise agreement on the part of PNOC would not paragraph (b), which provides that “Failure to submit required
be enough for this Court to disregard the demands of returns, statements, reports and other documents. – When a
law and public policy. Compromise may be the favored report required by law as a basis for the assessment of any
method to settle disputes, but when it involves taxes, it national internal revenue tax shall not be forthcoming within the
may be subject to closer scrutiny by the courts. A time fixed by law or regulation or when there is reason to believe
compromise agreement involving taxes would affect that any such report is false, incomplete or erroneous, the
not just the taxpayer and the BIR, but also the whole Commissioner shall assess the proper tax on the best evidence
nation, the ultimate beneficiary of the tax revenues obtainable.” This provision applies when the Commissioner of
collected. Internal Revenue undertakes to perform her administrative duty
of assessing the proper tax against a taxpayer, to make a return
COMMISSION OF INTERNAL REVENUE vs. HANTEX TRADING CO., in case of a taxpayer’s failure to file one, or to amend a return
INC already filed in the BIR. The “best evidence” envisaged in Section
G.R. No. 136975. March 31, 2005 16 of the 1977 NIRC, as amended, includes the corporate and
accounting records of the taxpayer who is the subject of the
Facts: Hantex Trading Co is a company organized under the assessment process, the accounting records of other taxpayers
Philippines. It is engaged in the sale of plastic products, it engaged in the same line of business, including their gross profit
imports synthetic resin and other chemicals for the manufacture and net profit sales. Such evidence also includes data, record,
Philippine Journalists, Inc. v. Commissioner of Internal Revenue, The waiver is not a unilateral act by the taxpayer or the BIR, but In Far East Bank and Trust Company v. Querimit, the Court
G.R. No. 162852, 16 December 2004 is a bilateral agreement between two parties to extend the
defined a certificate of deposit as a written acknowledgment by
24NOV period to a date certain. The conformity of the BIR must be made
] by either the Commissioner or the Revenue District Officer. This a bank or banker of the receipt of a sum of money on deposit
FACTS case involves taxes amounting to more than One Million Pesos which the bank or banker promises to pay to the depositor, to
The Revenue District Office of the Bureau of Internal Revenue (P1,000,000.00) and executed almost seven months before the the order of the depositor, or to some other person or his order,
(BIR) issued Letter of Authority for Revenue Officer Federico de expiration of the three-year prescription period. For this, RMO
whereby the relation of debtor and creditor between the bank
Vera, Jr. and Group Supervisor Vivencio Gapasin to examine No. 20-90 requires the Commissioner of Internal Revenue to sign
petitioner’s books of account and other accounting records for for the BIR. and the depositor is created.
internal revenue taxes. Revenue District Officer Jaime
Concepcion invited petitioner to send a representative to an In the case of Philippine Banking Corporation v. Commissioner of
informal conference for an opportunity to object and present CHINA BANKING CORP v CIR
Internal Revenue, the Court ruled that Special/Super Savings
documentary evidence relative to the proposed assessment. Petitioner, a universal banking corporation, was engaged in the
Petitioner’s Comptroller, LorenzaTolentino, executed a “Waiver Deposit Account (SSDA) has all the distinct features of a
transaction of accepting special savings deposits (SSD), otherwise
of the Statute of Limitation Under the National Internal Revenue certificate of deposit.
Code (NIRC)”. Records show that, it did not bear the date of known as Savings Plus Deposit.
acceptance, that petitioner was not furnished a copy of the In International Exchange Bank v. Commissioner of Internal
waiver, and the waiver was signed only by the Revenue District On 1999, petitioner received a Pre-Assessment Notice issued by Revenue, this Court held that a Savings Account-Fixed Savings
Officer. The tax liability exceeds One Million Pesos
the CIR for deficiency documentary stamp tax on SSDs for the Deposit is likewise subject to documentary stamp tax.
(P1,000,000.00).
taxable years 1994 and 1995. Subsequently, petitioner received a
ISSUE Final Assessment Notice. In this case, petitioners version of the special savings deposit is
Whether the waiver is in accordance with RMO No. 20-90 to
validly extend the three-year prescriptive period under the NIRC. called the Savings Plus Deposit Accounts. Petitioners Savings Plus
Petitioner filed a formal protest questioning the legality and Deposit is essentially the same as the Savings Account-Fixed
basis of both the PAN and the FAN. Petitioner argued that SSDs Savings Deposit in International, as well as the Special/Super
HELD are not liable for documentary stamp tax because by the very Savings Account in PBC wherein this Court ruled that said
NO. nature of the transaction which is just a variation of the regular
The waiver document is incomplete and defective and thus the accounts are subject to documentary stamp tax. The three
savings account, it is not taxable under Section 180 of the NIRC. accounts have the same features:
three-year prescriptive period was not tolled or extended and
continued to run. Consequently, the Assessment/Demand was 1. Amount deposited is withdrawable anytime,
invalid because it was issued beyond the three (3) year period. In Petitioner filed a petition with the CIR. The CIR affirmed the 2. The same is evidenced by a passbook,
the same manner, Warrant of Distraint and/or Levy which assessments for deficiency documentary stamp on the SSDs 3.
petitioner received thereafter is also null and void for having The rate of interest offered is the prevailing market
been issued pursuant to an invalid assessment. covering the taxable years 1994 to 1997. rate, provided the depositor would maintain his minimum
The NIRC, under Sections 203 and 222, provides for a statute of balance in thirty (30) days at the minimum, and should he
limitations on the assessment and collection of internal revenue withdraw before the period, his deposit would earn the regular
Petitioners then appealed to the CTA, in which the CTA upheld
taxes in order to safeguard the interest of the taxpayer against savings deposit rate.
the deficiency documentary stamp tax on the SSDs.
