G.R. No. 136975 March 31, 2005 COMMISSION OF INTERNAL REVENUE, petitioner, vs. HANTEX TRADING CO., INC.

, respondent. CALLEJO, SR., J.: Before us is a petition for review of the Decision1 of the Court of Appeals (CA) which reversed the Decision2 of the Court of Tax Appeals (CTA) in CTA Case No. 5126, upholding the deficiency income and sales tax assessments against respondent Hantex Trading Co., Inc. The Antecedents The respondent is a corporation duly organized and existing under the laws of the Philippines. Being 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 P45,538,694.57.3 According to the informer, based on photocopies of 77 Consumption Entries furnished by another informer, the 1987 importations of the respondent were understated in its accounting records.4 Amoto submitted a report to the EIIB Commissioner recommending that an inventory audit of the respondent be conducted by the Internal Inquiry and Prosecution Office (IIPO) of the EIIB.5 Acting on the said report, Jose T. Almonte, then Commissioner of the EIIB, issued Mission Order No. 398-896 dated November 14, 1989 for the audit and investigation of the importations of Hantex for 1987. The IIPO issued subpoena duces tecum and ad testificandum for the president and general manager of the respondent to appear in a hearing and bring the following: 1. Books of Accounts for the year 1987; 2. Record of Importations of Synthetic Resin and Calcium Carbonate for the year 1987; 3. Income tax returns & attachments for 1987; and 4. Record of tax payments.7 However, the respondents president and general manager refused to comply with the subpoena, contending that its books of accounts and records of importation of synthetic resin and calcium bicarbonate had been investigated repeatedly by the Bureau of Internal Revenue (BIR) on prior occasions.8 The IIPO explained that despite such previous investigations, the EIIB was still authorized to conduct an investigation pursuant to Section 26-A of Executive Order No. 127. Still, the respondent refused to comply with the subpoena issued by the IIPO. The latter forthwith secured certified copies of the Profit and Loss Statements for 1987 filed by the respondent with the Securities and Exchange Commission (SEC).9 However, the IIPO failed to secure certified copies of the respondents 1987 Consumption Entries from the Bureau of Customs since, according to the custodian thereof, the original copies had been eaten by termites.10 In a Letter dated June 28, 1990, the IIPO requested the Chief of the Collection Division, Manila International Container Port, and the Acting Chief of the Collection Division, Port of Manila, to authenticate the machine copies of the import entries supplied by the informer. However, Chief of the Collection Division Merlita D. Tomas could not do so because the Collection Division did not have the original copies of the entries. Instead, she wrote the IIPO that, as gleaned from the records, the following entries had been duly processed and released after the payment of duties and taxes:

IMPORTER HANTEX TRADING CO., INC. SERIES OF 1987 ENTRY NO. 03058-87 09120-87 18089-87 19439-87 19441-87 11667-87 23294-87 45478-87 45691-87 25464-87 26483-87 29950-87 DATE RELEASED 1/30/87 3/20/87 5/21/87 6/2/87 6/3/87 4/15/87 7/7/87 11/16/87 12/2/87 7/16/87 7/23/87 8/11/87 ENTRY NO. 50265-87 46427-87 30764-87 30833-87 34690-87 34722-87 43234-87 44850-87 44851-87 46461-87 46467-87 48091-87 DATE RELEASED 12/9/87 11/27/87 8/21/87 8/20/87 9/16/87 9/11/87 11/2/87 11/16/87 11/16/87 11/19/87 11/18/87 11-27-8711

Acting Chief of the Collection Division of the Bureau of Customs Augusto S. Danganan could not authenticate the machine copies of the import entries as well, since the original copies of the said entries filed with the Bureau of Customs had apparently been eaten by termites. However, he issued a certification that the following enumerated entries were filed by the respondent which were processed and released from the Port of Manila after payment of duties and taxes, to wit: Hantex Trading Co., Inc. Entry No. 3903 4414 10683 12611 12989 17050 17169 18089 19439 21189 43451 42795 35582 45691 Date Released 1/29/87 1/20/87 2/17/87 2/24/87 2/26/87 3/13/87 3/13/87 3/16/87 4/1/87 4/3/87 6/29/87 6/23/87 not received 7/3/87 Entry No. 22869 19441 24189 26431 45478 26796 28827 31617 39068 42581 42793 45477 85830 86650 Date Released 4/8/87 3/31/87 4/21/87 4/20/87 7/3/87 4/23/87 4/30/87 5/14/87 6/5/87 6/21/87 6/23/87 7/3/87 11/13/87 not received

46187 46427 57669 62471 63187 66859 67890 68115 69974 72213 77688 84253 85534

7/8/87 7/3/87 8/12/87 8/28/87 9/2/87 9/15/87 9/17/87 9/15/87 9/24/87 10/2/87 10/16/87 11/10/87 11/11/87

87647 88829 92293 93292 96357 96822 98823 99428 99429 99441 101406 101407 3118

11/18/87 11/23/87 12/3/87 12/7/87 12/16/87 12/15/87 not received 12/28/87 12/28/87 12/28/87 1/5/87 1/8/87 1-19-8712

a computation of the deficiency income and sales tax due from the respondent, inclusive of increments: B. Computations: 1. Cost of Sales Ratio 2. Undeclared Sales Imported 3. Undeclared Gross Profit C. Deficiency Taxes Due: 1. Deficiency Income Tax 50% Surcharge Interest to 2/28/91 Total 2. Deficiency Sales Tax at 10% at 20% Total Due Less: Advanced Sales Taxes Paid Deficiency Sales Tax 50% Surcharge Interest to 2/28/91 C2 x 50% 7,290,082.72 10,493,312.31 17,783,395.03 11,636,352.00 6,147,043.03 3,073,521.52 5,532,338.73 B3 x 35% C1 x 50% C1 x 57.5% 5,589,261.00 2,794,630.50 3,213,825.08 11,597,825.58 A2/A1 A3/B1 B2-A3 85.492923% 110,079,491.61 15,969,316.61

Bienvenido G. Flores, Chief of the Investigation Division, and Lt. Leo Dionela, Lt. Vicente Amoto and Lt. Rolando Gatmaitan conducted an investigation. They relied on the certified copies of the respondents 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, inclusive of the machine copies of the Consumption Entries, the EIIB found that for 1987, the respondent had importations totaling P105,716,527.00 (inclusive of advance sales tax). 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, inclusive of penalty charge and interests. EIIB Commissioner Almonte transmitted the entire docket of the case to the BIR and recommended the collection of the total tax assessment from the respondent.13 On February 12, 1991, Deputy Commissioner Deoferio, Jr. issued a Memorandum to the BIR Assistant Commissioner for Special Operations Service, directing the latter to prepare a conference letter advising the respondent of its deficiency taxes.14 Meanwhile, as ordered by the Regional Director, Revenue Enforcement Officers Saturnino D. Torres and Wilson Filamor conducted an investigation on the 1987 importations of the respondent, in the light of the records elevated by the EIIB to the BIR, inclusive of the photocopies of the Consumption Entries. They were to ascertain the respondents liability for deficiency sales and income taxes for 1987, if any. Per Torres and Filamors Report dated March 6, 1991 which was based on the report of the EIIB and the documents/records appended thereto, there was a prima facie case of fraud against the respondent in filing its 1987 Consumption Entry reports with the Bureau of Customs. They found that the respondent had unrecorded importation in the total amount of P70,661,694.00, and that the amount was not declared in its income tax return for 1987. The District Revenue Officer and the Regional Director of the BIR concurred with the report.15 Based on the said report, the Acting Chief of the Special Investigation Branch wrote the respondent and invited its representative to a conference at 10:00 a.m. of March 14, 1991 to discuss its deficiency internal revenue taxes and to present whatever documentary and other evidence to refute the same.16 Appended to the letter was

