SY PO VS.

CTA

FACTS:

Bonifacia Sy Po is the widow of the late Mr. Po Bien Sing. In the taxable years 1964 to 1972, the deceased Po Bien Sing was the sole
proprietor of Silver Cup Wine Factory, Cebu which is allegedly evaded taxes amounting to millions of pesos. A letter and a subpoena
duces tecum were issued against Silver Cup requesting production of the accounting records and other related documents for the
examination. Mr. Po did not produce his books of accounts which prompted the team to enter the factory bodega of Silver Cup and seized
different brands, consisting of 1,555 cases of alcohol products. On the basis of the team's report of investigation, the respondent
Commissioner of Internal Revenue assessed Mr. Po Bien Sing deficiency income tax for 1966 to 1970 in the amount of P7,154,685.16

Petitioner protested the deficiency assessments for reinvestigation. BIR reiterated the assessments in view of the taxpayer's persistent
failure to present the books of accounts for examination.

ISSUE:
Whether or not Sy Po has presented any evidence of relevance and competence required to bash the troubling discrepancies and square
the issue of illegality posited on the subject assessments.

RULING:

NO! The applicable legal provision is Section 16(b) of the National Internal Revenue Code of 1977 as amended. It reads:

Sec. 16. Power of the Commissioner of Internal Revenue to make assessments.—

(b) Failure to submit required returns, statements, reports and other documents. - When a report required by law as a basis for the
assessment of an national internal revenue tax shall not be forthcoming within the time fixed by law or regulation or when there is reason
to believe that any such report is false, incomplete, or erroneous, the Commissioner of Internal Revenue shall assess the proper tax on
the best evidence obtainable.

In case a person fails to file a required return or other document at the time prescribed by law, or willfully or otherwise, files a false or
fraudulent return or other documents, the Commissioner shall make or amend the return from his own knowledge and from such
information as he can obtain through testimony or otherwise, which shall be prima facie correct and sufficient for all legal purposes.

The law is specific and clear. The rule on the "best evidence obtainable" applies when a tax report required by law for the purpose of
assessment is not available or when the tax report is incomplete or fraudulent.

In the instant case, the persistent failure of the late Po Bien Sing and the herein petitioner to present their books of accounts for
examination for the taxable years involved left the Commissioner of Internal Revenue no other legal option except to resort to the power
conferred upon him under Section 16 of the Tax Code.

The tax figures arrived at by the Commissioner of Internal Revenue are by no means arbitrary. Where the taxpayer is appealing to the
tax court on the ground that the Collector's assessment is erroneous, it is incumbent upon him to prove there what is the correct and just
liability by a full and fair disclosure of all pertinent data in his possession. Otherwise, if the taxpayer confines himself to proving that the
tax assessment is wrong, the tax court proceedings would settle nothing, and the way would be left open for subsequent assessments
and appeals in interminable succession. Tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer
has the duty to prove otherwise. In the absence of proof of any irregularities in the performance of duties, an assessment duly made by
a Bureau of Internal Revenue examiner and approved by his superior officers will not be disturbed. 8 All presumptions are in favor of the
correctness of tax assessments.

CIR VS. HANTEX TRADING

FACTS:

Hantex Trading Co is a company organized under the Philippines. It is engaged in the sale of plastic products, it imports synthetic resin
and other chemicals for the manufacture of its products. For this purpose, it is required to file an Import Entry and Internal Revenue
Declaration (Consumption Entry) with the Bureau of Customs under Section 1301 of the Tariff and Customs Code.

Sometime in October 1989, Lt. Vicente Amoto, Acting Chief of Counter-Intelligence Division of the Economic Intelligence and Investigation
Bureau (EIIB), received confidential information that the respondent had imported synthetic resin amounting to P115,599,018.00 but only
declared P45,538,694.57. Thus, Hantex receive a subpoena to present its books of account which it failed to do.

The bureau cannot find any original copies of the products Hantex imported since the originals were eaten by termites. Thus, the Bureau’s
investigation relied on the certified copies of the respondent’s Profit and Loss Statement for 1987 and 1988 on file with the SEC, the
machine copies of the Consumption Entries, Series of 1987, submitted by the informer, as well as excerpts from the entries certified by
Tomas and Danganan.

Based on the documents/records on hand, the EIIB found that for 1987, the Hantex Trading had importations totaling P105,716,527.00.
Compared with the declared sales based on the Profit and Loss Statements filed with the SEC, the respondent had unreported sales in
the amount of P63,032,989.17, and its corresponding income tax liability was P41,916,937.78.
On appeal, CTA ruled against Hantex for tax deficiency and is ordered to pay. The CA ruled that income and sales tax deficiency
assessments were unlawful and baseless since the copies of the import entries relied upon in computing the deficiency tax were not duly
authenticated by the public officer charged with their custody, nor verified under oath by EIIB and BIR investigators.