unreasonable investigation. Unreasonable investigation
contemplates cases where the period for assessment extends
indefinitely because this deprives the taxpayer of the assurance ISSUE: Whether Special Savings Deposits are subject to
that it will no longer be subjected to further investigation for documentary stamp tax. The wordings of the Temporary Restraining Order suspended
taxes after the expiration of a reasonable period of time. the implementationof the E-VAT law in its entirety, but not the
A waiver of the statute of limitations under the NIRC, to a certain collection of 10% VAT on service under the National Internal
extent, is a derogation of the taxpayers’ right to security against RULING: Revenue Code.
prolonged and unscrupulous investigations and must therefore
be carefully and strictly construed. xxx Thus, the law on No. Section 180 of the NIRC, a documentary stamp tax shall be By reason of a legislative franchise, Respondent Philippine Global
prescription, being a remedial measure, should be liberally Communications, Inc. (PGCI) constructs, maintains and
collected on certificates of deposits drawing interest. The CTA
construed in order to afford such protection. operates communications system subject to 3% franchise tax
The waiver is also defective from the government side because it held that petitioners SSDs fall under the category of certificates
under the Tax Code. However, the said provision of the Tax Code
was signed only by a revenue district officer, not the of deposit drawing interest. on franchise tax was amended by Section 12 of the Expanded
Commissioner, as mandated by the NIRC and RMO No. 20-90. Value Added Tax Law (E-VAT Law) which omitted the 3%
franchise tax imposed upon a telecommunications company. franchise tax it paid prior to the effectivity with Section 228 of the Tax Code; and that the 1997 and 1998
A Temporary Restraining Order (TRO) was subsequently issued and implementation of the VAT would create a vacuum and assessments on deficiency withholding tax on compensation
by the Court in the consolidated cases of Tolentino et al. v. thereby deprive the government from collecting either the VAT have not prescribed.
Secretary of Finance, et al., “ordering all the respondents to or the franchise tax
cease and desist from enforcing and/or implementing the E-VAT Petitioner moved for reconsideration.
Law.” By reason of the suspension of the E- VAT Law, PGCI filed a
claim for tax refund before Respondent Commission of Internal In a Resolution dated July 28, 2010, the CTA EB denied the
Revenue (CIR) stating therein that upon the effectivity of the motion.
E-VAT Law, it was no longer required to pay the 3% franchise tax. Samar-I Electric Cooperative (SIEC) v. CIR
Due to the inaction of CIR, PGCI filed a case against it before the GR 193100 Petitioner contends that the subject 1997 and 1998 withholding
Court of Tax Appeals (CTA). CTA ruled that BIR should refund the December 10, 2014 tax assessments on compensation were issued beyond the
3% to PGCI. FACTS: Samar-I Electric Cooperative, Inc. (Petitioner) is an prescriptive period of three years under Section 203 of the NIRC
electric cooperative, with principal office at Barangay Carayman, of 1997. Under this section, the government is allowed a period
ISSUE: Calbayog City. of only three years to assess the correct tax liability of a
On July 13, 1999 and April 17, 2000, petitioner filed its 1998 and
taxpayer, viz.:
Whether or not PGCI was exempted from paying franchise taxes 1999 income tax returns, respectively. Petitioner filed its 1997,
during the effectivity of the TRO suspending the enforcement of 1998, and 1999 Annual Information Return of Income Tax SEC. 203. Period of Limitation Upon
the E-VAT Law. Withheld on Compensation, Expanded and Final Withholding Assessment and Collection. — Except as
Taxes on February 17, 1998, February 1, 1999, and February 4,
provided in Section 222, internal revenue
2000, in that order.
HELD: taxes shall be assessed within three (3)
On November 13, 2000, respondent issued a duly signed Letter
of Authority (LOA) covering the examination of petitioner's years after the last day prescribed by law
Under Section 12 of the E-VAT Law, the 3% franchise tax on for the filing of the return, and no
books of account and other accounting records for income and
“telephone and/or telegraph systems and radio broadcasting proceeding in court without assessment
stations” to which category PGCI belongs was omitted. Under withholding taxes for the period 1997 to 1999. Petitioner
cooperated in the audit and investigation conducted by the for the collection of such taxes shall be
Section 3 of the E-VAT Law, however, PGCI’s sale of services is
subject to VAT, thus, under the E-VAT Law, PGCI ceased to be Special Investigation Division of the BIR by submitting the begun after the expiration of such
liable to pay the 3% franchise tax. It instead is made liable to pay required documents on December 5, 2000. On October 19, 2001, period: Provided, That in a case where a
10% VAT on sale of services. respondent sent a Notice for Informal Conference which was return is filed beyond the period
The effectivity of the E-VAT Law was, however, suspended, by received by petitioner in November 2001; indicating the prescribed by law, the three (3)-year
this Court when it issued a TRO pending the resolution of the period shall be counted from the day the
allegedly income and withholding tax liabilities of petitioner for
Tolentino et al. cases challenging the constitutionality of the law. return was filed. For purposes of this
The wording of the order leaves no doubt that what was 1997 to 1999. Attached to the letter is a summary of the report,
with an explanation of the findings of the investigators. In Section, a return filed before the last day
restrained by the TRO was the implementation of the E-VAT law
in its entirety. response, petitioner sent a letter dated November 26, 2001 to prescribed by law for the filing thereof
That the provisions of the Tax Code, prior to their amendment by respondent maintaining its indifference to the latter's findings shall be considered as filed on such last
the E-VAT Law, were to apply in the interim, that is, while the and requesting details of the assessment.On December 13, 2001, day.
