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The case of › 


     is relevant. In this case, then BIR
Commissioner Jose U. Ong authorized revenue officers to examine the books of
accounts and other accounting records of Pascor Realty and Development
Corporation (PRDC) for 1986, 1987 and 1988. This resulted in a recommendation
for the issuance of an assessment in the amounts of P7,498,434.65 and
P3,015,236.35 for the years 1986 and 1987, respectively.

On March 1, 1995, the Commissioner filed a criminal complaint before the


DOJ against PRDC, its President Rogelio A. Dio, and its Treasurer Virginia S.
Dio, alleging evasion of taxes in the total amount of P10,513,671.00. Private
respondents filed an Urgent Request for Reconsideration/Reinvestigation disputing
the tax assessment and tax liability.

The Commissioner denied the urgent request for


reconsideration/reinvestigation because she had not yet issued a formal assessment.

Private respondents then elevated the Decision of the Commissioner to the


CTA on a petition for review. The Commissioner filed a Motion to Dismiss the
petition on the ground that the CTA has no jurisdiction over the subject matter of
the petition, as there was yet no formal assessment issued against the petitioners.
The CTA denied the said motion to dismiss and ordered the Commissioner to file
an answer within thirty (30) days. The Commissioner did not file an answer nor
did she move to reconsider the resolution. Instead, the Commissioner filed a
petition for review of the CTA decision with the Court of Appeals. The Court of
Appeals upheld the CTA order. However, this Court reversed the Court of Appeals
decision and the CTA order, and ordered the dismissal of the petition. We held:

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For review on certiorari is the Decision[1] and Resolution[2] dated January 31, 2005 and April 14,
2005, respectively, of the Court of Appeals in CA- G.R. SP No. 79675, which affirmed the
Decision[3] dated March 20, 2003 of the Court of Tax Appeals (CTA) in C.T.A. Case No. 6153.
In effect, the Court of Appeals cancelled the assessment notice issued by the Bureau of Internal
Revenue (BIR) for the deficiency income and withholding taxes for the taxable year 1995 of
respondent FMF Development Corporation (FMF), a domestic corporation organized and
existing under Philippine laws.

The facts are as follows:

On April 15, 1996, FMF filed its Corporate Annual Income Tax Return for taxable year 1995
and declared a loss of P3,348,932. On May 8, 1996, however, it filed an amended return and
declared a loss of P2,826,541. The BIR then sent FMF pre-assessment notices, all dated October
6, 1998, informing it of its alleged tax liabilities.[4] FMF filed a protest against these notices with
the BIR and requested for a reconsideration/reinvestigation.

On January 22, 1999, Revenue District Officer (RDO) Rogelio Zambarrano informed FMF that
the reinvestigation had been referred to Revenue Officer Alberto Fortaleza. He also advised
FMF of the informal conference set on February 2, 1999 to allow it to present evidence to
dispute the BIR assessments.

On February 9, 1999, FMF President Enrique Fernandez executed a waiver of the three-year
prescriptive period for the BIR to assess internal revenue taxes, hence extending the assessment
period until October 31, 1999. The waiver was accepted and signed by RDO Zambarrano.

On October 18, 1999, FMF received amended pre-assessment notices[5] dated October 6, 1999
from the BIR. FMF immediately filed a protest on November 3, 1999 but on the same day, it
received BIR's Demand Letter and Assessment Notice No. 33-1-00487-95 dated October 25,
1999 reflecting FMF's alleged deficiency taxes and accrued interests, as follows:
Income Tax Assessment P 1,608,015.50
Compromise Penalty on Income Tax Assessment 20,000.00
Increments on Withholding Tax on Compensation 184,132.26
Compromise Penalty on Increments on Withholding Tax on 16,000.00
Compensation
Increments on Withholding Tax on Management Fees 209,550.49
Compromise Penalty on Increments on Withholding Tax on 16,000.00
Management Fees
""#$ )[6]
On November 24, 1999, FMF filed a letter of protest on the assessment invoking, ˜ ˜,[7] the
defense of prescription by reason of the invalidity of the waiver. In its reply, the BIR insisted
that the waiver is valid because it was signed by the RDO, a duly authorized representative of
petitioner. It also ordered FMF to immediately settle its tax liabilities; otherwise, judicial action
will be taken. Treating this as BIR's final decision, FMF filed a petition for review with the CTA
challenging the validity of the assessment.