ISSUE:

Whether or not the final assessment of the petitioner against the respondent for deficiency income tax and sales tax for the latter’s 1987
importation of resins and calcium bicarbonate is based on competent evidence and the law.

RULING:

NO! Sec. 16 of the NIRC of 1977, as amended, provides that the Commissioner of Internal Revenue has the power to make assessments
and prescribe additional requirements for tax administration and enforcement, as follows:

(b) Failure to submit required returns, statements, reports and other documents. – When a report required by law as a basis for the
assessment of any national internal revenue tax shall not be forthcoming within the time fixed by law or regulation or when there is
reason to believe that any such report is false, incomplete or erroneous, the Commissioner shall assess the proper tax on the best
evidence obtainable.

In case a person fails to file a required return or other document at the time prescribed by law, or willfully or otherwise files a false or
fraudulent return or other document, the Commissioner shall make or amend the return from his own knowledge and from such
information as he can obtain through testimony or otherwise, which shall be prima facie correct and sufficient for all legal purposes.

The petitioner may avail herself of the best evidence or other information or testimony by exercising her power or authority The "best
evidence" envisaged in Section 16 of the 1977 NIRC, as amended, includes the corporate and accounting records of the taxpayer who
is the subject of the assessment process, the accounting records of other taxpayers engaged in the same line of business, including their
gross profit and net profit sales. Such evidence also includes data, record, paper, document or any evidence gathered by internal revenue
officers from other taxpayers who had personal transactions or from whom the subject taxpayer received any income; and record, data,
document and information secured from government offices or agencies, such as the SEC, the Central Bank of the Philippines, the Bureau
of Customs, and the Tariff and Customs Commission.

The law allows the BIR access to all relevant or material records and data in the person of the taxpayer. It places no limit or condition on
the type or form of the medium by which the record subject to the order of the BIR is kept. The purpose of the law is to enable the BIR to
get at the taxpayer’s records in whatever form they may be kept. Such records include computer tapes of the said records prepared by
the taxpayer in the course of business. In this era of developing information-storage technology, there is no valid reason to immunize
companies with computer-based, record-keeping capabilities from BIR scrutiny. The standard is not the form of the record but where it
might shed light on the accuracy of the taxpayer’s return.

We agree with the contention of the CIR that the best evidence obtainable may consist of hearsay evidence, such as the testimony of
third parties or accounts or other records of other taxpayers similarly circumstanced as the taxpayer subject of the investigation, hence,
inadmissible in a regular proceeding in the regular courts. Moreover, the general rule is that administrative agencies such as the BIR are
not bound by the technical rules of evidence. It can accept documents which cannot be admitted in a judicial proceeding where the Rules
of Court are strictly observed. It can choose to give weight or disregard such evidence, depending on its trustworthiness.

However, the best evidence obtainable under Section 16 of the 1977 NIRC, as amended, does not include mere photocopies of
records/documents. The petitioner, in making a preliminary and final tax deficiency assessment against a taxpayer, cannot anchor the
said assessment on mere machine copies of records/documents. Mere photocopies of the Consumption Entries have no probative weight
if offered as proof of the contents thereof. The reason for this is that such copies are mere scraps of paper and are of no probative value
as basis for any deficiency income or business taxes against a taxpayer.

The original copies of the Consumption Entries were of prime importance to the BIR. This is so because such entries are under oath and
are presumed to be true and correct under penalty of falsification or perjury. Admissions in the said entries of the importers’ documents
are admissions against interest and presumptively correct.

The rule is that in the absence of the accounting records of a taxpayer, his tax liability may be determined by estimation. The petitioner
is not required to compute such tax liabilities with mathematical exactness. Approximation in the calculation of the taxes due is justified.
To hold otherwise would be tantamount to holding that skillful concealment is an invincible barrier to proof. However, the rule does not
apply where the estimation is arrived at arbitrarily and capriciously.