TRO in Tolentino et al. was effective, is clearly reflected in
petitioner executed a Waiver of the Defense of Prescription Relying on Section 203, petitioner argues that the
Revenue Memorandum Circular No. 27-94 issued by CIR which
under the Statute of Limitations, good until March 29, 2002. subject deficiency tax assessments issued by
directed all internal revenue officers to comply with the
following directives, to wit: “3. All VAT and non-VAT persons Consequently, on September 15, 2002, petitioner received a respondent on September 15, 2002 was issued beyond
shall be governed by the provisions of the National Internal demand letter and assessments notices (Final Assessment the three-year prescriptive period. Petitioner filed
Revenue Code prior to its amendment by Republic Act No. 7716 Notices) for the alleged 1997, 1998, and 1999 deficiency its Annual Information Return of Income Tax Withheld
x x x x 5. All other amendments of the NIRC made by RA 7716 withholding tax in the amount of [P]3,760,225.69, as well as on Compensation, Expanded and Final Withholding
shall be considered ineffective until the Supreme Court has deficiency income tax covering the years 1998 to 1999 in the
declared otherwise.” Taxes on the following dates: on February 17, 1998 for
amount of [P]440,545.71, or in the aggregate amount of the taxable year 1997; and on February 1, 1999 for the
With the issuance of the TRO, the enforcement
and/or implementation of the entire E-VAT law was stopped. The [P]4,200,771.40. year taxable 1998. Thus, if the period prescribed under
abolition of the 3% franchise tax on telecommunications Section 203 of the NIRC of 1997 is to be followed, the
CTA EB: It ruled that SAMELCO-I is exempted in the payment of
companies, and its replacement by the 10% VAT, was effective three-year prescriptive period to assess for the taxable
and implemented only on January 1, 1996. Thus, PGCI’s claim for the Minimum Corporate Income Tax (MCIT); that due process
was observed in the issuance of the assessments in accordance years 1997 and 1998 should have ended on February
refund of the franchise tax must fail. To grant a refund of the
16, 2001 and January 31, 2002, respectively.|||
ISSUE: contrariwise, with respondent Court of Tax taxable years 1997 to 1999 — resulting to its filing of
Appeals concluding that the very the subject false returns. Petitioner failed to refute this
(1) won the 1997 and 1998 assessments on
"substantial underdeclarations of income finding, both in fact and in law, before the courts a
withholding tax on compensation were issued within
for six consecutive years eloquently quo.
the prescriptive period provided by law;
demonstrate the falsity or fraudulence of
HELD: the income tax returns with an intent to
evade the payment of tax." CIR v PH DAILY INQUIRER
(1) YES. While petitioner is correct that Section 203 sets the efore the Court is a petition for review[1] as
three-year prescriptive period to assess, the following To our minds we can dispense with these
exceptions are provided under Section 222 of the NIRC of controversial arguments on facts, although PDI is a corporation engaged in the business of newspaper
we do not deny that the findings of facts publication.
1997, viz.:
by the Court of Tax Appeals, supported as On 15 April 2005, it filed its Annual Income Tax Return for
SEC. 222. Exceptions as to Period of they are by very substantial evidence, taxable year 2004.
Limitation of Assessment and Collection of carry great weight, by resorting to a proper
Taxes. — interpretation of Section 332 of the NIRC. On 10 August 2006, PDI received a letter dated 30 June 2006
from Region 020 Large Taxpayers' Service of BTR
We believe that the proper and reasonable
(a) In the case of a false or fraudulent
interpretation of said provision should be BIR alleged that based on the computerized matching it
return with intent to evade tax or of
that in the three different cases of (1) false conducted on the information and data provided by third party
failure to file a return, the tax may
return, (2) fraudulent return with intent to sources against PDI's declaration on its VAT Returns for taxable
be assessed, or a proceeding in court year 2004, there was an underdeclaration of domestic purchases
evade tax, (3) failure to file a return, the
for the collection of such tax may be from its suppliers amounting to P317,705,610.52.
tax may be assessed, or a proceeding in
filed without assessment, at any
court for the collection of such tax may be In response, PDI submitted reconciliation reports, attached to its
time within ten (10) years after the
begun without assessment, at any time letters dated 22 August 2006 and 19 December 2006, to
discovery of the falsity, fraud or
within ten years after the discovery of the BIR-LTAID. On 21 March 2007, PDI executed a Waiver of the
omission: Provided,That in a fraud Statute of Limitation (First Waiver) consenting to the assessment
(1) falsity, (2) fraud, (3) omission. Our
assessment which has become final and/or collection of taxes for the year 2004 which may be found
stand that the law should be interpreted
and executory, the fact of fraud shall due after the investigation, at any time before or after the lapse
to mean a separation of the three different of the period of limitations fixed by Sections 203 and 222 of the
be judicially taken cognizance of in
situations of false return, fraudulent return National Internal Revenue Code (NIRC) but not later than 30 June
the civil or criminal action for the
with intent to evade tax, and failure to file 2007.
collection thereof.
a return is strengthened immeasurably by
In a Preliminary Assessment Notice (PAN) dated 15 October 2007
In the case at bar, it was petitioner's substantial the last portion of the provision which issued by the BIR-LTAID, PDI was assessed for alleged deficiency
underdeclaration of withholding taxes in the amount of segregates the situations into three income tax and VAT for taxable year 2004
P2,690,850.91 which constituted the "falsity" in the different classes, namely "falsity," "fraud"
subject returns — giving respondent the benefit of the and "omission." That there is a difference PDI sought reconsideration of the PAN and expressed its
willingness to execute another Waiver (Third Waiver), which it
period under Section 222 of the NIRC of 1997 to assess between "false return" and "fraudulent
did on the same date, thus extending BIR's right to assess and/or
the correct amount of tax "at any time within ten (10) return" cannot be denied. While the first collect from it until 30 April 2008.
years after the discovery of the falsity, fraud or merely implies deviation from the truth,
omission."||| whether intentional or not, the second PDI received a Formal Letter of Demand dated 11 March 2008
implies intentional or deceitful entry with and an Audit Result/Assessment Notice from the BIR, demanding
The case of Aznar v. Court of Tax Appeals discusses what acts or for the payment of alleged deficiency VAT and income tax
intent to evade the taxes due.