On March 20, 2003, the CTA granted the petition and cancelled Assessment Notice No. 33-1-
00487-95 because it was already time-barred. The CTA ruled that the waiver did not extend the
three-year prescriptive period within which the BIR can make a valid assessment because it did
not comply with the procedures laid down in Revenue Memorandum Order (RMO) No. 20-90.[8]
˜, the waiver did not state the dates of execution and acceptance of the waiver, by the
taxpayer and the BIR, respectively; thus, it cannot be determined with certainty if the waiver was
executed and accepted within the prescribed period. 
, the CTA also found that FMF was
not furnished a copy of the waiver signed by RDO Zambarrano. ˜ , the CTA pointed out that
since the case involves an amount of more than P1 million, and the period to assess is not yet
about to prescribe, the waiver should have been signed by the Commissioner of Internal
Revenue, and not a mere RDO.[9] The Commissioner of Internal Revenue filed a motion for
reconsideration, but it was denied.

On appeal to the Court of Appeals, the decision of the CTA was affirmed. Sustaining the
findings of the CTA, the Court of Appeals held that the waiver did not strictly comply with RMO
No. 20-90. Thus, it nullified Assessment Notice No. 33-1-00487-95. The  of the Court of
Appeals' decision reads:
_  ! finding the instant petition not impressed with merit, the same is   
% ›%Ê and is hereby  Ê ÊÊ No costs.

Ê  [10]
The Commissioner of Internal Revenue sought reconsideration, but it was denied.

Hence the instant petition, raising the following issues:


I.

WHETHER OR NOT RESPONDENT'S WAIVER OF THE STATUTE OF LIMITATIONS


WAS VALIDLY EXECUTED.

II.

WHETHER O[R] NOT THE PERIOD TO ASSESS HAD PRESCRIBED.

III.

WHETHER OR NOT THE COURT OF APPEALS CORRECTLY DISREGARDED


PETITIONER'S SUBSTANTIVE ARGUMENT.[11]
Essentially, the present controversy deals with the validity of the waiver and whether it validly
extended the original three-year prescriptive period so as to make Assessment Notice No. 33-1-
00487-95 valid. The basic questions to be resolved therefore are: (1) Is the waiver valid? and (2)
Did the three-year period to assess internal revenue taxes already prescribe?

Petitioner contends that the waiver was validly executed mainly because it complied with
Section 222 (b)[12] of the National Internal Revenue Code (NIRC). Petitioner points out that the
waiver was in writing, signed by the taxpayer and the Commissioner, and executed within the
three-year prescriptive period. Petitioner also argues that the requirements in RMO No. 20-90 are
merely directory; thus, the indication of the dates of execution and acceptance of the waiver, by
the taxpayer and the BIR, respectively, are not required by law. Petitioner adds that there is no
provision in RMO No. 20-90 stating that a waiver may be invalidated upon failure of the BIR to
furnish the taxpayer a copy of the waiver. Further, it contends that respondent's execution of the
waiver was a renunciation of its right to invoke prescription. Petitioner also argues that the
government cannot be estopped by the mistakes committed by its revenue officer in the
enforcement of RMO No. 20-90.

On the other hand, respondent counters that the waiver is void because it did not comply with
RMO No. 20-90. Respondent assails the waiver because (1) it was not signed by the
Commissioner despite the fact that the assessment involves an amount of more than P1 million;
(2) there is no stated date of acceptance by the Commissioner or his duly authorized
representative; and (3) it was not furnished a copy of the BIR-accepted waiver. Respondent also
cites ˜˜˜   ˜
 ˜˜     [13]and contends that the
procedures in RMO No. 20-90 are mandatory in character, precisely to give full effect to Section
222 (b) of the NIRC. Moreover, a waiver of the statute of limitations is not a waiver of the right
to invoke the defense of prescription.[14]

After considering the issues and the submissions of the parties in the light of the facts of this
case, we are in agreement that the petition lacks merit.

Under Section 203[15] of the NIRC, internal revenue taxes must be assessed within three years
counted from the period fixed by law for the filing of the tax return or the actual date of filing,
whichever is later. This mandate governs the question of prescription of the government's right
to assess internal revenue taxes primarily to safeguard the interests of taxpayers from
unreasonable investigation. Accordingly, the government must assess internal revenue taxes on
time so as not to extend indefinitely the period of assessment and deprive the taxpayer of the
assurance that it will no longer be subjected to further investigation for taxes after the expiration
of reasonable period of time.[16]

An exception to the three-year prescriptive period on the assessment of taxes is Section 222 (b)
of the NIRC, which provides:
xxxx

(b) If 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. The period so agreed upon may be
extended by subsequent written agreement made before the expiration of the period previously
agreed upon.
xxxx
The above provision authorizes the extension of the original three-year period by the execution
of a valid waiver, where the taxpayer and the BIR agreed in writing that the period to issue an
assessment and collect the taxes due is extended to an agreed upon date. Under RMO No. 20-90,
which implements Sections 203 and 222 (b), the following procedures should be followed:

1.| The waiver must be in the form identified as Annex "A" hereof....

