CIR v.

NEXT MOBILE
FACTS:

Respondent filed with the BIR taxes for 2001. Respondent, through Sarmiento, their
director of Finance, executed several waivers of the statute of limitations to extend the
prescriptive period of assessment for taxes.

On 2005, respondent received from the BIR a PAN and a formal letter of demand to pay
deficiency income tax. The BIR denied respondent's protest.

With the CTA, it was held that the demand was beyond the three year prescription
period under the NIRC. That the case does not apply the 10 year prescription period as
there was no false return by the respondent. Also, the waivers did not validly extend the
prescription because of irregularities.

ISSUE: Whether the period to pay has prescribed.

RULING:

NO.

The SC held that a waiver of the statute of limitations must faithfully comply with RMO
No. 20-90 and RDAO 05-01 in order to be valid. Sarmiento failed to show her authority
to the BIR to sign the waivers.

The BIR were also at fault having to neglect their ministerial duties.

Both parties knew the infirmities of the waivers but still continued. Respondents were
held in bad faith as after having benefited by the waivers by giving them more time to
pay, they used the waivers they made themselves when the consequences were not in
their favor.

The BIR's negligence amounts to malice and bad faith as they also knew the waivers
did not conform with RMO 20-90 and RDAO 05-01.

As both parties are in bad faith, the SC granted the petition on the issue of the
nullification of the formal letter of demand to the CTA.

--------------------------------------- ANOTHER RULING--------------------------------------

The general rule is that when a waiver does not comply with the requisites for its validity
specified under RMO No. 20-90 and RDAO 01-
05, it is invalid and ineffective to extend the prescriptive period to assess taxes. Howeve
r, due to its peculiar circumstances, We shall treat this case as an exception to this rule.

First, the parties in this case are in pari delicto or “in equal fault.”
Second, the Court has repeatedly pronounced that parties must come to court with clea
n hands.Parties who do not come to court with clean hands cannot be allowed to benefit
from their own wrongdoing.

Third, respondent is estopped from questioning the validity of itsWaivers. While it is true
that the Court has repeatedly held that the doctrineof estoppel must be sparingly applie
d as an exception to the statute of limitations for assessment of taxes, the Court finds th
at the application of the doctrine is justified in this case. Verily, the application of estopp
el in this case would promote the administration of the law, prevent injustice and avert th
e accomplishment of a wrong and undue advantage. Respondent

executed five Waivers and delivered them to petitioner, one after the other. It allowed pe
titioner to rely on them and did not raise any objection against their validity until petitione
r assessed taxes and penalties against it. Moreover, the application of estoppel is neces
sary to prevent the undue injury that the government would suffer because of the cancel
lation of petitioner’s assessment of respondent’s tax liabilities

CIR v. Philippine Daily Inquirer

FACTS:
1. PDI (newspaper publication) filed annual income tax return on 2005 for taxable
year 2004. On june 30, 2006, PDI Received a (LN) from BIR alleging that there
was an underdeclaration of domestic purchases from its suppliers.
2. PDI submitted reconciliation reports. On March 21, 2007, PDI executed a waiver
of statute of limitation (first waiver) consenting to the assessment and/or
collection at any time before or after the lapse of the period of limitation but not
later than june 30, 2007.
3. PDI submitted additional partial reconciliation and explanation on the
discrepancies found by BIR. BIR invited PDI to an informal conference. On june
5, 2007, PDI executed a Waiver of the Statute of Limitation (Second Waiver)
4. PAN dated October 15, 2007, PDI was assessed for alleged deficiency income
tax and VAT
5. PAN was received on December 2007. PDI sought recon. And expressed its
willing to execute another waiver (Third waiver), thus extending BIR’s right to
asses and/or collect until april 30, 2008
6. April 17, 2008 – FAN/FLD – demanding payment for alleged deficiency
7. Petitioner filed a protest. Filed a petition for review alleging that the 180-day
period within which the BIR should act on the protest had already lapsed.
8. CTA First Division – Ruled in favor of PDI. Right to assess has prescribed. PDI
introduced proof that the determination made by the CIR is incorrect. CIR failed
to disprove the findings submitted by ICPA
9. CTA – En banc – Petition for review – denied
ISSUES/RULING:
1. WON PDI HAS ADEQUATELY CONTROVERTED BIR’S ASSESMENT
 No. The general rule is that findings of fact of the CTA are not to be disturbed by this
Court unless clearly shown to be unsupported by substantial evidence. Since by the
very nature of its functions, the CTA has developed an expertise to resolve tax issues,
the Court will not set aside lightly the conclusions reached by them, unless there has
been an abuse or improvident exercise of authority.