omissions may constitute falsity, viz.:
On 16 May 2008, PDI filed its protest. On 12 December 2008, PDI
A careful examination of the evidence on record yields filed a Petition for Review against the Commissioner of Internal
Petitioner argues that Sec. 332 of the NIRC
to no other conclusion but that petitioner failed to Revenue (CIR) alleging that the 180-day period within which the
does not apply because the taxpayer did
withhold taxes from its employees' 13th month pay BIR should act on its protest had already lapsed.
not file false and fraudulent returns with
and other benefits in excess of thirty thousand pesos
intent to evade tax, while respondent On the basis of the consolidation and cross-referencing of third
(P30,000.00) amounting to P2,690,850.91 for the
Commissioner of Internal Revenue insists party information, discrepancy reports on sales and purchases
were generated to uncover under-declared income and The fraud contemplated by law is actual and not constructive. It
over-claimed purchases (goods and services). must be intentional fraud, consisting of deception willfully and
deliberately done or resorted to in order to induce another to
Section 222 of the NIRC provides the exceptions as regards to the give up some legal right. Negligence, whether slight or gross, is
provisions laid down under Section 203. In particular, as shown not equivalent to fraud with intent to evade the tax
under Section (1) thereof, the three (3) [year] period of limitation contemplated by law. It must amount to intentional wrong 颅
in making assessment shall not apply in cases where it involves doing with the sole object of avoiding the tax.
false or fraudulent return or in cases where there is failure to file
a return [by] the person obliged to file such return. Thus, while the filing of a fraudulent return necessarily implies
that the act of the taxpayer was intentional and done with intent
Such being the case, the three (3) [year] period of limitation for to evade the taxes due, the filing of a false return can be
the assessment of internal revenue tax liabilities reckoned from intentional or due to honest mistake.
the last day prescribed by law for the filing of the return shall not
apply in the case at hand for the simple reason that petitioner In this case, we do not find enough evidence to prove fraud or
falsely filed the return for taxable year 2004. intentional falsity on the part of PDLSince the case does not fall
under the exceptions, Section 203 of the NIRC should apply.
Petitioner emphasized that it is a service company deriving its
main source of income from newspaper and advertising sales, Waiver was not a unilateral act of the taxpayer; hence, the BIR
thus any understatement of expenses or purchases (also mostly must act on it, either by conforming to or by disagreeing with the
from services) does not mean it understated its sales. extension. A waiver of the statute of limitations, whether on
assessment or collection, should not be construed as a waiver of
The CTA First Division further ruled that Section 222(b) of the the right to invoke the defense of prescription but, rather, an
NIRC authorizes the extension of the original three-year agreement between the taxpayer and the BIR to extend the
prescriptive period by the execution of a valid waiver upon the period to a date certain, within which the latter could still assess
agreement in writing between the taxpayer and the BIR, or collect taxes due. The waiver does not imply that the taxpayer
provided: (1) the agreement was made before the expiration of relinquishes the right to invoke prescription unequivocally.
the three-year period and (2) the guidelines in the proper
execution of the waiver are strictly followed. Since the three Waivers in this case are defective, they do not
produce any effect and did not suspend the three-year
the CIR filed a petition for review on certiorari before this Court. prescriptive period under Section 203 of the NIRC.
Issues: Principles:
The CTA En Banc erred in ruling that respondent is not estopped
from raising the defense of prescription.

Ruling:

The CIR alleges that PDI filed a false or fraudulent return.

The CIR argues that the ten-year period starts from the time of
the issuance of its Letter Notice on 10 August 2006. As such, the
assessment made through the Formal Letter of Demand dated
11 March 2008 is within the prescriptive period.We do not agree.

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.

this Court ruled that fraud is never imputed. The Court stated
that it will not sustain findings of fraud upon circumstances
which, at most, create only suspicion.[25] The Court added that
the mere understatement of a tax is not itself proof of fraud for
the purpose of tax evasion.
maintains that it did not receive any communication examined. Considering the given facts, this
BPI v CIR from the CIR in reply to its protest letters. Court pronounced that—
Facts:
ACTS: ISSUE(S): x x x The act of requesting a reinvestigation
1. BPI is the surviving bank after its merger with Far East 1. WON the collection of the deficiency DST is barred by alone does not suspend the period. The
Bank. CIR issued a PAN on November 26, 1986. prescription. request should first be granted, in order to
2. BPI requested for the details of the amounts alleged in 2. WON BPI is liable for DST on its SWAP loan transactions. effect suspension. (Collector v. Suyoc
the 1986 deficiency taxes mentioned in the PAN. CIR HELD: Consolidated, supra; also Republic v. Ablaza,
issued an assessment/ demand notices for deficiency 1. YES. supra). Moreover, the Collector gave
withholding tax at source and DST involving the NO, since the action has already prescribed. appellee until April 1, 1949, within which to
amounts of P190,752,860.82 and P24,587,174.63 for submit his evidence, which the latter did
the years 1982 to 1986. RATIO: one day before. There were no impediments
3. April 20, 1989 – BPI filed a protest on the Issue No. 1 on the part of the Collector to file the
demand/assessment notices. BPI requested for an 1. The CIR has three years from the date of the actual collection case from April 1, 1949…
opportunity to present or submit additional filing of the tax return to assess a national internal
documentation on the swap transactions in connection revenue tax or to commence court proceedings for the
5. The Court went on to declare that the burden of proof
with the reinvestigation of the assessment. BPI collection thereof without an assessment. When it
that the request for reinvestigation had been actually
executed several Waivers of Statutes of Limitations, validly issues an assessment within the three-year
granted shall be on the CIR. Such grant may be
the last of which was effective until December 31, period, it has another three years within which to
expressed in its communications with the taxpayer or
1994. collect the tax due by distraint, levy, or court
implied from the action of the CIR or his authorized
4. Aug. 9, 2002 – CIR issued a final decision and ordered proceeding. The assessment of the tax is deemed made
representative in response to the request for
the cancellation of the deficiency withholding tax but and the 3 year period for collection of the assessed tax
reinvestigation.