2.| The waiver shall be signed by the taxpayer himself or his duly authorized representative.
In the case of a corporation, the waiver must be signed by any of its responsible officials.

Soon after the waiver is signed by the taxpayer, the Commissioner of Internal Revenue or
the revenue official authorized by him, as hereinafter provided, shall sign the waiver
indicating that the Bureau has accepted and agreed to the waiver. "* +  ,*
 -  . * '
*  +. /+/ + Both the date of execution by the
taxpayer and date of acceptance by the Bureau should be before the expiration of the
period of prescription or before the lapse of the period agreed upon in case a subsequent
agreement is executed.

3.| The following revenue officials are authorized to sign the waiver.

A.| In the National Office

xxxx

3.| › 00// 
!
 1 / /20
 *

B.| In the Regional Offices

3.| The Revenue District Officer with respect to tax cases still pending
investigation and the period to assess is about to prescribe regardless of
amount.

xxxx

4.|
| The Ö/
0 .  1  +/ *
34 -/ , the original copy to be attached to the
docket of the case, *   + -,
 *  1-
and the third copy for the Office accepting
the waiver. "* ,  ,
 /- . *  1-
 ,*/5*
,/  -* . /+/ +/ * 

/2/  -

| "* ,
2 /2-
 +
* . 
/ , Ö + Any revenue official found not to
have complied with this Order resulting in prescription of the right to assess/collect shall be
administratively dealt with. (Emphasis supplied.)
Applying RMO No. 20-90, the waiver in question here was defective and did not validly extend
the original three-year prescriptive period. Firstly, it was not proven that respondent was
furnished a copy of the BIR-accepted waiver. Secondly, the waiver was signed only by a
revenue district officer, when it should have been signed by the Commissioner as mandated by
the NIRC and RMO No. 20-90, considering that the case involves an amount of more than P1
million, and the period to assess is not yet about to prescribe. Lastly, it did not contain the date of
acceptance by the Commissioner of Internal Revenue, a requisite necessary to determine whether
the waiver was validly accepted before the expiration of the original three-year period. Bear in
mind that the waiver in question is a bilateral agreement, thus necessitating the very signatures of
both the Commissioner and the taxpayer to give birth to a valid agreement.[17]

Petitioner contends that the procedures in RMO No. 20-90 are merely directory and that the
execution of a waiver was a renunciation of respondent's right to invoke prescription. We do not
agree. RMO No. 20-90 must be strictly followed. In ˜˜˜   ˜

 ˜˜     [18]we ruled that a waiver of the statute of limitations under
the NIRC, to a certain extent being a derogation of the taxpayer's right to security against
prolonged and unscrupulous investigations, must be carefully and strictly construed. The waiver
of the statute of limitations does not mean that the taxpayer relinquishes the right to invoke
prescription unequivocally, particularly where the language of the document is equivocal.[19]
Notably, in this case, the waiver became unlimited in time because it did not specify a definite
date, agreed upon between the BIR and respondent, within which the former may assess and
collect taxes. It also had no binding effect on respondent because there was no consent by the
Commissioner. On this basis, no implied consent can be presumed, nor can it be contended that
the concurrence to such waiver is a mere formality.[20]

Consequently, petitioner cannot rely on its invocation of the rule that the government cannot be
estopped by the mistakes of its revenue officers in the enforcement of RMO No. 20-90 because
the law on prescription should be interpreted in a way conducive to bringing about the beneficent
purpose of affording protection to the taxpayer within the contemplation of the Commission
which recommended the approval of the law. To the Government, its tax officers are obliged to
act promptly in the making of assessment so that taxpayers, after the lapse of the period of
prescription, would have a feeling of security against unscrupulous tax agents who will always
try to find an excuse to inspect the books of taxpayers, not to determine the latter's real liability,
but to take advantage of a possible opportunity to harass even law-abiding businessmen.
Without such legal defense, taxpayers would be open season to harassment by unscrupulous tax
agents.[21]

In fine, Assessment Notice No. 33-1-00487-95 dated October 25, 1999, was issued beyond the
three-year prescriptive period. The waiver was incomplete and defective and thus, the three-year
prescriptive period was not tolled nor extended and continued to run until April 15, 1999. Even
if the three-year period be counted from May 8, 1996, the date of filing of the amended return,
assuming the amended return was substantially different from the original return, a case which
affects the reckoning point of the prescriptive period,[22] still, the subject assessment is definitely
considered time-barred.