In reaching their conclusions, the CTA First Division and En Banc relied on the
report submitted by the ICPA. According to the CTA, the BIR failed to rebut the ICPA
report. However, there were discrepancies that PDI were able to explain. In particular,
the ICPA report showed that the purchase from Millennium Cars, Inc. was made on
behalf of an employee as a loan. In addition, the underdeclared input tax insofar as
Alliance Printing, Inc. is concerned was due to the latter's erroneous posting of data, a
fact that the corporation admitted. However, there are still issues that need to be
resolved. In particular, PDI failed to justify its erroneous listing of purchases from
Harrison Communications, Inc., McCann Erickson, Inc., and WPP Marketing
Corporation as general and administrative expenses.

2. WON THE RIGHT TO ASSES HAS PRESCRIBED and WON THE PDI IS
ESTOPPED FROM RAISING THE DEFENSE OF PRESCRIPTION
The right to assess has prescribed. CIR alleges that PDI filed a false or fraudulent
return, thus, Section 222 applies (10 years). While the filing of a fraudulent return
necessarily implies that the act of the taxpayer was intentional and done with intent to
evade the taxes due, the filing of a false return can be intentional or due to honest
mistake. In CIR v. B.F. Goodrich Phils., Inc., the Court stated that the entry of wrong
information due to mistake, carelessness, or ignorance, without intent to evade tax,
does not constitute a false return. In this case, we do not find enough evidence to prove
fraud or intentional falsity on the part of PDI. Since the case does not fall under the
exceptions, Section 203 of the NIRC should apply. Indeed, the Waivers executed by the
BIR and PDI were meant to extend the three-year prescriptive period, and would have
extended such period were it not for the defects found by the CTA. This further shows
that at the outset, the BIR did not find any ground that would make the assessment fall
under the exceptions.

Waiver must strictly conform to RMO No. 20-90. The failure to provide the office
accepting the waiver with the third copy violates RMO 20-90 and RDAO 05-01.
Therefore, the First Waiver was not properly executed on 21 March 2007 and thus,
could not have extended the three-year prescriptive period to assess and collect taxes
for the year 2004. To make matters worse, the CIR committed the same error in the
execution of the Second Waiver on 5 June 2007. Even if we consider that the First
Waiver was validly executed, the Second Waiver failed to extend the prescriptive period
because its execution was contrary to the procedure set forth in RMO 20-90 and RDAO
05-01. Granting that the First and Second Waivers were validly executed, the Third
Waiver executed on 12 December 2007 still failed to extend the three-year prescriptive
period because it was not executed in three copies. In short, the records of the case
showed that the CIR's three-year prescriptive period to assess deficiency tax had
already prescribed due to the defects of all the Waivers.

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.

The CIR also argues that PDI is estopped from questioning the validity of the Waivers.
We do not agree. As stated by the CTA, the BIR cannot shift the blame to the taxpayer
for issuing defective waivers. The Court has ruled that the BIR cannot hide behind the
doctrine of estoppel to cover its failure to comply with RMO 20-90 and RDAO 05-01
which were issued by the BIR itself. A waiver of the statute of limitations is a derogation
of the taxpayer's right to security against prolonged and unscrupulous investigations
and thus, it must be carefully and strictly construed.

Since the three Waivers in this case are defective, they do not produce any effect and
did not suspend the three-year prescriptive period under Section 203 of the NIRC.

CIR v. Standard Chartered Bank

Facts:
Standard Chartered Bank received a formal letter of demand ( dated June 24, 2004) for
alleged deficiency income tax, final income tax – Foreign Currency Deposit Unit (FCDU),
and expanded withholding tax (EWT) in the aggregate amount of P33,076,944.18,
including increments covering taxable year 1998.