the DST deficiency tax was retained. begins to run on the date the assessment notice had
6. There is nothing in the records of this case which
5. BPI received the notice of the decision on January 15, been released, mailed, or sent to the taxpayer.
indicates, expressly or impliedly, that the CIR had
2003. Thereafter, BPI filed a Petition for Review before 2. As applied to the present case, the CIR had three (3)
granted the request for reinvestigation filed by BPI.
the CTA. CTA denied the petition. Hence, BPI’s years from the time he issued assessment notices to
What is reflected in the records is the piercing silence
recourse to the SC. BPI on 7 April 1989 or until 6 April 1992 within which to
and inaction of the CIR on the request for
BPI Contentions: collect the deficiency DST. However, it was only on 9
reinvestigation, as he considered BPI’s letters of
-The right of the government to collect the DST had already August 2002 that the CIR ordered BPI to pay the
protest to be.
prescribed because the CIR failed to issue any reply deficiency.
7. In this case, BPI’s letters of protest and submission of
granting BPI’s request for reinvestigation, warranting 3. In order to determine whether the prescriptive period
additional documents pertaining to its SWAP
the conclusion that prescription had already set in. for collecting the tax deficiency was effectively tolled
transactions, which were never even acted upon, much
-CIR was not precluded from collecting the deficiency within by BPI’s filing of the protest letters dated 20 April and
less granted, cannot be said to have persuaded the CIR
3 years from the time the notice of assessment was 8 May 1989 as claimed by the CIR, we need to examine
to postpone the collection of the deficiency DST.
issued or even until the expiration of the last waiver of Section 320 of the Tax Code of 1977. In order to
8. The inordinate delay of the CIR in acting upon and
the statute of limitations signed by BPI. suspend the running of the prescriptive periods for
resolving the request for reinvestigation filed by BPI
CIR Contentions: assessment and collection, the request for
and in collecting the DST allegedly due from the latter
-(thru OSG) the prescriptive period was tolled by the protest reinvestigation must be granted by the CIR.
had resulted in the prescription of the government’s
letters filed by BPI which were granted and acted upon 4. In BPI v. Commissioner of Internal Revenue, the Court
right to collect the deficiency.
by the CIR. Thus, it was only upon BPI’s receipt of the emphasized the rule that the CIR must first grant the
Aug 2002 decision that the period to collect request for reinvestigation as a requirement for the
Issue No. 2 - Given the prescription of the government’s claim,
commenced to run again. suspension of the statute of limitations. The Court said:
we no longer deem it necessary to pass upon the validity of the
-Citing CIR vs. Suyoc, BPI is already estopped from raising
assessment.
the defense of prescription in view of its repeated In the case of Republic of the Philippines v.
requests for reinvestigation which allegedly included Gancayco, taxpayer Gancayco requested for CASE LAW/ DOCTRINE:
the CIR to delay the collection of the assessed tax. a thorough reinvestigation of the A request for reinvestigation, unacted upon by the BIR, does not
BPI’s rebuttal: assessment against him and placed at the suspend the running of the period for filing an action for
-BPI argues against the application of the Suyoc case on two disposal of the Collector of Internal Revenue collection. It must be shown that the request was granted or
points: first, it never induced the CIR to postpone tax all the evidences he had for such purpose; denied for the suspension of the action to kick in.
collection; second, its request for reinvestigation was yet, the Collector ignored the request, and
not categorically acted upon by the CIR within the the records and documents were not at all
3-year collection period after assessment. BPI
COMMISSIONER OF INTERNAL REVENUE vs. KUDOS the Suyoc case (i.e., when the delays were due to taxpayer’s acts)
METAL CORPORATION- Waiver of the Statute of As both parties are in bad faith, the SC granted the petition on
Limitations does not apply. the issue of the nullification of the formal letter of demand to
the CTA.

FACTS: Note: Requisites of a valid waiver: (i) acceptance date; (ii) expiry
CIR v LANCASTER
CIR assessed Kudos Metal Corporation for taxable year 1998. A date; (iii) signed by authorized officer of taxpayer and BIR; (iv) Facts:

Waiver of the Statute of Limitations was executed on December notarized; (v) fact of receipt must be indicated in the copies Petitioner Commissioner of Internal Revenue (CIR) is authorized
by law, among others, to investigate or examine and, if necessary,
2001. The CTA issued a Resolution canceling the issue assessments for deficiency taxes . On the other hand,
CIR v NEXT MOBILE respondent Lancaster Philippines, Inc. (Lancaster) is a domestic
assessment notices issued against Petitioner for having been FACTS: corporation established in 1963 and is engaged in the production,
issued beyond the prescriptive period as the waiver purportedly processing, and marketing of tobacco. In 1999, the Bureau of
Respondent filed with the BIR taxes for 2001. Respondent, Internal Revenue (BIR) issued Letter of Authority (LOA) No.
failed to (a) have the valid officer execute the same (i.e., only the through Sarmiento, their director of Finance, executed several 00012289 authorizing its revenue officers to examine Lancaster's
waivers of the statute of limitations to extend the prescriptive books of accounts and other accounting records for all internal
Assistant Commissioner signed it and not the CIR); (b) the date of perios of assessment for taxes. revenue taxes due from taxable year 1998 to an unspecified
acceptance was not indicated; (c) the fact of receipt by the date.
On 2005, respondent received from the BIR a PAN and a formal
taxpayer was not indicated in the original copy. letter of demand to pay deficiency income tax. The BIR denied After the conduct of an examination pursuant to the LOA, the
respondent's protest. BIR issued a Preliminary Assessment Notice (PAN)[8] which cited
Lancaster for: 1) overstatement of its purchases for the fiscal
ISSUE:
With the CTA, it was held that the demand was beyond the three year April 1998 to March 1999; and 2) noncompliance with the
year prescription period under the NIRC. That the case does not generally accepted accounting principle of proper matching of
Has the CIR’s right to assess prescribed? apply the 10 year prescripton period as there was not false cost and revenue.[9] More concretely, the BIR disallowed the
return by the respondent. Also, the waivers did not validly purchases of tobacco from farmers covered by Purchase Invoice
extend the prescription because of irregularities. Vouchers (PIVs) for the months of February and March 1998 as
deductions against income for the fiscal year April 1998 to March
HELD: ISSUE: Whether the period to pay has prescribed. 1999.