_  !  the petition is   for lack of merit The assailed Decision and
Resolution dated January 31, 2005 and April 14, 2005, respectively, of the Court of Appeals in
CA-G.R. SP No. 79675 are hereby #!!  No pronouncement as to costs.

Ê  

˜   ˜ 


 and ˜ , concur.

[1]
  , pp. 58-71. Penned by Associate Justice Mariano C. Del Castillo, with Associate
Justices Romeo A. Brawner and Magdangal M. De Leon concurring.
[2]
Id. at 88.
[3]
Id. at 179-196.
[4]
Id. at 59-60.

DEFICIENCY INCOME TAX


Net Income per investigation (P2,826,541.00)
Add: Unallowable
Deductions/Additional Income
Total Expenses P10,912,669.00
Disallowed Portion x 81%
Total Adjustments 8,839,261.89

Net Income per investigation P 6,012,720.89


Less: Personal and Additional -0-
Exemptions
P 6,012,720.89
Income Tax Due (35%) P 2,104,452.00
Less: Amount already assessed 154,995.30
""#$"#6% 3 1 /
0  4 7
# › "Ê$#" #8 "!_ " $  "#6
›  Ê#" 3+//+ +. -. 4
Basic Tax P 304,891.10
30% surcharge (Sec. 248) 87,016.20
Interest (1/26/96 to 11/7/96) (Sec. + 60,343.02
249)
Compromise Penalty (Sec. 254) 16,000.00
""#$ )
' › "Ê$#" #8 "! 6# _ " $  "#6
## "!

Management fee per financial P4,104,800.00


statement
Less: Management fee subj. to EWT 260,640.00
(1995)
Mgmt. Fee not subject to EWT until P3,844,160.00
10-15-96
Basic Tax (10%) P 384,416.00

25% surcharge (Sec. 248) 96,104.00


Interest (1-26-96 to 10-15-96) (Sec. 69,942.35
249)
Compromise Penalty (Sec. 254) 16,000.00
"  7
› "Ê% 3#9'477
[5]

Id. at 61-62.
Net Income per Investigation (P2,826,541.00)
Add: Adjustments/Disallowances
Management Fees-Not necessary (Sec. 29) 4,104,800.00
Employee Benefits-unsupported (Sec. 29) 58,611.55
Salaries and Wages-No EWT (Sec. 29) 1,059,118.50
Withholding Tax-unaccounted (Sec. 28) 348,813.13
Cash Overdraft-unaccounted (Sec. 28) 254,853.96
Transportation Exp.-unaccounted (Sec. 28) 22,390.16
Representation Exp.-unaccounted (Sec. 29) 14,772.59
Miscellaneous Exp.-unsupported (Sec. 29) 69,404.65
5,932,764.44

Net Taxable Income P 3,106,223.44

Income Tax Due Thereon P 1,087,178.20


Less Tax Credit/Paid 154,995.30
 0 "1 "*
3 1 +/2 ))
/
0  4

# 
0   $ 0   ,_/ ** +/2"1 › 0-  / 3+//+ +. 
-. 4

Basic P 304,891.10

25% surcharge (Sec. 248) 87,016.20


Interest (1/26/96 to 11/7/96) 60,343.02
(Sec. 249)
Compromise Penalty (Sec. 254) 16,000.00
Total P 163,359.22
' 
0   $ 0   , 1-+ +_/ ** +/2"1  2 0  !

Management Fee per financial Statement P4,104,800.00


Less: Management Fee subj. to EWT (1995) 260,640.00
Difference (Mgmt. fee subj. to EWT until 10-15-96) P3,844,160.00
Basic Tax (P3,844,160.00 x 10%) P384,416.00
25% Surcharge (Sec. 248) 96,104.00
Interest (1-2-96 to 10-15-96) (Sec. 249) 69,942.35
Compromise Penalty (Sec. 254) 16,000.00
Total P182,046.35

""#$ › "Ê$#" #8 "Ê3#9'477


[6]
Id. at 63.
[7]
Id. at 63-64.