Total 14,752,903.2817 The invitation was reiterated in a Letter dated March 15, 1991. In his Reply dated March 15, 1991, Mariano O. Chua, the President and General Manager of the respondent, requested that the report of Torres and Filamor be set aside on the following claim: [W]e had already been investigated by RDO No. 23 under Letters of Authority Nos. 0322988 RR dated Oct. 1, 1987, 0393561 RR dated Aug. 17, 1988 and 0347838 RR dated March 2, 1988, and re-investigated by the Special Investigation Team on Aug. 17, 1988 under Letter of Authority No. 0357464 RR, and the Intelligence and Investigation Office on Sept. 27, 1988 under Letter of Authority No. 0020188 NA, all for income and business tax liabilities for 1987. The Economic Intelligence and Investigation Bureau on Nov. 20, 1989, likewise, confronted us on the same information for the same year. In all of these investigations, save your request for an informal conference, we welcomed them and proved the contrary of the allegation. Now, with your new inquiry, we think that there will be no end to the problem. Madam, we had been subjected to so many investigations and re-investigations for 1987 and nothing came out except the payment of deficiency taxes as a result of oversight. Tax evasion through underdeclaration of income had never been proven.18 Invoking Section 23519 of the 1977 National Internal Revenue Code (NIRC), as amended, Chua requested that the inquiry be set aside. The petitioner, the Commissioner of Internal Revenue, through Assistant Commissioner for Collection Jaime M. Maza, sent a Letter dated April 15, 1991 to the respondent demanding payment of its deficiency income tax of P13,414,226.40 and deficiency sales tax of P14,752,903.25, inclusive of surcharge and interest.20 Appended thereto were the Assessment Notices of Tax Deficiency Nos. FAS-1-87-91001654 and FAS-4-87-91-001655.21 On February 12, 1992, the Chief of the Accounts Receivables/Billing Division of the BIR sent a letter to the respondent demanding payment of its tax liability due for 1987 within ten (10) days from notice, on pain of the collection tax due via a warrant

of distraint and levy and/or judicial action.22 The Warrant of Distraint and/or Levy23 was actually served on the respondent on January 21, 1992. On September 7, 1992, it wrote the Commissioner of Internal Revenue protesting the assessment on the following grounds: I. THAT THE ASSESSMENT HAS NO FACTUAL AS WELL AS LEGAL BASIS, THE FACT THAT NO INVESTIGATION OF OUR RECORDS WAS EVER MADE BY THE EIIB WHICH RECOMMENDED ITS ISSUANCE.24 II. THAT GRANTING BUT WITHOUT ADMITTING THAT OUR PURCHASES FOR 1987 AMOUNTED TO P105,716,527.00 AS CLAIMED BY THE EIIB, THE ASSESSMENT OF A DEFICIENCY INCOME TAX IS STILL DEFECTIVE FOR IT FAILED TO CONSIDER OUR REAL PURCHASES OF P45,538,694.57.25 III. THAT THE ASSESSMENT OF A DEFICIENCY SALES TAX IS ALSO BASELESS AND UNFOUNDED CONSIDERING THAT WE HAVE DUTIFULLY PAID THE SALES TAX DUE FROM OUR BUSINESS.26 In view of the impasse, administrative hearings were conducted on the respondents protest to the assessment. During the hearing of August 20, 1993, the IIPO representative presented the photocopies of the Consumption and Import Entries and the Certifications issued by Tomas and Danganan of the Bureau of Customs. The IIPO representative testified that the Bureau of Customs failed to furnish the EIIB with certified copies of the Consumption and Import Entries; hence, the EIIB relied on the machine copies from their informer.27 The respondent wrote the BIR Commissioner on July 12, 1993 questioning the assessment on the ground that the EIIB representative failed to present the original, or authenticated, or duly certified copies of the Consumption and Import Entry Accounts, or excerpts thereof if the original copies were not readily available; or, if the originals were in the official custody of a public officer, certified copies thereof as provided for in Section 12, Chapter 3, Book VII, Administrative Procedure, Administrative Order of 1987. It stated that the only copies of the Consumption Entries submitted to the Hearing Officer were mere machine copies furnished by an informer of the EIIB. It asserted that the letters of Tomas and Danganan were unreliable because of the following: In the said letters, the two collection officers merely submitted a listing of alleged import entry numbers and dates released of alleged importations by Hantex Trading Co., Inc. of merchandise in 1987, for which they certified that the corresponding duties and taxes were paid after being processed in their offices. In said letters, no amounts of the landed costs and advance sales tax and duties were stated, and no particulars of the duties and taxes paid per import entry document was presented. The contents of the two letters failed to indicate the particulars of the importations per entry number, and the said letters do not constitute as evidence of the amounts of importations of Hantex Trading Co., Inc. in 1987.28 The respondent cited the following findings of the Hearing Officer: [T]hat the import entry documents do not constitute evidence only indicate that the tax assessments in question have no factual basis, and must, at this point in time, be withdrawn and cancelled. Any new findings by the IIPO representative who attended the hearing could not be used as evidence in this hearing, because all the issues on the tax assessments in question have already been raised by the herein taxpayer.29 The respondent requested anew that the income tax deficiency assessment and the sales tax deficiency assessment be set aside for lack of factual and legal basis. The BIR Commissioner30 wrote the respondent on December 10, 1993, denying its letter-request for the dismissal of the assessments.31 The BIR Commissioner admitted, in the said letter, the possibility that the figures appearing in the photocopies of the Consumption Entries had been tampered with. She averred, however, that she was not proscribed from relying on other admissible evidence, namely, the Letters of Torres and Filamor dated August 7 and 22, 1990 on their