Standard Chartered protested the said assessment through filing a letter-protest stating
the factual and legal bases of the assessment and requested that it be withdrawn and
cancelled. It further contended that it already made payments through BIR’s electronic
filing and payment system (eFPS) as regards its deficiency [WTC] and [FWT]
assessments in the amounts of P124,967.73 and P139,713.11, respectively. Thus, the
remaining assessments cover only the modified total amount of P33,076,944.18.

The decision of the CTA in Division, which was later on concurred by the CTA En Banc,
is that petitioner’s subject Formal Letter of Demand and Assessment Notices should be
cancelled considering that the same was already barred by prescription for having been
issued beyond the three-year prescriptive period provided for in Section 203 of the
National Internal Revenue Code. Although waivers of the statute of limitations were
executed by the parties on July 20, 2001 and April 4, 2002, these did not extend the
aforesaid prescriptive period because they were invalid by reason of failure to comply
with the requirements set forth in RMO No. 20-90.

Issues

I. WON the CIR’s right to assess Standard Chartered for deficiency income tax and final
income tax covering taxable year 1998 has already prescribed, despite the waiver of
statute of limitations executed by the parties
II. WON Standard Chartered is estopped from questioning the validity of the waivers of
the Statute of Limitations in view of the partial payments it made on the deficiency taxes
sought to be collected

Discussion

I. [YES] At the outset, the period for petitioner to assess and collect an internal
revenue tax is limited only to three (3) years after the last day prescribed by law for
the filing of the return. Provided, That in a case where a return is filed beyond the
period prescribed by law, the three (3)-year period shall be counted from the day
the return was filed. (Section 203 of the NIRC)

Thus, in the present case, petitioner only had three years, counted from the date of actual
filing of the return or from the last date prescribed by law for the filing of such return,
whichever comes later, to assess a national internal revenue tax or to begin a court
proceeding for the collection thereof without an assessment. However, one of the
exceptions to the three-year prescriptive period on the assessment of taxes is when
before the expiration of the time prescribed in Section 203 for the assessment of the tax,
both the Commissioner and the taxpayer have agreed in writing to its assessment
after such time, the tax may be assessed within the period agreed upon. (Section
222(b) of the NIRC of 1997)

The cited provision authorizes the extension of the original three-year prescriptive period
by the execution of a valid waiver, where the taxpayer and CIR may stipulate to extend
the period of assessment by a written agreement executed prior to the lapse of the period
prescribed by law, and by subsequent written agreements before the expiration of the
period previously agreed upon.

RMO No. 20-90 implements the provisions of the NIRC relating to the period of
prescription for the assessment and collection of taxes. The provisions of the RMO
explicitly show their mandatory nature, requiring strict compliance. Hence, failure to
comply with any of the requisites renders a waiver defective and ineffectual.

In the instant case, the subject waivers did not comply with the form prescribed by the
RMO, thus they did not extend the period to assess the subject deficiency tax liabilities of
respondent for taxable year 1998. Hence prescription has already set in.

II. [NO] When respondent paid the deficiency WTC and FWT assessments, petitioner
accepted said payment without any opposition. This effectively extinguished respondent’s
obligation to pay the subject taxes. It bears emphasis that, obligations are extinguished,
among others, by payment or performance.

The facts of this case do not call for the application of the doctrine of estoppel. It
must be remembered that the execution of a Waiver of Statute of Limitations results to a
derogation of some of the rights of the taxpayer, the same must be executed in
accordance with pre-set guidelines and procedural requirements. The Court cannot turn
blind on the importance of the Statute of Limitations upon the assessment and collection
of internal revenue taxes provided for under the NIRC.

Ruling: In fine, the period to assess or collect deficiency taxes for the taxable year 1998
was never extended. Consequently, the Formal Letter of Demand and Assessment
Notices dated 24 June 2004 were issued by the BIR beyond the three-year prescriptive
period and are therefore void.

WHEREFORE, the petition is DENIED.