Nullity of the Assessment Notice for want of legal or factual basis:

a) That the taxpayer was not informed in writing of the law and facts on which the assessment
was based;
b) The [BIR] erred in disallowing business expenses as deductions (management fees, cash
overdraft, salaries, etc.)
c) That withholding tax should only be upon actual payment of compensation and not upon its
accrual; and
d) That the withholding tax on management fees paid to another corporation (˜., IPCP)
should be only 5% and not 10%.
[8]
SUBJECT: PROPER EXECUTION OF THE WAIVER OF THE STATUTE OF
LIMITATIONS UNDER THE NATIONAL INTERNAL REVENUE CODE, dated April 4,
1990.
[9]
  pp. 191-195.
[10]
Id. at 70.
[11]
Id. at 606.
[12]
Section 222. u 
     
  
   
:

xxxx

(b) If 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. The period so agreed upon may be
extended by subsequent written agreement made before the expiration of the period previously
agreed upon.

xxxx
[13]
G.R. No. 162852, December 16, 2004, 447 SCRA 214.
[14]
Id. at 224-225, 227.
[15]
Section 203.    
  
 : Except as provided in
Section 222,  
  
 
 
     

  


    
       , and no proceeding in court without assessment for
the collection of such taxes shall be begun after the expiration of such period:  ˜  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.... (Emphasis supplied.)




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WHEREFORE, in view of the foregoing, the 1988deficiency tax assessment against
petitioner is hereby CANCELLED.Respondent is hereby ORDERED TO DESIST from
collecting said deficiency tax.No pronouncement as to costs.

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WHEREFORE, the petition is hereby GRANTED.The decision dated May 17, 2000 as well as
the Resolution dated July 25, 2000 are hereby REVERSED and SET ASIDE, and a new on
entered ordering the respondent to pay the amount of P826,698.31 as deficiency income tax for
the year 1987 plus 25% surcharge and 20% interest per annum from February 6, 1991 until fully
paid pursuant to Sections 248 and 249 of the Tax Code.



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Ê ›  Ê 

› ÊÊ  ! " #$  


  % 
˜˜ , Present:
CARPIO, ˜ 
BRION,
- versus - DEL CASTILLO,
ABAD, 
PEREZ, 

¬%Ê "#$›#"  Promulgated:


  . May 5, 2010

x-------------------------------------------------------------------x

 › Ê 

 $›#Ê" $$—!

The prescriptive period on when to assess taxes benefits both the government and
the taxpayer. Exceptions extending the period to assess must, therefore, be strictly
construed. 

This Petition for Review on ˜ ˜ seeks to set aside the Decision dated March
30, 2007 of the Court of Tax Appeals (CTA) affirming the cancellation of the assessment
notices for having been issued beyond the prescriptive period and the Resolution dated
May 18, 2007 denying the motion for reconsideration.
c

  

On April 15, 1999, respondent Kudos Metal Corporation filed its Annual Income
Tax Return (ITR) for the taxable year 1998.

Pursuant to a Letter of Authority dated September 7, 1999, the Bureau of Internal


Revenue (BIR) served upon respondent three Notices of Presentation of Records.
Respondent failed to comply with these notices, hence, the BIR issued a   


 dated September 21, 2006, receipt of which was acknowledged by respondent¶s
President, Mr. Chan Ching Bio, in a letter dated October 20, 2000.

A review and audit of respondent¶s records then ensued.

On December 10, 2001, Nelia Pasco (Pasco), respondent¶s accountant, executed a


Waiver of the Defense of Prescription, which was notarized on January 22, 2002,
received by the BIR Enforcement Service on January 31, 2002 and by the BIR Tax Fraud
Division on February 4, 2002, and accepted by the Assistant Commissioner of the
Enforcement Service, Percival T. Salazar (Salazar).
This was followed by a second Waiver of Defense of Prescription executed by
Pasco on February 18, 2003, notarized on February 19, 2003, received by the BIR Tax
Fraud Division on February 28, 2003 and accepted by Assistant Commissioner Salazar.

On August 25, 2003, the BIR issued a Preliminary Assessment Notice for the
taxable year 1998 against the respondent. This was followed by a Formal Letter of
Demand with Assessment Notices for taxable year 1998, dated September 26, 2003
which was received by respondent on November 12, 2003.

Respondent challenged the assessments by filing its ³Protest on Various Tax


Assessments´ on December 3, 2003 and its ³Legal Arguments and Documents in
Support of Protests against Various Assessments´ on February 2, 2004.