investigation of the respondents tax liability. The Commissioner emphasized that her decision was final.32 The respondent forthwith filed a petition for review in the CTA of the Commissioners Final Assessment Letter dated December 10, 1993 on the following grounds: First. The alleged 1987 deficiency income tax assessment (including increments) and the alleged 1987 deficiency sales tax assessment (including increments) are void ab initio, since under Sections 16(a) and 49(b) of the Tax Code, the Commissioner shall examine a return after it is filed and, thereafter, assess the correct amount of tax. The following facts obtaining in this case, however, are indicative of the incorrectness of the tax assessments in question: the deficiency interests imposed in the income and percentage tax deficiency assessment notices were computed in violation of the provisions of Section 249(b) of the NIRC of 1977, as amended; the percentage tax deficiency was computed on an annual basis for the year 1987 in accordance with the provision of Section 193, which should have been computed in accordance with Section 162 of the 1977 NIRC, as amended by Pres. Decree No. 1994 on a quarterly basis; and the BIR official who signed the deficiency tax assessments was the Assistant Commissioner for Collection, who had no authority to sign the same under the NIRC. Second. Even granting arguendo that the deficiency taxes and increments for 1987 against the respondent were correctly computed in accordance with the provisions of the Tax Code, the facts indicate that the above-stated assessments were based on alleged documents which are inadmissible in either administrative or judicial proceedings. Moreover, the alleged bases of the tax computations were anchored on mere presumptions and not on actual facts. The alleged undeclared purchases for 1987 were based on mere photocopies of alleged import entry documents, not the original ones, and which had never been duly certified by the public officer charged with the custody of such records in the Bureau of Customs. According to the respondent, the alleged undeclared sales were computed based on mere presumptions as to the alleged gross profit contained in its 1987 financial statement. Moreover, even the alleged financial statement of the respondent was a mere machine copy and not an official copy of the 1987 income and business tax returns. Finally, the respondent was following the accrual method of accounting in 1987, yet, the BIR investigator who computed the 1987 income tax deficiency failed to allow as a deductible item the alleged sales tax deficiency for 1987 as provided for under Section 30(c) of the NIRC of 1986.33 The Commissioner did not adduce in evidence the original or certified true copies of the 1987 Consumption Entries on file with the Commission on Audit. Instead, she offered in evidence as proof of the contents thereof, the photocopies of the Consumption Entries which the respondent objected to for being inadmissible in evidence.34 She also failed to present any witness to prove the correct amount of tax due from it. Nevertheless, the CTA provisionally admitted the said documents in evidence, subject to its final evaluation of their relevancy and probative weight to the issues involved.35 On December 11, 1997, the CTA rendered a decision, the dispositive portion of which reads: IN THE LIGHT OF ALL THE FOREGOING, judgment is hereby rendered DENYING the herein petition. Petitioner is hereby ORDERED TO PAY the respondent Commissioner of Internal Revenue its deficiency income and sales taxes for the year 1987 in the amounts of P11,182,350.26 and P12,660,382.46, respectively, plus 20% delinquency interest per annum on both deficiency taxes from April 15, 1991 until fully paid pursuant to Section 283(c)(3) of the 1987 Tax Code, with costs against the petitioner. SO ORDERED.36 The CTA ruled that the respondent was burdened to prove not only that the assessment was erroneous, but also to adduce the correct taxes to be paid by it.

The CTA declared that the respondent failed to prove the correct amount of taxes due to the BIR. It also ruled that the respondent was burdened to adduce in evidence a certification from the Bureau of Customs that the Consumption Entries in question did not belong to it. On appeal, the CA granted the petition and reversed the decision of the CTA. The dispositive portion of the decision reads: FOREGOING PREMISES CONSIDERED, the Petition for Review is GRANTED and the December 11, 1997 decision of the CTA in CTA Case No. 5162 affirming the 1987 deficiency income and sales tax assessments and the increments thereof, issued by the BIR is hereby REVERSED. No costs.37 The Ruling of the Court of Appeals The CA held that the income and sales tax deficiency assessments issued by the petitioner were unlawful and baseless since the copies of the import entries relied upon in computing the deficiency tax of the respondent were not duly authenticated by the public officer charged with their custody, nor verified under oath by the EIIB and the BIR investigators.38 The CA also noted that the public officer charged with the custody of the import entries was never presented in court to lend credence to the alleged loss of the originals.39 The CA pointed out that an import entry is a public document which falls within the provisions of Section 19, Rule 132 of the Rules of Court, and to be admissible for any legal purpose, Section 24, Rule 132 of the Rules of Court should apply.40 Citing the ruling of this Court in Collector of Internal Revenue v. Benipayo,41 the CA ruled that the assessments were unlawful because they were based on hearsay evidence. The CA also ruled that the respondent was deprived of its right to due process of law. The CA added that the CTA should not have just brushed aside the legal requisites provided for under the pertinent provisions of the Rules of Court in the matter of the admissibility of public documents, considering that substantive rules of evidence should not be disregarded. It also ruled that the certifications made by the two Customs Collection Chiefs under the guise of supporting the respondents alleged tax deficiency assessments invoking the best evidence obtainable rule under the Tax Code should not be permitted to supplant the best evidence rule under Section 7, Rule 130 of the Rules of Court. Finally, the CA noted that the tax deficiency assessments were computed without the tax returns. The CA opined that the use of the tax returns is indispensable in the computation of a tax deficiency; hence, this essential requirement must be complied with in the preparation and issuance of valid tax deficiency assessments.42 The Present Petition The Commissioner of Internal Revenue, the petitioner herein, filed the present petition for review under Rule 45 of the Rules of Court for the reversal of the decision of the CA and for the reinstatement of the ruling of the CTA. As gleaned from the pleadings of the parties, the threshold issues for resolution are the following: (a) whether the petition at bench is proper and complies with Sections 4 and 5, Rule 7 of the Rules of Court; (b) whether the December 10, 1991 final assessment of the petitioner against the respondent for deficiency income tax and sales tax for the latters 1987 importation of resins and calcium bicarbonate is based on competent evidence and the law; and (c) the total amount of deficiency taxes due from the respondent for 1987, if any. On the first issue, the respondent points out that the petition raises both questions of facts and law which cannot be the subject of an appeal by certiorari under Rule 45 of the Rules of Court. The respondent notes that the petition is defective because the verification and the certification against forum shopping were not signed by the petitioner herself, but only by the Regional Director of the BIR. The respondent submits that the petitioner should have filed a motion for reconsideration with the CA before filing the instant petition for review.43 We find and so rule that the petition is sufficient in form. A verification and certification against forum shopping signed by the Regional Director constitutes

sufficient compliance with the requirements of Sections 4 and 5, Rule 7 of the Rules of Court. Under Section 10 of the NIRC of 1997,44 the Regional Director has the power to administer and enforce internal revenue laws, rules and regulations, including the assessment and collection of all internal revenue taxes, charges and fees. Such power is broad enough to vest the Revenue Regional Director with the authority to sign the verification and certification against forum shopping in behalf of the Commissioner of Internal Revenue. There is no other person in a better position to know the collection cases filed under his jurisdiction than the Revenue Regional Director. Moreover, under Revenue Administrative Order No. 5-83,45 the Regional Director is authorized to sign all pleadings filed in connection with cases referred to the Revenue Regions by the National Office which, otherwise, require the signature of the petitioner. We do not agree with the contention of the respondent that a motion for reconsideration ought to have been filed before the filing of the instant petition. A motion for reconsideration of the decision of the CA is not a condition sine qua non for the filing of a petition for review under Rule 45. As we held in Almora v.