RULING: Lancaster replied[11] to the PAN contending, among other things,


YES. The requirements for a valid waiver as laid down in RMO that for the past decades, it has used an entire 'tobacco-cropping
NO. season' to determine its total purchases covering a one-year
20-90 and RDAO No. 5-01 are mandatory to give effect to Section period from 1 October up to 30 September of the following year
222 of the Tax Code. Specifically, the flaws in the waiver The SC held that a waiver of the statute of limitations must (as against its fiscal year which is from 1 April up to 31 March of
faithfully comply with RMO No. 20-90 and RDAO 05-01 in order the following year); that it has been adopting the 6-month timing
executed by Kudos Metal were as follows: (a) there was no to be valid. Sarmiento failed to show her authority to the BIR to difference to conform to the matching concept (of cost and
sign the waivers. revenue); and that this has long been installed as part of the
notarized written authority in favor of the signatory for the company's system and consistently applied in its accounting
company; (b) there is no stated date of acceptance by the The BIR were also at fault having to neglect their ministerial books.[12] Invoking the same provisions of the law cited in the
duties. assessment, i.e., Sections 43[13] and 45[14] of the National
Commissioner or his representative; and (c) the fact of the Internal Revenue Code (NIRC), in conjunctio... n with Section
Both parties knew the infirmities of the waivers but still 45[15] of Revenue Regulation No. 2, as amended, Lancaster
receipt of the copy was not indicated in the original waivers.
continued. Respondents were held in bad faith as after having argued that the February and March 1998 purchases should not
benefited by the waivers by giving them more time to pay, they have been disallowed. It maintained that the situation of farmers
used the waivers they made themselves when the consequences engaged in producing tobacco, like Lancaster, is unique in that
were not in their favor. the costs, i.e., purchases, are taken as of a different period and
Neither can it be said that by merely executing the waiver the
posted in the year in which the gross income from the crop is
taxpayer is already estopped from disputing an action by the CIR The BIR's negligence amounts to malice and bad faith as they realized. Lancaster concluded that it correctly posted the subject
also knew the waivers did not conform with RMO 20-90 and purchases in the fiscal year ending March 1999 as it was only in
beyond the statutory 3-year period since the exception under this year that the gross income from the crop was realized.
RDAO 05-01.
Subsequently on 6 November 2002, Lancaster received from the In connection therewith, the CIR may authorize the examination 1997 to 31 March 1998. It could not have contemplated a longer
BIR a final assessment notice (FAN),[16] captioned Formal Letter of any taxpayer and correspondingly make an assessment period. The examination for the full taxable year 1998 only is
of Demand and Audit Result/Assessment Notice LTAID II whenever necessary.[31] Thus, to give more teeth to such power consistent with the guideline in Revenue Memorandum Order
IT-98-00007, dated 11 October 2002, which assessed Lancaster's of the CIR, to make an assessment, the NIRC authorizes the CIR (RMO) No. 43-90, dated 20 September 1990, that the LOA shall
deficiency income tax amounting to P11,496,770.18, as a to examine any book, paper, record, or data of any person.[32] cover a taxable period not exceeding one taxable year.[35] In
consequence of the disallowance of purchases claimed for the The powers granted by law to the CIR are intended, among other other words, absent any other valid cause, the LOA issued in this
taxable year ending 31 March 1999. Lancaster duly proteste... things, to determine the liability of any person for any national case is valid in all respects. Nonetheless, a valid LOA does not
d[17] the FAN. There being no action taken by the Commissioner internal revenue tax. It is pursuant to such pertinent provisions necessarily clothe validity to an assessment issued on it, as when
on its protest, Lancaster filed on 21 August 2003 a petition for of the NIRC conferring the powers to the CIR that the petitioner the revenue officers designated in the LOA act in excess or
review[18] before the CTA Division. (CIR) had, in this case, authorized its revenue officers to conduct outside of the authority granted them under said LOA. Recently
an examination of the books of account and accounting records in CIR v. De La Salle University, Inc.[36] we accorded validity to
Issues: of Lancaster, and eventually issue a deficiency assessment the LOA authorizing the examination of DLSU for "Fiscal Year
against it. From the foregoing, it is clear that the issue on Ending 2003 and Unverified Prior Years" and correspondingly
THE COURT OF TAX APPEALS EN BANC ERRED IN HOLDING THAT
whether the revenue officers who had conducted the held the assessment for taxable year 2003 as valid because this
PETITIONER'S REVENUE OFFICERS EXCEEDED THEIR AUTHORITY
examination on Lancaster exceeded their authority pursuant to taxable period is specified in the LOA. However, we declared void
TO INVESTIGATE THE PERIOD NOT COVERED BY THEIR LETTER OF
LOA No. 00012289 may be considered as covered by the terms the assessments for taxable years 2001 and 2002 for having been
AUTHORITY. II. THE COURT OF TAX APPEALS EN BANC ERRED IN
"other matters" under Section 7 of R.A. No. 1125 or its unspecified on separate LOAs as required under RMO No. 43-90.