On June 22, 2004, the BIR rendered a final Decision on the matter, requesting the
immediate payment of the following tax liabilities:

¬  

Income Tax P 9,693,897.85
VAT 13,962,460.90
EWT 1,712,336.76
Withholding Tax-Compensation 247,353.24
Penalties 8,000.00
"  77
      

" # $

Believing that the government¶s right to assess taxes had prescribed, respondent
filed on August 27, 2004 a Petition for Review with the CTA. Petitioner in turn filed his
Answer.

On April 11, 2005, respondent filed an ³Urgent Motion for Preferential Resolution
of the Issue on Prescription.´

On October 4, 2005, the CTA Second Division issued a Resolution canceling the
assessment notices issued against respondent for having been issued beyond the
prescriptive period. It found the first Waiver of the Statute of Limitations incomplete and
defective for failure to comply with the provisions of Revenue Memorandum Order
(RMO) No. 20-90. Thus:

First, the Assistant Commissioner is not the revenue official authorized to sign
the waiver, as the tax case involves more than P1,000,000.00. In this regard, only the
Commissioner is authorized to enter into agreement with the petitioner in extending the
period of assessment;

Secondly, the waiver failed to indicate the date of acceptance. Such date of
acceptance is necessary to determine whether the acceptance was made within the
prescriptive period;

Third, the fact of receipt by the taxpayer of his file copy was not indicated on the
original copy. The requirement to furnish the taxpayer with a copy of the waiver is not
only to give notice of the existence of the document but also of the acceptance by the BIR
and the perfection of the agreement.
The subject waiver is therefore incomplete and defective. As such, the three-year
prescriptive period was not tolled or extended and continued to run. x x x

Petitioner moved for reconsideration but the CTA Second Division denied the
motion in a Resolution dated April 18, 2006.

      



" u %


On appeal, the CTA u 


affirmed the cancellation of the assessment notices.
Although it ruled that the Assistant Commissioner was authorized to sign the waiver
pursuant to Revenue Delegation Authority Order (RDAO) No. 05-01, it found that the
first waiver was still invalid based on the second and third grounds stated by the CTA
Second Division. Pertinent portions of the Decision read as follows:

While the Court u  


agrees with the second and third grounds for
invalidating the first waiver, it finds that the Assistant Commissioner of the Enforcement
Service is authorized to sign the waiver pursuant to RDAO No. 05-01, which provides in
part as follows:

A. For National Office cases

Designated Revenue Official

1. Assistant Commissioner (ACIR), For tax fraud and policy


Enforcement Service cases

2. ACIR, Large Taxpayers Service For large taxpayers cases


other than those cases falling under
Subsection B hereof

3. ACIR, Legal Service For cases pending


verification and awaiting
resolution of certain legal issues prior
to prescription and for
issuance/compliance of Subpoena
Duces Tecum

4. ACIR, Assessment Service (AS) For cases which are


pending in or subject to
review or approval by the
ACIR, AS

Based on the foregoing, the Assistant Commissioner, Enforcement Service is


authorized to sign waivers in tax fraud cases. A perusal of the records reveals that the
investigation of the subject deficiency taxes in this case was conducted by the National
Investigation Division of the BIR, which was formerly named the Tax Fraud Division.
Thus, the subject assessment is a tax fraud case.

Nevertheless, the first waiver is still invalid based on the second and third
grounds stated by the Court in Division. Hence, it did not extend the prescriptive period
to assess.

Moreover, assuming  that the first waiver is valid, the second waiver is
invalid for violating Section 222(b) of the 1997 Tax Code which mandates that the period
agreed upon in a waiver of the statute can still be extended by subsequent written
agreement, provided that it is executed prior to the expiration of the first period agreed
upon. As previously discussed, the exceptions to the law on prescription must be strictly
construed.

In the case at bar, the period agreed upon in the subject first waiver expired on
December 31, 2002. The second waiver in the instant case which was supposed to
extend the period to assess to December 31, 2003 was executed on February 18, 2003
and was notarized on February 19, 2003. Clearly, the second waiver was executed after
the expiration of the first period agreed upon. Consequently, the same could not have
tolled the 3-year prescriptive period to assess.

Petitioner sought reconsideration but the same was unavailing.




Hence, the present recourse where petitioner interposes that:

THE COURT OF TAX APPEALS u  !  ERRED IN RULING THAT THE


GOVERNMENT¶S RIGHT TO ASSESS UNPAID TAXES OF RESPONDENT
PRESCRIBED.