Court of Appeals:46

Rule 45, Sec. 1 of the Rules of Court, however, distinctly provides that: A party may appeal by certiorari from a judgment of the Court of Appeals, by filing with the Supreme Court a petition for certiorari within fifteen (15) days from notice of judgment, or of the denial of his motion for reconsideration filed in due time. (Emphasis supplied) The conjunctive "or" clearly indicates that the 15-day reglementary period for the filing of a petition for certiorari under Rule 45 commences either from notice of the questioned judgment or from notice of denial of the appellants motion for reconsideration. A prior motion for reconsideration is not indispensable for a petition for review on certiorari under Rule 45 to prosper. 47 While Rule 45 of the Rules of Court provides that only questions of law may be raised by the petitioner and resolved by the Court, under exceptional circumstances, the Court may take cognizance thereof and resolve questions of fact. In this case, the findings and conclusion of the CA are inconsistent with those of the CTA, not to mention those of the Commissioner of Internal Revenue. The issues raised in this case relate to the propriety and the correctness of the tax assessments made by the petitioner against the respondent, as well as the propriety of the application of Section 16, paragraph (b) of the 1977 NIRC, as amended by Pres. Decree Nos. 1705, 1773, 1994 and Executive Order No. 273, in relation to Section 3, Rule 132 of the Rules of Evidence. There is also an imperative need for the Court to resolve the threshold factual issues to give justice to the parties, and to determine whether the CA capriciously ignored, misunderstood or misinterpreted cogent facts and circumstances which, if considered, would change the outcome of the case. On the second issue, the petitioner asserts that since the respondent refused to cooperate and show its 1987 books of account and other accounting records, it was proper for her to resort to the best evidence obtainable the photocopies of the import entries in the Bureau of Customs and the respondents financial statement filed with the SEC.48 The petitioner maintains that these import entries were admissible as secondary evidence under the best evidence obtainable rule, since they were duly authenticated by the Bureau of Customs officials who processed the documents and released the cargoes after payment of the duties and taxes due.49 Further, the petitioner points out that under the best evidence obtainable rule, the tax return is not important in computing the tax deficiency.50 The petitioner avers that the best evidence obtainable rule under Section 16 of the 1977 NIRC, as amended, legally cannot be equated to the best evidence rule under the Rules of Court; nor can the best evidence rule, being procedural law, be made strictly operative in the interpretation of the best evidence obtainable rule which is

substantive in character.51 The petitioner posits that the CTA is not strictly bound by technical rules of evidence, the reason being that the quantum of evidence required in the said court is merely substantial evidence.52 Finally, the petitioner avers that the respondent has the burden of proof to show the correct assessments; otherwise, the presumption in favor of the correctness of the assessments made by it stands.53 Since the respondent was allowed to explain its side, there was no violation of due process.54 The respondent, for its part, maintains that the resort to the best evidence obtainable method was illegal. In the first place, the respondent argues, the EIIB agents are not duly authorized to undertake examination of the taxpayers accounting records for internal revenue tax purposes. Hence, the respondents failure to accede to their demands to show its books of accounts and other accounting records cannot justify resort to the use of the best evidence obtainable method.55 Secondly, when a taxpayer fails to submit its tax records upon demand by the BIR officer, the remedy is not to assess him and resort to the best evidence obtainable rule, but to punish the taxpayer according to the provisions of the Tax Code.56 In any case, the respondent argues that the photocopies of import entries cannot be used in making the assessment because they were not properly authenticated, pursuant to the provisions of Sections 2457 and 2558 of Rule 132 of the Rules of Court. It avers that while the CTA is not bound by the technical rules of evidence, it is bound by substantial rules.59 The respondent points out that the petitioner did not even secure a certification of the fact of loss of the original documents from the custodian of the import entries. It simply relied on the report of the EIIB agents that the import entry documents were no longer available because they were eaten by termites. The respondent posits that the two collectors of the Bureau of Customs never authenticated the xerox copies of the import entries; instead, they only issued certifications stating therein the import entry numbers which were processed by their office and the date the same were released.60 The respondent argues that it was not necessary for it to show the correct assessment, considering that it is questioning the assessments not only because they are erroneous, but because they were issued without factual basis and in patent violation of the assessment procedures laid down in the NIRC of 1977, as amended.61 It is also pointed out that the petitioner failed to use the tax returns filed by the respondent in computing the deficiency taxes which is contrary to law;62 as such, the deficiency assessments constituted deprivation of property without due process of law.63 Central to the second issue is Section 16 of the NIRC of 1977, as amended,64 which provides that the Commissioner of Internal Revenue has the power to make assessments and prescribe additional requirements for tax administration and enforcement. Among such powers are those provided in paragraph (b) thereof, which we quote: (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.65 This provision applies when the Commissioner of Internal Revenue undertakes to perform her administrative duty of assessing the proper tax against a taxpayer, to

make a return in case of a taxpayers failure to file one, or to amend a return already filed in the BIR. The petitioner may avail herself of the best evidence or other information or testimony by exercising her power or authority under paragraphs (1) to (4) of Section 7 of the NIRC: (1) To examine any book, paper, record or other data which may be relevant or material to such inquiry; (2) To obtain information from any office or officer of the national and local governments, government agencies or its instrumentalities, including the Central Bank of the Philippines and government owned or controlled corporations; (3) To summon the person liable for tax or required to file a return, or any officer or employee of such person, or any person having possession, custody, or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax, or any other person, to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books, papers, records, or other data, and to give testimony; (4) To take such testimony of the person concerned, under oath, as may be relevant or material to such inquiry; 66 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.67 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 taxpayers 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.68 In this era of developing informationstorage technology, there is no valid reason to immunize companies with computerbased, 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 taxpayers return. In Campbell, Jr. v. Guetersloh,69 the United States (U.S.) Court of Appeals (5th Circuit) declared that it is the duty of the Commissioner of Internal Revenue to investigate any circumstance which led him to believe that the taxpayer had taxable income larger than reported. Necessarily, this inquiry would have to be outside of the books because they supported the return as filed. He may take the sworn testimony of the taxpayer; he may take the testimony of third parties; he may examine and subpoena, if necessary, traders and brokers accounts and books and the taxpayers book accounts. The Commissioner is not bound to follow any set of patterns. The existence of unreported income may be shown by any practicable proof that is available in the circumstances of the particular situation. Citing its ruling in Kenney v. Commissioner,70 the U.S. appellate court declared that where the records of the taxpayer are manifestly inaccurate and incomplete, the Commissioner may look to other sources of information to establish income made by the taxpayer during the years in question.71 We agree with the contention of the petitioner 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.72 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. Indeed, in United States v. Davey,73 the U.S. Court of Appeals (2nd Circuit) ruled that where the accuracy of a taxpayers return is being checked, the government is entitled to use the original records rather than be forced to accept purported copies which present the risk of error or tampering.74 In Collector of Internal Revenue v. Benipayo,75 the Court ruled that the assessment must be based on actual facts. The rule assumes more importance in this case since the xerox copies of the Consumption Entries furnished by the informer of the EIIB were furnished by yet another informer. While the EIIB tried to secure certified copies of the said entries from the Bureau of Customs, it was unable to do so because the said entries were allegedly eaten by termites. The Court can only surmise why the EIIB or the BIR, for that matter, failed to secure certified copies of the said entries from the Tariff and Customs Commission or from the National Statistics Office which also had copies thereof. It bears stressing that under Section 1306 of the Tariff and Customs Code, the Consumption Entries shall be the required number of copies as prescribed by regulations.76 The Consumption Entry is accomplished in sextuplicate copies and quadruplicate copies in other places. In Manila, the six copies are distributed to the Bureau of Customs, the Tariff and Customs Commission, the Declarant (Importer), the Terminal Operator, and the Bureau of Internal Revenue. Inexplicably, the Commissioner and the BIR personnel ignored the copy of the Consumption Entries filed with the BIR and relied on the photocopies supplied by the informer of the EIIB who secured the same from another informer. The BIR, in preparing and issuing its preliminary and final assessments against the respondent, even ignored the records on the investigation made by the District Revenue officers on the respondents importations for 1987. 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.77 In fine, then, the petitioner acted arbitrarily and capriciously in relying on and giving weight to the machine copies of the Consumption Entries in fixing the tax deficiency assessments against the respondent. 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.78 However, the rule does not apply where the estimation is arrived at arbitrarily and capriciously.79 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.80 If a taxpayer files a petition for review in the CTA

