CIR vs Transitions Optical Philippines, Inc.

Facts:

A Petition for Review on Certiorari was filed by petitioner seeking to nullify and set aside the decision of
the CTA En Banc’s affirmation of the CTA First division, cancelling the deficiency assessments against
respondent.

A Letter of Authority (LOA) was received by respondent from the BIR Revenue Region No. 9 (RR No.9)
authorizing Revenue Officers Santos and Visaya to examine respondent’s book of accounts for internal
revenue tax purposes. The parties allegedly executed a Waiver of the Defense of Prescription (First
Waiver). The period set in the First Waiver was from the year 2004 to June 20, 2008. Another waiver
(Second Waiver) was executed by the parties extending the period to November 26, 2008.

The Commissioner then issued a FAN against respondent and an FLD for deficiency income tax, VAT,
expanded withholding tax, and a final tax for taxable year of 2004 amounting to P9 million. (P9,
701,849.68)

Respondent then filed a Protest Letter against the Fan alleging that the deficiency taxed had already
prescribed at the time the FAN was mailed on December 2, 2008. In a Supplemental Protest, respondent
pointed out that the FAN was void because it indicated 2006 as the return period, but the assessment
covered was calendar year 2004.

Years later, the Commissioner issued an FDDA dated January 4, 2012 holding respondent liable for
deficiency taxes in the total amount of P9 million.

IN THE CTA FIRST DIVISION

A Petition for Review was then filed by respondent before the CTA. The Commissioner filed an answer
claiming that the prescription was inappropriate because the Waiver of Defense was extended. She also
added that the posting of the FAN and the FLD was in the control of San Pablo City’s Post Office. The
Commissioner averred that she cannot be faulted for the delay in the mailing. (There was a holiday,
December 8, Feast of the Immaculate Conception)

The CTA found the Waivers to be defective and void, but granted the petition, cancelling and setting
aside the FAN, FLD, and FDDA. CIR filed an MR before the CTA First Division but the same was denied.

IN THE CTA EN BANC

The CTA En Banc affirmed the decision of the CTA First Division.

Issues:

1. Whether or not the Waivers of Defense are valid and respondent is estopped from questioning
such validity. NO.
2. Whether or not the deficiency tax assessment against respondent had prescribed. NO.
3. Whether or not the assessment required to be issued within the 3-year extended period
provided in Sec. 203 and 222 of the NIRC refers to the service of the PAN. NO.
Held:

Petitioner’s contentions

i. The 2 waivers complied with the requirements under Sec. 203 and 222 for waivers and
that the technical rules of procedure of administrative bodies such as those provided in
RMO No. 20-90 and RDAO No. 05-01 must be liberally applied.
ii. Petitioner maintains that respondent is estopped from questioning the validity of the
waivers.
iii. Petitioner argues that the assessment mentioned under Sec. 203 and 222 refers to PAN
and not FAN.

Respondent’s contentions

i. Respondent argues that the CTA properly found the waivers to be defective.
ii. Respondent argues that it is not estopped from questioning the validity of the waivers.
iii. Respondent contends that the prescriptive period for tax assessment primarily benefits
the tax payer.

Petition is denied.

1. The Waivers of Defense are not valid for failure to comply with the requirements for the proper
execution of a waiver as provided in RMO No. 20-90 and RDAO No. 05-01. Specifically these
waivers were not accompanied with notarized authority from respondent, authorizing the so-
called representatives who signed therein to act on its behalf. (No SPA attached?)

The Supreme Court found that respondent is estopped from questioning the validity of the
waivers. It allowed petitioner to rely on the waivers and did not raise any objection to their
validity until petitioner assessed taxes and penalties against it.

2. Even though respondent is estopped from questioning the validity of the waivers, the
assessment is nonetheless void for being served beyond the supposedly extended period.

The CTA First Division found that the date indicated in the mail containing the FAN and the FLD
is December 4, 2008, which is considered as the date of mailing. The validity of the Second
Waiver is only until November 30, 2008, therefore prescription had already set in at the time the
FAN and FLD were actually mailed.

3. The assessment contemplated in Sec 203 and 222 refers to the service of FAN and not PAN. A
PAN merely informs the tax payer of the initial findings of the BIR while a FAN contains the
computation of the tax liabilities and a demand for payment within a prescribed period. As soon
as the FAN is served, an obligation arises on the part of the taxpayer to pay the amount assessed
and demanded.