 &  

Petitioner argues that the government¶s right to assess taxes is not barred by
prescription as the two waivers executed by respondent, through its accountant,
effectively tolled or extended the period within which the assessment can be made. In
disputing the conclusion of the CTA that the waivers are invalid, petitioner claims that
respondent is estopped from adopting a position contrary to what it has previously taken.
Petitioner insists that by acquiescing to the audit during the period specified in the
waivers, respondent led the government to believe that the ³delay´ in the process would
not be utilized against it. Thus, respondent may no longer repudiate the validity of the
waivers and raise the issue of prescription.


 &  

Respondent maintains that prescription had set in due to the invalidity of the
waivers executed by Pasco, who executed the same without any written authority from it,
in clear violation of RDAO No. 5-01. As to the doctrine of   by acquiescence
relied upon by petitioner, respondent counters that the principle of equity comes into play
only when the law is doubtful, which is not present in the instant case.


 /2

The petition is bereft of merit.

Section 203 of the National Internal Revenue Code of 1997 (NIRC) mandates the
government to assess internal revenue taxes within three years from the last day
prescribed by law for the filing of the tax return or the actual date of filing of such return,
whichever comes later. Hence, an assessment notice issued after the three-year
prescriptive period is no longer valid and effective. Exceptions however are provided
under Section 222 of the NIRC.

 
      &


        
 
 
  


Petitioner does not deny that the assessment notices were issued beyond the three-
year prescriptive period, but claims that the period was extended by the two waivers
executed by respondent¶s accountant.

We do not agree.

Section 222 (b) of the NIRC provides that the period to assess and collect taxes
may only be extended upon a written agreement between the CIR and the taxpayer
executed before the expiration of the three-year period. RMO 20-90 issued on April 4,
1990 and RDAO 05-01 issued on August 2, 2001 lay down the procedure for the proper
execution of the waiver, to wit:

1. The waiver must be in the proper form prescribed by RMO 20-90. The
phrase ³but not after ______ 19 ___´, which indicates the expiry date of
the period agreed upon to assess/collect the tax after the regular three-
year period of prescription, should be filled up.

2. The waiver must be signed by the taxpayer himself or his duly


authorized representative. In the case of a corporation, the waiver must
be signed by any of its responsible officials. In case the authority is
delegated by the taxpayer to a representative, such delegation should be
in writing and duly notarized.

3. The waiver should be duly notarized.

4. The CIR or the revenue official authorized by him must sign the waiver
indicating that the BIR has accepted and agreed to the waiver. The date
of such acceptance by the BIR should be indicated. However, before
signing the waiver, the CIR or the revenue official authorized by him
must make sure that the waiver is in the prescribed form, duly notarized,
and executed by the taxpayer or his duly authorized representative.

5. Both the date of execution by the taxpayer and date of acceptance by


the Bureau should be before the expiration of the period of prescription
or before the lapse of the period agreed upon in case a subsequent
agreement is executed.

6. The waiver must be executed in three copies, the original copy to be


attached to the docket of the case, the second copy for the taxpayer and
the third copy for the Office accepting the waiver. The fact of receipt by
the taxpayer of his/her file copy must be indicated in the original copy to
show that the taxpayer was notified of the acceptance of the BIR and the
perfection of the agreement.

A perusal of the waivers executed by respondent¶s accountant reveals the


following infirmities:
1. The waivers were executed without the notarized written authority of
Pasco to sign the waiver in behalf of respondent.

2. The waivers failed to indicate the date of acceptance.

3. The fact of receipt by the respondent of its file copy was not indicated
in the original copies of the waivers.

Due to the defects in the waivers, the period to assess or collect taxes was not
extended. Consequently, the assessments were issued by the BIR beyond the three-year
period and are void.

u  


   


We find no merit in petitioner¶s claim that respondent is now estopped from


claiming prescription since by executing the waivers, it was the one which asked for
additional time to submit the required documents.

In  
         "
   ˜   ˜ ˜    " the
doctrine of estoppel prevented the taxpayer from raising the defense of prescription
against the efforts of the government to collect the assessed tax. However, it must be
stressed that in the said case, estoppel was applied as an exception to the statute of
limitations on

˜ of taxes and not on the   of taxes, as the BIR was able
to make an assessment within the prescribed period. More important, there was a finding
that the taxpayer made several requests or positive acts to convince the government to
postpone the collection of taxes, ˜#:

It appears that the first assessment made against respondent based on its second
final return filed on November 28, 1946 was made on February 11, 1947. Upon receipt
of this assessment respondent requested for at least one year within which to pay the
amount assessed although it reserved its right to question the correctness of the
assessment before actual payment. Petitioner granted an extension of only three months.
When it failed to pay the tax within the period extended, petitioner sent respondent a
letter on November 28, 1950 demanding payment of the tax as assessed, and upon receipt
of the letter respondent asked for a reinvestigation and reconsideration of the assessment.
When this request was denied, respondent again requested for a reconsideration on April
25, 1952, which was denied on May 6, 1953, which denial was appealed to the
Conference Staff. The appeal was heard by the Conference Staff from September 2, 1953
to July 16, 1955, and as a result of these various negotiations, the assessment was finally
reduced on July 26, 1955. This is the ruling which is now being questioned after a
protracted negotiation on the ground that the collection of the tax has already prescribed.