and assails the assessment, the prima facie presumption is that the assessment made by the BIR is correct, and that in preparing the same, the BIR personnel regularly performed their duties. This rule for tax initiated suits is premised on several factors other than the normal evidentiary rule imposing proof obligation on the petitioner-taxpayer: the presumption of administrative regularity; the likelihood that the taxpayer will have access to the relevant information; and the desirability of bolstering the record-keeping requirements of the NIRC.81 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.82 In such a situation, the U.S. Court of Appeals ruled83 that the determination of the Commissioner contained in a deficiency notice disappears. Hence, the determination by the CTA must rest on all the evidence introduced and its ultimate determination must find support in credible evidence. The issue that now comes to fore is whether the tax deficiency assessment against the respondent based on the certified copies of the Profit and Loss Statement submitted by the respondent to the SEC in 1987 and 1988, as well as certifications of Tomas and Danganan, is arbitrary, capricious and illegal. The CTA ruled that the respondent failed to overcome the prima facie correctness of the tax deficiency assessment issued by the petitioner, to wit: The issue should be ruled in the affirmative as petitioner has failed to rebut the validity or correctness of the aforementioned tax assessments. It is incongruous for petitioner to prove its cause by simply drawing an inference unfavorable to the respondent by attacking the source documents (Consumption Entries) which were the bases of the assessment and which were certified by the Chiefs of the Collection Division, Manila International Container Port and the Port of Manila, as having been processed and released in the name of the petitioner after payment of duties and taxes and the duly certified copies of Financial Statements secured from the Securities and Exchange Commission. Any such inference cannot operate to relieve petitioner from bearing its burden of proof and this Court has no warrant of absolution. The Court should have been persuaded to grant the reliefs sought by the petitioner should it have presented any evidence of relevance and competence required, like that of a certification from the Bureau of Customs or from any other agencies, attesting to the fact that those consumption entries did not really belong to them. The burden of proof is on the taxpayer contesting the validity or correctness of an assessment to prove not only that the Commissioner of Internal Revenue is wrong but the taxpayer is right (Tan Guan v. CTA, 19 SCRA 903), otherwise, the presumption in favor of the correctness of tax assessment stands (Sy Po v. CTA, 164 SCRA 524). The burden of proving the illegality of the assessment lies upon the petitioner alleging it to be so. In the case at bar, petitioner miserably failed to discharge this duty.84 We are not in full accord with the findings and ratiocination of the CTA. Based on the letter of the petitioner to the respondent dated December 10, 1993, the tax deficiency assessment in question was based on (a) the findings of the agents of the EIIB which was based, in turn, on the photocopies of the Consumption Entries; (b) the Profit and Loss Statements of the respondent for 1987 and 1988; and (c) the certifications of Tomas and Danganan dated August 7, 1990 and August 22, 1990: In reply, please be informed that after a thorough evaluation of the attending facts, as well as the laws and jurisprudence involved, this Office holds that you are liable to the assessed deficiency taxes. The conclusion was arrived at based on the findings of agents of the Economic Intelligence & Investigation Bureau (EIIB) and of our own examiners who have painstakingly examined the records furnished by the Bureau of Customs and the Securities & Exchange Commission (SEC). The examination conducted disclosed that while your actual sales for 1987 amounted to

P110,731,559.00, you declared for taxation purposes, as shown in the Profit and Loss Statements, the sum of P47,698,569.83 only. The difference, therefore, of P63,032,989.17 constitutes as undeclared or unrecorded sales which must be subjected to the income and sales taxes. You also argued that our assessment has no basis since the alleged amount of underdeclared importations were lifted from uncertified or unauthenticated xerox copies of consumption entries which are not admissible in evidence. On this issue, it must be considered that in letters dated August 7 and 22, 1990, the Chief and Acting Chief of the Collection Division of the Manila International Container Port and Port of Manila, respectively, certified that the enumerated consumption entries were filed, processed and released from the port after payment of duties and taxes. It is noted that the certification does not touch on the genuineness, authenticity and correctness of the consumption entries which are all xerox copies, wherein the figures therein appearing may have been tampered which may render said documents inadmissible in evidence, but for tax purposes, it has been held that the Commissioner is not required to make his determination (assessment) on the basis of evidence legally admissible in a formal proceeding in Court (Mertens, Vol. 9, p. 214, citing Cohen v. Commissioner). A statutory notice may be based in whole or in part upon admissible evidence (Llorente v. Commissioner, 74 TC 260 (1980); Weimerskirch v. Commissioner, 67 TC 672 (1977); and Rosano v. Commissioner, 46 TC 681 (1966). In the case also of Weimerskirch v. Commissioner (1977), the assessment was given due course in the presence of admissible evidence as to how the Commissioner arrived at his determination, although there was no admissible evidence with respect to the substantial issue of whether the taxpayer had unreported or undeclared income from narcotics sale. 85 Based on a Memorandum dated October 23, 1990 of the IIPO, the source documents for the actual cost of importation of the respondent are the machine copies of the Consumption Entries from the informer which the IIPO claimed to have been certified by Tomas and Danganan: The source documents for the total actual cost of importations, abovementioned, were the different copies of Consumption Entries, Series of 1987, filed by subject with the Bureau of Customs, marked Annexes "F-1" to "F-68." The total cost of importations is the sum of the Landed Costs and the Advance Sales Tax as shown in the annexed entries. These entries were duly authenticated as having been processed and released, after payment of the duties and taxes due thereon, by the Chief, Collection Division, Manila International Container Port, dated August 7, 1990, "Annex-G," and the Port of Manila, dated August 22, 1990, "Annex-H." So, it was established that subject-importations, mostly resins, really belong to HANTEX TRADING CO., INC.86 It also appears on the worksheet of the IIPO, as culled from the photocopies of the Consumption Entries from its informer, that the total cost of the respondents importation for 1987 was P105,761,527.00. Per the report of Torres and Filamor, they also relied on the photocopies of the said Consumption Entries: The importations made by taxpayer verified by us from the records of the Bureau of Customs and xerox copies of which are hereto attached shows the big volume of importations made and not declared in the income tax return filed by taxpayer. Based on the above findings, it clearly shows that a prima facie case of fraud exists in the herein transaction of the taxpayer, as a consequence of which, said transaction has not been possibly entered into the books of accounts of the subject taxpayer.87 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 petitioners 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. As the Court held in Collector of Internal Revenue v. Benipayo,90 in order to stand judicial scrutiny, the assessment must be based on facts. The presumption of the correctness of an assessment, being a mere presumption, cannot be made to rest on another presumption. Moreover, the uncontroverted fact is that the BIR District Revenue Office had repeatedly examined the 1987 books of accounts of the respondent showing its importations, 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. Admittedly, the respondent did not adduce evidence to prove its correct tax liability. However, considering that it has been established that the petitioners assessment is barren of factual basis, arbitrary and illegal, such failure on the part of the respondent cannot serve as a basis for a finding by the Court that it is liable for the amount contained in the said assessment; otherwise, the Court would thereby be committing a travesty. On the disposition of the case, the Court has two options, namely, to deny the petition for lack of merit and affirm the decision of the CA, without prejudice to the petitioners issuance of a new assessment against the respondent based on credible evidence; or, to remand the case to the CTA for further proceedings, to enable the petitioner to adduce in evidence certified true copies or duplicate original copies of the Consumption Entries for the respondents 1987 importations, if there be any, and the correct tax deficiency assessment thereon, without prejudice to the right of the respondent to adduce controverting evidence, so that the matter may be resolved once and for all by the CTA. In the higher interest of justice to both the parties, the Court has chosen the latter option. After all, as the Tax Court of the United States emphasized in Harbin v. Commissioner of Internal Revenue,91 taxation is not only practical; it is vital. The obligation of good faith and fair dealing in carrying out its provision is reciprocal and, as the government should never be over-reaching or tyrannical, neither should a taxpayer be permitted to escape payment by the concealment of material facts.