ORDERING PETITIONER TO CANCEL AND WITHDRAW THE
amendment, R.A. No. 9282. The authority to make an Likewise, in the earlier case of CIR v. Sony, Phils., Inc.,[37] we
DEFICIENCY ASSESSMENT ISSUED AGAINST RESPONDENT.[26]
examination or assessment, being a matter provided for by the affirmed the cancellation of a deficiency VAT assessment
Ruling: NIRC, is well within the exclusive and appellate jurisdiction of the because, while the LOA covered "the period 1997 and unverified
CTA. On whether the CTA can resolve an issue which was not prior years, " the said deficiency was arrived at based on the
We deny the petition. I. The CTA EN BANC did not err when it raised by the parties, we rule in the affirmative. records of a later year, from January to March 1998, or using the
ruled that the BIR revenue officers had exceeded their authority. fiscal year which ended on 31 March 1998. We explained that
To support its first assignment of error, the CIR argues that the the CTA Division was, therefore, well within its authority to the CIR knew which period should be covered by the
revenue officers did not exceed their authority when, upon consider in its decision the question on the scope of authority of investigation and that if the CIR wanted or intended the
examination (of the Lancaster's books of accounts and other the revenue officers who were named in the LOA even though investigation to include the year 1998, it would have done so by
accounting records), they verified that Lancaster made purchases the parties had not raised the same in their pleadings or including it in the LOA or by issuing another LOA.[38] The present
for February and March of 1998, which purchases were not memoranda, The CTA En Banc was likewise correct in sustaining case is no different from Sony in that the subject LOA specified
the CTA Division's view concerning such matter. B. The Scope of that the examination should be for the taxable year 1998 only
declared in the latter’s fiscal year from 1 April 1997 to 31 March
the Authority of the Examining Officers In the assailed decision of but the subsequent assessment issued against Lancaster
1998. Additionally, the CIR posits that Lancaster did not raise the the CTA Division, the trial court observed that LOA No. 00012289
issue on the scope of authority of the revenue examiners at any involved disallowed expenses covering the next fiscal year, or the
authorized the BIR officers to examine the books of account of period ending 31 March 1999.
stage of the proceedings before the CTA and, consequently, the Lancaster for the taxable year 1998 only or, since Lancaster
CTA had no jurisdiction to rule on said issue. On both counts, the adopted a fiscal year (FY), for the period 1 April 1997 to 31 The taxable year covered by the assessment being outside of the
CIR is mistaken. March 1998. However, the deficiency income tax assessment period specified in the LOA in this case, the assessment issued
Under the aforecited provision, the jurisdiction of the CTA is not which the BIR eventually issued against Lancaster was based on against Lancaster is, therefore, void. This point alone would have
limited only to cases which involve decisions or inactions of the the disallowance of expenses reported in FY 1999, or for the sufficed to invalidate the subject deficiency income tax
CIR on matters relating to assessments or refunds but also period 1 April 1998 to 31 March 1999. The CTA concluded that assessment, thus, obviating any further necessity to resolve the
includes other cases arising from the NIRC or related laws the revenue examiners had exceeded their authority when they issue on whether Lancaster erroneously claimed the February
administered by the BIR.[28] Thus, for instance, we had once issued the assessment against Lancaster and, consequently, and March 1998 expenses as deductions against income for FY
held that the question of whether or not to impose a deficiency declared such assessment to be without force and effect. We 1999. But, as the CTA did, we shall discuss the issue on the
tax assessment comes within the purview of the words "other agree. The audit process normally commences with the issuance disallowance for the proper guidance not only of the parties, but
matters arising under the National Internal Revenue Code. by the CIR of a Letter of Authority. The LOA gives notice to the the bench and the bar as well. II. The CTA En Banc correctly
"[29]The jurisdiction of the CTA on such other matters arising taxpayer that it is under investigation for possible deficiency tax sustained the order cancelling and withdrawing the deficiency
under the NIRC was retained under the amendments introduced assessment; at the same time it authorizes or empowers a tax assessment. To recall, the assessment against Lancaster for
by R.A No. 9282.[ designated revenue officer to examine, verify, and scrutinize a deficiency income tax stemmed from the disallowance of its
taxpayer's books and records, in relation to internal revenue tax February and March 1998 purchases which Lancaster posted in
Is the question on the authority of revenue officers to examine liabilities for a particular period.[34] its fiscal year ending on 31 March 1999 (FY 1999) instead of the
the books and records of any person cognizable by the CTA? It fiscal year ending on 31 March 1998 (FY 1998). On the one hand,
must be stressed that the assessment of internal revenue taxes is Even though the date after the words "taxable year 1998 to" is the BIR insists that the purchases in question should have been
one of the duties of the BIR. unstated, it is not at all difficult to discern that the period of reported in FY 1998 in order to conform to the generally
examination is the whole taxable year 1998. This means that the accepted accounting principle of proper matching of cost and
examination of Lancaster must cover the FY period from 1 April revenue. Thus, when Lancaster reported the said purchases in FY
1999, this resulted in overstatement of expenses warranting make an assessment for deficiency tax whenever so warranted buttress their respective theories. Also, both parties cite RAM
their disallowance and, by consequence, resulting in the under the circumstances. 2-95 in referencing the crop method of accounting. We are
deficiency in the payment of its income tax for FY 1999. Upon tasked to determine which view is legally sound. In essence, the
the other hand, Lancaster justifies the inclusion of the February We now proceed to the matter respecting the accounting matching concept, which is one of the generally accepted
and March 1998 purchases in its FY 1999 considering that they method employed by Lancaster. An accounting method is a "set accounting principles, directs that the expenses are to be
coincided with its crop year covering the period of October 1997 of rules for determining when and how to report income and reported in the same period that related revenues are earned. It
to September 1998. Consistent with Revenue Audit deductions."[46] The provisions under Chapter VIII, Title II of the attempts to match revenue with expenses that helped earn it.