It is obvious from the foregoing that petitioner refrained from collecting the tax
by distraint or levy or by proceeding in court within the 5-year period from the filing of
the second amended final return due to the several requests of respondent for extension to
which petitioner yielded to give it every opportunity to prove its claim regarding the
correctness of the assessment. Because of such requests, several reinvestigations were
made and a hearing was even held by the Conference Staff organized in the collection
office to consider claims of such nature which, as the record shows, lasted for several
months. After inducing petitioner to delay collection as he in fact did, it is most unfair for
respondent to now take advantage of such desistance to elude his deficiency income tax
liability to the prejudice of the Government invoking the technical ground of prescription.

While we may agree with the Court of Tax Appeals that a mere request for
reexamination or reinvestigation may not have the effect of suspending the running of the
period of limitation for in such case there is need of a written agreement to extend the
period between the Collector and the taxpayer, there are cases however where a taxpayer
may be prevented from setting up the defense of prescription even if he has not
previously waived it in writing as when by his repeated requests or positive acts the
Government has been, for good reasons, persuaded to postpone collection to make him
feel that the demand was not unreasonable or that no harassment or injustice is meant by
the Government. And when such situation comes to pass there are authorities that hold,
based on weighty reasons, that such an attitude or behavior should not be countenanced if
only to protect the interest of the Government.

This case has no precedent in this jurisdiction for it is the first time that such has
risen, but there are several precedents that may be invoked in American jurisprudence. As
Mr. Justice Cardozo has said: ³The applicable principle is fundamental and unquestioned.
µHe who prevents a thing from being done may not avail himself of the nonperformance
which he has himself occasioned, for the law says to him in effect ³this is your own act,
and therefore you are not damnified.´¶ ³(R. H. Stearns Co. vs. U.S., 78 L. ed., 647). Or,
as was aptly said, ³The tax could have been collected, but the government withheld
action at the specific request of the plaintiff. The plaintiff is now estopped and should not
be permitted to raise the defense of the Statute of Limitations.´ [Newport Co. vs. U.S.,
(DC-WIS), 34 F. Supp. 588].

Conversely, in this case, the assessments were issued beyond the prescribed
period. Also, there is no showing that respondent made any request to persuade the BIR
to postpone the issuance of the assessments.

The doctrine of estoppel cannot be applied in this case as an exception to the


statute of limitations on the assessment of taxes considering that there is a detailed
procedure for the proper execution of the waiver, which the BIR must strictly follow. As
we have often said, the doctrine of estoppel is predicated on, and has its origin in, equity
which, broadly defined, is justice according to natural law and right. As such, the
doctrine of estoppel cannot give validity to an act that is prohibited by law or one that is
against public policy. It should be resorted to solely as a means of preventing injustice
and should not be permitted to defeat the administration of the law, or to accomplish a
wrong or secure an undue advantage, or to extend beyond them requirements of the
transactions in which they originate. Simply put, the doctrine of estoppel must be
sparingly applied.

Moreover, the BIR cannot hide behind the doctrine of estoppel to cover its failure
to comply with RMO 20-90 and RDAO 05-01, which the BIR itself issued. As stated
earlier, the BIR failed to verify whether a notarized written authority was given by the
respondent to its accountant, and to indicate the date of acceptance and the receipt by the
respondent of the waivers. Having caused the defects in the waivers, the BIR must bear
the consequence. It cannot shift the blame to the taxpayer. To stress, a waiver of the
statute of limitations, being a derogation of the taxpayer¶s right to security against
prolonged and unscrupulous investigations, must be carefully and strictly construed.

As to the alleged delay of the respondent to furnish the BIR of the required
documents, this cannot be taken against respondent. Neither can the BIR use this as an
excuse for issuing the assessments beyond the three-year period because with or without
the required documents, the CIR has the power to make assessments based on the best
evidence obtainable.

_  ! , the petition is    The assailed Decision dated March


30, 2007 and Resolution dated May 18, 2007 of the Court of Tax Appeals are hereby
#!!  


Ê