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the Court of Appeals is SET ASIDE. The records are REMANDED to the Court of Tax Appeals for further proceedings, conformably with the decision of this Court. No costs.

REPUBLIC OF THE PHILIPPINES, petitioner, vs. INTERMEDIATE APPELLATE COURT and SPOUSES ANTONIO and CLARA PASTOR, respondents. Roberto L. Bautista for private respondents.1991 Apr 261st DivisionG.R. No. 69344D ECISION GRIO-AQUINO, J.: The legal issue presented in this petition for review is whether or not the tax amnesty payments made by the private respondents on October 23, 1973 bar an action for recovery of deficiency income taxes under P.D.'s Nos. 23, 213 and 370. On April 15, 1980, the Republic of the Philippines, through the Bureau of Internal Revenue, commenced an action in the Court of First Instance (now Regional Trial Court) of Manila, Branch XVI, to collect from the spouses Antonio Pastor and Clara Reyes-Pastor deficiency income taxes for the years 1955 to 1959 in the amount of P17,117.08 with a 5% surcharge and 1% monthly interest, and costs. The Pastors filed a motion to dismiss the complaint, but the motion was denied. On August 2, 1975, they filed an answer admitting there was an assessment against them of P17,117.08 for income tax deficiency but denying liability therefor. They contended that they had availed of the tax amnesty under P.D.'s Nos. 23, 213 and 370 and had paid the corresponding amnesty taxes amounting to P10,400 or 10% of their reported untaxed income under P.D . 23, P2,951.20 or 20% of the reported untaxed income under P.D. 213, and a final payment on October 26, 1973 under P.D. 370 evidenced by the Government's Official Receipt No. 1052388. Consequently, the Government is in estopped to demand and compel further payment of income taxes by them. The parties agreed that there were no issues of fact to be litigated, hence, the case was submitted for decision upon the pleadings and memoranda on the lone legal question of: whether or not the payment of deficiency income tax under the tax amnesty, P.D. 23, and its acceptance by the Government operated to divest the Government of the right to further recover from the taxpayer, even if there was an existing assessment against the latter at the time he paid the amnesty tax. It is not disputed that as a result of an investigation made by the Bureau of Internal Revenue in 1963, it was found that the private respondents owed the Government P1,283,621.63 as income taxes for the years 1955 to 1959, inclusive of the 50% surcharge and 1% monthly interest. The defendants protested against the assessment. A reinvestigation was conducted resulting in the drastic reduction of the assessment to only P17,117.08. It appears that on April 27, 1978, the private respondents offered to pay the Bureau of Internal Revenue the sum of P5,000 by way of compromise settlement of their income tax deficiency for the questioned years, but Assistant Commissioner Bernardo Carpio, in a letter addressed to the Pastor spouses, rejected the offer stating that there was no legal or factual justification for accepting it. The Government filed the action against the spouses in 1980, ten (10) years after the assessment of the income tax deficiency was made. On a motion for judgment on the pleadings filed by the Government, which the spouses did not oppose, the trial court rendered a decision on February 28, 1980, holding that the defendants spouses had settled their income tax deficiency for the years 1955 to 1959, not under P.D. 23 or P.D. 370, but under P.D. 213, as shown in

the Amnesty Income Tax Returns' Summary Statement and the tax Payment Acceptance Order for P2,951.20 with its corresponding official receipt, which returns also contain the very assessment for the questioned years. By accepting the payment of the amnesty income taxes, the Government, therefore, waived its right to further recover deficiency incomes taxes from the defendants under the existing assessment against them because: 1. the defendants' amnesty income tax returns' Summary Statement included therein the deficiency assessment for the years 1955 to 1959; 2. tax amnesty payment was made by the defendants under Presidential Decree No. 213, hence, it had the effect of remission of the income tax deficiency for the years 1955 to 1959; 3. P.D. No. 23 as well as P.D. No. 213 do not make any exceptions nor impose any conditions for their application, hence, Revenue Regulation No. 7-73 which excludes certain taxpayers from the coverage of P.D. No. 213 is null and void, and 4. the acceptance of tax amnesty payment by the plaintiff-appellant bars the recovery of deficiency taxes. (pp. 3-4, IAC Decision, pp. 031-032, Rollo.) The Government appealed to the Intermediate Appellate Court (AC-G.R. CV No. 68371 entitled, "Republic of the Philippines vs. Antonio Pastor, et al."), alleging that the private respondents were not qualified to avail of the tax amnesty under P.D. 213 for the benefits of that decree are available only to persons who had no pending assessment for unpaid taxes, as provided in Revenue Regulations Nos. 8-72 and 773. Since the Pastors did in fact have a pending assessment against them, they were precluded from availing of the amnesty granted in P.D.'s Nos. 23 and 213. The Government further argued that "tax exemptions should be interpreted strictissimi juris against the taxpayer." The respondent spouses, on the other hand, alleged that P.D. 213 contains no exemptions from its coverage and that, under Letter of Instruction (LOI) 129 dated September 18, 1973, the immunities granted by P.D. 213 include: "II Immunities Granted.

Upon payment of the amounts specified in the Decree, the following shall be observed: "1. . . . "2. The taxpayer shall not be subject to any investigation, whether civil, criminal or administrative, insofar as his declarations in the income tax returns are concerned nor shall the same be used as evidence against, or to the prejudice of the declarant in any proceeding before any court of law or body, whether judicial, quasi-judicial or administrative, in which he is a defendant or respondent, and he shall be exempt from any liability arising from or incident to his failure to file his income tax return and to pay the tax due thereon, as well as to any liability for any other tax that may be due as a result of business transactions from which such income, now voluntarily declared may have been derived." ( mphasis supplied; p. 040, Rollo.) There is nothing in the LOI which can be construed as authority for the Bureau of Internal Revenue to introduce exceptions and/or conditions to the coverage of the law.