We agree with the contention of the petitioner that, as a general rule, tax assessments by tax examiners are presumed correct and made
in good faith. All presumptions are in favor of the correctness of a tax assessment. It is to be presumed, however, that such assessment
was based on sufficient evidence. Upon the introduction of the assessment in evidence, a prima facie case of liability on the part of the
taxpayer is made. However, the prima facie correctness of a tax assessment does not apply upon proof that an assessment is utterly
without foundation, meaning it is arbitrary and capricious. Where the BIR has come out with a "naked assessment," i.e., without any
foundation character, the determination of the tax due is without rational basis.
In fine, the petitioner based her finding that the 1987 importation of the respondent was underdeclared in the amount of P105,761,527.00
on the worthless machine copies of the Consumption Entries. Aside from such copies, the petitioner has no other evidence to prove that
the respondent imported goods costing P105,761,527.00. The petitioner cannot find solace on the certifications of Tomas and Danganan
because they did not authenticate the machine copies of the Consumption Entries, and merely indicated therein the entry numbers of
Consumption Entries and the dates when the Bureau of Customs released the same. The certifications of Tomas and Danganan do not
even contain the landed costs and the advance sales taxes paid by the importer, if any. Comparing the certifications of Tomas and
Danganan and the machine copies of the Consumption Entries, only 36 of the entry numbers of such copies are included in the said
certifications; the entry numbers of the rest of the machine copies of the Consumption Entries are not found therein.

Even if the Court would concede to the petitioner’s contention that the certification of Tomas and Danganan authenticated the machine
copies of the Consumption Entries referred to in the certification, it appears that the total cost of importations inclusive of advance sales
tax is only P64,324,953.00 – far from the amount of P105,716,527.00 arrived at by the EIIB and the BIR,88 or even the amount
of P110,079,491.61 arrived at by Deputy Commissioner Deoferio, Jr. 89 As gleaned from the certifications of Tomas and Danganan, the
goods covered by the Consumption Entries were released by the Bureau of Customs, from which it can be presumed that the respondent
must have paid the taxes due on the said importation. The petitioner did not adduce any documentary evidence to prove otherwise.

Thus, the computations of the EIIB and the BIR on the quantity and costs of the importations of the respondent in the amount
of P105,761,527.00 for 1987 have no factual basis, hence, arbitrary and capricious. The petitioner cannot rely on the presumption that
she and the other employees of the BIR had regularly performed their duties. Moreover, the uncontroverted fact is that the BIR District
Revenue Office had repeatedly examined the 1987 books of accounts, and found that the latter had minimal business tax liability. In this
case, the presumption that the District Revenue officers performed their duties in accordance with law shall apply. There is no evidence
on record that the said officers neglected to perform their duties as mandated by law; neither is there evidence aliunde that the contents
of the 1987 and 1988 Profit and Loss Statements submitted by the respondent with the SEC are incorrect.

AURELIO REYES VS. COLLECTOR OF INTERNAL REVENUE

FACTS:

Collector of Internal Revenue demanded from Aurelio P. Reyes payment of his alleged deficiency income taxes, surcharges, interests
and penalties for the tax years 1946 to 1950 amounting to P641,470.04 as of October 31, 1954. Together with said letter of assessment,
respondent Aurelio P. Reyes received a warrant of distraint and levy on his properties in the event that he should fail to pay the alleged
deficiency income taxes on or before October 31, 1954,

Being informed by the City Treasurer of Manila that it was instructed by CIR to execute the warrant of distraint and levy for unsettled
amount, Aurelio P. Reyes filed with the CTA, a petition for review of CIR's assessment of his alleged deficiency income tax liabilities. This
was followed by an urgent petition to restrain the CIR from executing the warrant of distraint and levy on his properties that the right to
collect by summary proceedings the tax demanded had already prescribed in accordance with sec. 51 (d) of the NIRC, as his income tax
returns for the tax years 1946 to 1950 had been filed more than three years ago, inter alia. The Collector of Internal Revenue opposed
said petition. CTA upheld the stand of Aurelio P. Reyes.

It is not disputed that Reyes filed his income tax returns for 1946-1950, and that the warrant of distraint and levy against his properties
was issued only on October 13, 1954, or 3 years, 5 months and 16 days after the respondent taxpayer has filed his returns for the tax
year 1950, which he made on April 27, 1951.

ISSUE:
Whether or not the Court of Tax Appeals could restrain the Collector of Internal Revenue from enforcing collection of income tax deficiency
by summary proceedings after the expiration of the three-year period provided for in section 51 (d) of the National Internal Revenue Code.