Memorandum (RAM) No. 2-95,[39] Lancaster argues that its NIRC cited above enumerate the methods of accounting that the The CIR posits that Lancaster should not have recognized in FY
purchases in February and March 1998 were properly posted in law expressly recognizes, to wit: (1) Cash basis method;[47] (2) 1999 the purchases for February and March 1998.[53] Apparent
FY 1999, or the year in which its gross income from the crop was Accrual method;[48] (3) Installment method;[49] (4) Percentage from the reasoning of the CIR is that such expenses ought to
realized. Lancaster concludes that by doing so, it had complied of completion method;[50] and (5) Other accounting methods. have been deducted in FY 1998, when they were supposed to be
with the matching concept that was also relied upon by the BIR Any of the foregoing methods may be employed by any taxpayer paid or incurred by Lancaster. In other words, the CIR is of the
in its assessment. The issue essentially boils down to the proper so long as it reflects its income properly and such method is used view that the subject purchases match with revenues in 1998,
timing when Lancaster should recognize its purchases in regularly. The peculiarities of the business or occupation not in 1999. A reading of RAM No. 2-95, however, clearly evinces
computing its taxable income. Such issue directly correlates to engaged in by a taxpayer would largely determine how it would that it conforms with the concept that the expenses paid or
the fact that Lancaster's 'crop year' does not exactly coincide report incomes and expenses in its accounting books or records. incurred be deducted in the year in which gross income from the
with its fiscal year for tax purposes. Noticeably, the records of The NIRC does not prescribe a uniform, or even specific, method sale of the crops is realized. Put in another way, the expenses are
this case are rife with terms and concepts in accounting. As a of accounting. Too, other methods approved by the CIR, even matched with the related incomes which are eventually earned.
science, accounting[40] pervades many aspects of financial when not expressly mentioned in the NIRC, may be adopted if Nothing from the provision is it strictly required that for the
planning, forecasting, and decision making in business. Its reach, such method would enable the taxpayer to properly reflect its expense to be deductible, the income to which such expense is
however, has also permeated tax practice. To put it into income. Section 43 of the NIRC authorizes the CIR to allow the related to be realized in the same year that it is paid or incurred.
perspective, although the foundations of accounting were built use of a method of accounting that in its opinion would clearly As noted by the CTA,[54] the crop method is an unusual method
principally to analyze finances and assist businesses, many of its reflect the income of the taxpayer. An example of such method of accounting, unlike other recognized accounting methods that,
principles have since been adopted for purposes of taxation.[41] not expressly mentioned in the NIRC, but duly approved by the by mandate of Sec. 45 of the NIRC, strictly require expenses be
In our jurisdiction, the concepts in business accounting, including CIR, is the 'crop method of accounting' authorized under RAM No. taken in the same taxable year when the income is 'paid or
certain generally accepted accounting principles (GAAP), 2-95. incurred,' or 'paid or accrued,' depending upon the method of
embedded in the NIRC comprise the rules on tax accounting. To accounting employed by the taxpayer. Even if we were to accept
In the present case, we find it wholly justifiable for Lancaster, as
be clear, the principles under financial or business accounting, in the notion that applying the 1998 purchases as deductions in the
a business engaged in the production and marketing of tobacco,
theory and application, are not necessarily interchangeable with fiscal year 1998 conforms with the generally accepted principle
to adopt the crop method of accounting. A taxpayer is
those in tax accounting. Thus, although closely related, tax and of matching cost against revenue, the same would still not lend
authorized to employ what it finds suitable for its purpose so
business accounting had invariably produced concepts that at any comfort to the CIR. Revenue Memorandum Circular (RMC)
long as it consistently does so, and in this case, Lancaster does
some point diverge in understanding or usage. For instance, two No. 22-04, entitled "Supplement to Revenue Memorandum
appear to have utilized the method regularly for many decades
of such important concepts are taxable income and business Circular No. 44-2002 on Accounting Methods to be Used by
already. Considering that the crop year of Lancaster starts from
income (or accounting income). Much of the difference can be Taxpayers for Internal Revenue Tax Purposes"[55] dated 12 April
October up to September of the following year, it follows that all
attributed to the distinct purposes or objectives that the 2004, commands that where there is conflict between the
of its expenses in the crop production made within the crop year
concepts of tax and business accounting are aimed at. Chief provisions of the Tax Code (NIRC), including its implementing
starting from October 1997 to September 1998, including the
Justice Querube Makalintal made an apt observation on the rules and regulations, on accounting methods and the generally
February and March 1998 purchases covered by purchase
nature of such difference. In Consolidated Mines, Inc. v. CTA,... accepted accounting principles, the former shall prevail.
invoice vouchers, are rightfully deductible for income tax
While there may be differences between tax and accounting,[44]
purposes in the year when the gross income from the crops are In sum, and considering the foregoing premises, we find no
it cannot be said that the two mutually exclude each other. As
realized. Pertinently, nothing from the pleadings or memoranda cogent reason to overturn the assailed decision and resolution of
already made clear, tax laws borrowed concepts that had origins
of the parties, or even from their testimonies before the CTA, the CTA. As the CTA decreed, Assessment Notice LTAID II
from accounting. In truth, tax cannot do away with accounting. It
would support a finding that the gross income from the crops (to IT-98-00007, dated 11 October 2002, in the amount of
relies upon approved accounting methods and practices to
which the subject expenses refer) was actually realized by the P6,466,065.50 for deficiency income tax should be cancelled and
effectively carry out its objective of collecting the proper amount
end of March 1998, or the closing of Lancaster's fiscal year for set aside. The assessment is void for being issued without valid
of taxes from the taxpayers. Thus, an important mechanism
1998. Instead, the records show that the February and March authority. Furthermore, there is no legal justification for the
established in many tax systems is the requirement for taxpayers
1998 purchases were recorded by Lancaster as advances and disallowance of Lancaster's expenses for the purchase of tobacco
to make a return of their true income.[45] Maintaining
later taken up as purchases by the close of the crop year in in February and March 1998. WHEREFORE, the petition is
accounting books and records, among other important
September 1998, or as stated very clearly above, within the fiscal DENIED.
considerations, would in turn assist the taxpayers in complying
year 1999[
with their obligation to file their income tax returns. At the same
time, such books and records provide vital information and Both petitioner CIR and respondent Lancaster, it must be noted,
possible bases for the government, after appropriate audit, to rely upon the concept of matching cost against revenue to