CIR vs Philippine Daily Inquirer March 22, 2017, G.R. No. 213943

Facts:

Issues:

1.) Whether the CTA En Banc erred in ruling that petitioner’s assessment for deficiency VAT and income tax was adequately controverted by respondent;

2.) Whether the CTA En Banc erred in ruling that the petitioner’s right to assess respondent for deficiency VAT and income tax has prescribed; and

3.) Whether the CTA En Banc erred in ruling that respondent is not estopped from raising the defense of prescription.

Held:

1.) No, the CTA recognized that the BIR may obtain information from third party sources in assessing taxpayers. The CTA also stated that the BIR enjoyed a presumption of regularity in obtaining the information, and its assessments are presumed correct and made in good faith. Indeed, the burden to controvert the assessments made by the BIR lies with the taxpayer. In this case, the CTA rejected BIR’s finding that PDI underdeclared its input tax and purchases. According to the CTA, PDI was able to disprove BIR’s assessments. 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.

2.) No, 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. the 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. The Court added that the mere understatement of a tax is not itself proof of fraud for the purpose of tax evasion. The fraud contemplated by law is actual and not constructive. It must be intentional fraud, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some legal right. Negligence, whether slight or gross, is not equivalent to fraud with intent to evade the tax contemplated by law. It must amount to intentional wrongdoing with the sole object of avoiding the tax. The court believe that the proper· and reasonable interpretation of said provision should be that in the three different cases of (1) false return, (2) fraudulent return with intent to evade tax, (3) failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment. at any time within ten years after the discovery of the (1) falsity, (2) fraud, (3) omission. Our stand that the law should be interpreted to mean a separation of the three different situations of false return, fraudulent return with intent to evade tax, and failure to file a return is strengthened immeasurably by the last portion of the provision which segregates the situation into three different classes, namely “falsity,” “fraud,” and “omission.” That there is a difference between “false return” and “fraudulent return” cannot be denied. While the first implies deviation from the truth, whether intentional or not, the second implies intentional or deceitful entry with intent to evade the taxes due.

3.) No, 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. As such, we sustain the cancellation of the Formal Letter of Demand dated 11 March 2008 and Assessment No. LN # 116-AS- 04-00-00038-000526 for taxable year 2004 issued by the BIR against PDI.

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