RULING:

YES! Section 51 (d) of the National Internal Revenue Code reads as follows:

SEC. 51. Assessment and Payment of income Tax. —

(d) Refusal or neglect to make return; fraudulent returns, etc. — In cases of refusal or neglect to make return or in cases of erroneous,
false or fraudulent returns, the Collector of Internal Revenue shall, upon discovery thereof, at any time within three years after said return
is due, or has been made, make a return upon information obtained as provided for in this Code or by existing law, or require the necessary
corrections to be made, and the assessment made by the Collector on Internal Revenue thereon shall be paid by such person or
corporation immediately upon notification of the amount of said assessment.

and in a long line of cases this Court has already construed this just quoted provision to mean that the three year prescriptive period
provided therein constituted a limitation to the right of the Government to enforce the collection of income taxes by the summary
proceedings of distraint and levy though it could proceed to recover the taxes due by the institution of the corresponding civil action
(Collector of Internal Revenue vs. Villegas, 56 Phil., 554, citing Holmes, Federal Income Tax, 2d., p. 581; Collector of Internal Revenue
vs. Haygood, 65 Phil., 520; and Juan de la Viña vs. El Gobierno de las Filipinas, G.R. No. 42669, January 29, 1938). This doctrine was
reiterated in the case of Philippine Sugar Estate Development Co., Inc., vs. Juan Posadas, 68 Phil., 216, wherein it was held that:
. . . after the three years have elapsed from the date to which income tax returns which have been found to be false, fraudulent or
erroneous, may have been made, the Collector of Internal Revenue cannot make any summary collection through administrative methods,
but must do so through judicial proceedings.

In the recent case of the Collector of Internal Revenue vs. Jose Avelino et al,, this Court held:

It therefore appears that when it refers to the Collection of income tax it is mandatory that the right of the Collector of Internal Revenue to
collect it by the summary methods of distraint and levy be exercised within the period of three years from the time the income tax return
is filed, otherwise the right can only be enforced by judicial action. Since, admittedly, the deficiency taxes in question were assessed and
the warrants for their collection by distraint and levy were issued after the period of three years from the filing of the returns, it is evident
that said warrants, as well as the steps taken in connection with the sale of the properties of the taxpayer, were issued without authority
of the law and, hence, the Court of Tax Appeals acted properly in enjoining their enforcement as prayed for by petitioner.

It is, however, contended by petitioner that the respondent Court of Tax Appeals acted in complete disregard of the prohibition of said
section 305 of the National Internal Revenue Code when it restrained the former from executing the warrant of distraint and levy against
the properties of respondent Aurelio P. Reyes. Said provision reads as follows:

SEC. 305. INJUNCTION NOT AVAILABLE TO RESTRAIN THE COLLECTION OF TAX. — No court shall have authority to grant an
injunction to restrain the collection of any internal revenue tax, fee, or charge imposed by this Code (National Internal Revenue Code).

However, Section 11 of Republic Act No. 1125 prescribes the following:

SEC. 11. — Who may appeal; effect of appeal. — Any person, association or corporation adversely affected by a decision or ruling of
the Collector of internal Revenue,. may file an appeal in the Court of Tax Appeals within thirty days after receipt of such decision or
ruling.

No appeal taken to the Court of Tax Appeals from the decision of the Collector of Internal Revenue . . . shall suspend the payment, levy,
distraint, and/or sale of any property of the taxpayer for the satisfaction of his tax liability as provided by existing law: Provided, however,
That when in the opinion of the Court the collection by the Bureau of Internal Revenue . . . may jeopardize the interest of the Government
and/or the taxpayer the Court at any stage of the proceeding may suspend said collection and require the taxpayer either to deposit the
amount claimed or to file a surety bond for not more than double the amount with the Court.

It can be inferred from the aforequoted provision that there may be instances like the one at bar, when the Collector of Internal Revenue
could be restrained from proceeding with the collection, levy, distraint and/or sale of any property of the taxpayer. In this respect, this
Court said in the case of Collector of Internal Revenue vs. Avelino et al., supra:

This section (Sec. 11 of Rep. Act No. 1125) must be deemed to have modified section 305 of the National Internal Revenue Code in view
of the repeating clause contained in said Act to the effect that "any law or part of law, or any executive order, rule or regulation or part
thereof, inconsistent with the provisions of this Act is hereby repealed" (Section 21).

But petitioner asserts that even assuming that under Section 11 of Republic Act No. 1125 respondent court is empowered to order him
to desist from the collection of said taxes by extra-judicial methods, yet the Court erred in issuing the injunction without requiring the
taxpayer either to deposit the amount claimed or file a surety bond for an amount not more than double the tax sought to be collected.
We disagree with this contention. At first blush it might be as contended by the Solicitor General, but a careful analysis of the second
paragraph of said Section 11 will lead us to the conclusion that the requirement of the bond as a condition precedent to the issuance of
the writ of injunction applies only in cases where the processes by which the collection sought to be made by means thereof are carried
out in consonance with the law for such cases provided and not when said processes are obviously in violation of the law to the extreme
that they have to be SUSPENDED for jeopardizing the interests of the taxpayer.