On November 23, 1984, the Intermediate Appellate Court (now Court of Appeals) rendered a decision dismissing the Government's appeal and holding that the payment of deficiency income taxes by the Pastors under PD. No. 213, and the acceptance thereof by the Government, operated to divest the latter of its right to further recover deficiency income taxes from the private respondents pursuant to the existing deficiency tax assessment against them. The appellate court held that if Revenue Regulation No. 7-73 did provide an exception to the coverage of P.D. 213, such provision was null and void for being contrary to, or restrictive of, the clear mandate of P.D. No. 213 which the regulation should implement. Said revenue regulation may not prevail over the provisions of the decree, for it would then be an act of administrative legislation, not mere implementation, by the Bureau of Internal Revenue. On February 4, 1985, the Republic of the Philippines, through the Solicitor General, filed this petition for review of the decision dated November 23, 1984 of the Intermediate Appellate Court affirming the dismissal, by the Court of First Instance of Manila, of the Government's complaint against the respondent spouses. The petition is devoid of merit. Even assuming that the deficiency tax assessment of P17,117.08 against the Pastor spouses were correct, since the latter have already paid almost the equivalent amount to the Government by way of amnesty taxes under P.D. No. 213, and were granted not merely an exemption, but an amnesty, for their past tax failings, the Government is estopped from collecting the difference between the deficiency tax assessment and the amount already paid by them as amnesty tax. A tax amnesty, being a general pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law, partakes of an absolute forgiveness or waiver by the Government of its right to collect what otherwise would be due it, and in this sense, prejudicial thereto, particularly to give tax evaders, who wish to relent and are willing to reform a chance to do so and thereby become a part of the new society with a clean slate (Commission of Internal Revenue vs. Botelho Corp. and Shipping Co., Inc., 20 SCRA 487). THE FINDING OF THE APPELLATE COURT THAT THE DEFICIENCY INCOME TAXES WERE PAID BY THE PASTORS, AND ACCEPTED BY THE GOVERNMENT, UNDER P.D. 213, GRANTING AMNESTY TO PERSONS WHO ARE REQUIRED BY LAW TO FILE INCOME TAX RETURNS BUT WHO FAILED TO DO SO, IS ENTITLED TO THE HIGHEST RESPECT AND MAY NOT BE DISTURBED EXCEPT UNDER EXCEPTIONAL CIRCUMSTANCES WHICH HAVE ALREADY BECOME FAMILIAR (RULE 45, SEC. 4, RULES OF COURT; E.G., WHERE: (1) THE CONCLUSION IS A FINDING GROUNDED ENTIRELY ON SPECULATION, SURMISE AND CONJECTURE; (2) THE INFERENCE MADE IS MANIFESTLY MISTAKEN; (3) THERE IS GRAVE ABUSE OF DISCRETION; (4) THE JUDGMENT IS BASED ON MISAPPREHENSION OF FACTS; (5) THE COURT OF APPEALS WENT BEYOND THE ISSUES OF THE CASE AND ITS FINDINGS ARE CONTRARY TO THE ADMISSIONS OF BOTH THE APPELLANT AND THE APPELLEE; (6) THE FINDINGS OF FACT OF THE COURT OF APPEALS ARE CONTRARY TO THOSE OF THE TRIAL COURT; (7) SAID FINDINGS OF FACT ARE CONCLUSIONS WITHOUT CITATION OF SPECIFIC EVIDENCE IN WHICH THEY ARE BASED; (8) THE FACTS SET FORTH IN THE PETITION AS WELL AS IN THE PETITIONER'S MAIN AND REPLY BRIEFS ARE NOT DISPUTED BY THE RESPONDENTS; AND (9) WHEN THE FINDING OF FACT OF THE COURT OF APPEALS IS PREMISED ON THE ABSENCE OF EVIDENCE AND IS CONTRADICTED BY THE EVIDENCE ON RECORD (THELMA FERNAN VS. CA, ET AL., 181 SCRA 546, CITING

TOLENTINO VS. DE JESUS, 56 SCRA 67; PEOPLE VS. TRAYA, 147 SCRA 381), NONE OF WHICH IS PRESENT IN THIS CASE. The rule is that in case of doubt, tax statutes are to be construed strictly against the Government and liberally in favor of the taxpayer, for taxes, being burdens, are not to be presumed beyond what the applicable statute (in this case P.D. 213) expressly and clearly declares (Commission of Internal Revenue vs. La Tondea, Inc. and CTA, 5 SCRA 665, citing Manila Railroad Company vs. Collector of Customs, 52 Phil. 950). WHEREFORE, the petition for review is denied. No costs. SO ORDERED.

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MERALCO SECURITIES CORPORATION (now FIRST PHILIPPINE HOLDINGS CORPORATION), petitioner, vs. HON. VICTORINO SAVELLANO and ASUNCION BARON VDA. DE MANIAGO, et al., as heirs of the late Juan G. Maniago, respondents.1982 October 231st DivisionG.R. No. L-36181D E C I S I O N TEEHANKEE, J.: These are original actions for certiorari to set aside and annul the writ of mandamus issued by Judge Victorino A. Savellano of the Court of First Instance of Manila in Civil Case No. 80830 ordering petitioner Meralco Securities Corporation (now First Philippine Holdings Corporation) to pay, and petitioner Commissioner of Internal Revenue to collect from the former, the amount of P51,840,612.00, by way of alleged deficiency corporate income tax, plus interests and surcharges due thereon and to pay private respondents 25% of the total amount collectible as informer's reward. On May 22, 1967, the late Juan G. Maniago (substituted in these proceedings by his wife and children) submitted to petitioner Commissioner of Internal Revenue confidential denunciation against the Meralco Securities Corporation for tax evasion for having paid income tax only on 25% of the dividends it received from the Manila Electric Co. for the years 1962-1966, thereby allegedly shortchanging the government of income tax due from 75% of the said dividends. Petitioner Commissioner of Internal Revenue caused the investigation of the denunciation after which he found and held that no deficiency corporate income tax was due from the Meralco Securities Corporation on the dividends it received from the Manila Electric Co., since under the law then prevailing (section 24[a] of the National Internal Revenue Code) "in the case of dividends received by a domestic or foreign resident corporation liable to (corporate income) tax under this Chapter . . . only twenty-five per centum thereof shall be returnable for the purposes of the tax imposed under this section." The Commissioner accordingly rejected Maniago's contention that the Meralco from whom the dividends were received is "not a domestic corporation liable to tax under this Chapter." In a letter dated April 5, 1968, the Commissioner informed Maniago of his findings and ruling and therefore denied Maniago's claim for informer's reward on a non-existent deficiency, This action of the Commissioner was sustained by the Secretary of Finance in a 4th Indorsement dated May 11, 1971. On August 28, 1970, Maniago filed a petition for mandamus, and subsequently an amended petition for mandamus, in the Court of First Instance of Manila, docketed therein as Civil Case No. 80830, against the Commissioner of Internal Revenue and the Meralco Securities Corporation to compel the Commissioner to impose the alleged deficiency tax assessment on the Meralco Securities Corporation and to award to him the corresponding informer's reward under the provisions of R.A. 2338. On October 28, 1978, the Commissioner filed a motion to dismiss, arguing that since in matters of issuance and non-issuance of assessments, he is clothed under the National Internal Revenue Code and existing rules and regulations with discretionary power in evaluating the facts of a case and since mandamus will not he to compel the performance of a discretionary power, he cannot be compelled to impose the alleged tax deficiency assessment against the Meralco Securities Corporation. He further argued that mandamus may not he against him for that would be tantamount to a usurpation of executive powers, since the Office of the

Commissioner of Internal Revenue is undeniably under the control of the executive department. On the other hand, the Meralco Securities Corporation filed its answer, dated January 15, 1971, interposing as special and or affirmative defenses that the petition states no cause of action, that the action is premature, that mandamus will not he to compel the Commissioner of Internal Revenue to make an assessment and/or effect the collection of taxes upon a taxpayer, that since no taxes have actually been recovered and/or collected, Maniago has no right to recover the reward prayed for, that the action of petitioner had already prescribed and that respondent court has no jurisdiction over the subject matter as set forth in the petition, the same being cognizable only by the Court of Tax Appeals. On January 10, 1973, the respondent judge rendered a decision granting the writ prayed for and ordering the Commissioner of Internal Revenue to assess and collect from the Meralco Securities Corporation the sum of P51,840,612.00 as deficiency corporate income tax for the period 1962 to 1969 plus interests and surcharges due thereon and to pay 25% thereof to Maniago as informer's reward. All parties filed motions for reconsideration of the decision but the same were denied by respondent judge in his order dated April 6, 1973, with respondent judge denying respondents' claim for attorneys fees and for execution of the decision pending appeal. Hence, the Commissioner filed a separate petition with this Court, docketed as G.R. No. L-36748 praying that the decision of respondent judge dated January 10, 1973 and his order dated April 6, 1973 be reconsidered for respondent judge has no jurisdiction over the subject matter of the case and that the issuance or nonissuance of a deficiency assessment is a prerogative of the Commissioner of Internal Revenue not reviewable by mandamus. The Meralco Securities Corporation (now First Philippine Holdings Corporation) likewise appealed the same decision of respondent judge in G.R. No. L-36181 and in the Court's resolution dated June 13, 1973, the two cases were ordered consolidated. We grant the petitions. Respondent judge has no jurisdiction to take cognizance of the case because the subject matter thereof clearly falls within the scope of cases now exclusively within the jurisdiction of the Court of Tax Appeals. Section 7 of Republic Act No. 1125, enacted June 16, 1954, granted to the Court of Tax Appeals exclusive appellate jurisdiction to review by appeal, among others, decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue. The law transferred to the Court of Tax Appeals jurisdiction over all cases involving said assessments previously cognizable by courts of first instance, and even those already pending in said courts. [1] The question of whether or not to impose a deficiency tax assessment on Meralco Securities Corporation undoubtedly comes within the purview of the words "disputed assessments" or of "other matters arising under the National Internal Revenue Code . . . " In the case of Blaquera vs. Rodriguez, et al., [2] this Court ruled that "the determination of the correctness or incorrectness of a tax assessment to which the taxpayer is not agreeable, falls within the jurisdiction of the Court of Tax Appeals and not of the Court of First Instance, for under the provisions of Section 7 of Republic Act No. 1125, the Court of Tax Appeals has exclusive appellate

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jurisdiction to review, on appeal, any decision of the Collector of Internal Revenue in cases involving disputed assessments and other matters arising under the National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue." Thus, even assuming arguendo that the right granted the taxpayers affected to question and appeal disputed assessments, under section 7 of Republic Act No. 1125, may be availed of by strangers or informers like the late Maniago, the most that he could have done was to appeal to the Court of Tax Appeals the ruling of petitioner Commissioner of Internal Revenue within thirty (303 days from receipt thereof pursuant to section 11 of Republic Act No. 1125. [3] He failed to take such an appeal to the tax court. The ruling is clearly final and no longer subject to review by the courts. [4] It is furthermore a well-recognized rule that mandamus only lies to enforce the performance of a ministerial act or duty [5] and not to control the performance of a discretionary power. [6] Purely administrative and discretionary functions may not be interfered with by the courts. [7] Discretion, as thus intended, means the power or right conferred upon the office by law of acting officially under certain circumstances according to the dictates of his own judgment and conscience and not controlled by the judgment or conscience of others. [8] Mandamus may not be resorted to so as to interfere with the manner in which the discretion shall be exercised or to influence or coerce a particular determination. [9] In an analogous case, where a petitioner sought to compel the Rehabilitation Finance Corporation to accept payment of the balance of his indebtedness with his backpay certificates, the Court ruled that "mandamus does not compel the Rehabilitation Finance Corporation to accept backpay certificates in payment of outstanding loans. Although there is no provision expressly authorizing such acceptance, nor is there one prohibiting it, yet the duty imposed by the Backpay Law upon said corporation as to the acceptance or discount of backpay certificates is neither clear nor ministerial, but discretionary merely, and such special civil action does not issue to control the exercise of discretion of a public officer." [10] Likewise, we have held that courts have no power to order the Commissioner of Customs to confiscate goods imported in violation of the Import Control Law, R.A. 426, as said forfeiture is subject to the discretion of the said official, [11] nor may courts control the determination of whether or not an applicant for a visa has a non-immigrant status or whether his entry into this country would be contrary to public safety for it is not a simple ministerial function but an exercise of discretion. [12] Moreover, since the office of the Commissioner of Internal Revenue is charged with the administration of revenue laws, which is the primary responsibility of the executive branch of the government, mandamus may not he against the Commissioner to compel him to impose a tax assessment not found by him to be due or proper for that would be tantamount to a usurpation of executive functions. As we held in the case of Commissioner of Immigration vs. Arca [13] anent this principle, "the administration of immigration laws is the primary responsibility of the executive branch of the government. Extensions of stay of aliens are discretionary on the part of immigration authorities, and neither a petition for mandamus nor one for certiorari can compel the Commissioner of Immigration to extend the stay of an alien whose period to stay has expired. Such discretionary power vested in the proper executive official, in the absence of arbitrariness or grave abuse so as to go beyond the statutory authority, is not subject to the contrary judgment or control of others. " 'Discretion,' when applied to public functionaries, means a power or right conferred upon them by law of acting

officially, under certain circumstances, uncontrolled by the judgment or consciences of others. A purely ministerial act or duty in contradiction to a discretional act is one which an officer or tribunal performs in a given state of facts, in a prescribed manner, in obedience to the mandate of a legal authority, without regard to or the exercise of his own judgment upon the propriety or impropriety of the act done. If the law imposes a duty upon a public officer and gives him the right to decide how or when the duty shall be performed, such duty is discretionary and not ministerial. The duty is ministerial only when the discharge of the same requires neither the exercise of official discretion or judgment." [14] Thus, after the Commissioner who is specifically charged by law with the task of enforcing and implementing the tax laws and the collection of taxes had after a mature and thorough study rendered his decision or ruling that no tax is due or collectible, and his decision is sustained by the Secretary, now Minister of Finance (whose act is that of the President unless reprobated), such decision or ruling is a valid exercise of discretion in the performance of official duty and cannot be controlled much less reversed by mandamus. A contrary view, whereby any stranger or informer would be allowed to usurp and control the official functions of the Commissioner of Internal Revenue would create disorder and confusion, if not chaos and total disruption of the operations of the government. Considering then that respondent judge may not order by mandamus the Commissioner to issue the assessment against Meralco Securities Corporation when no such assessment has been found to be due, no deficiency taxes may therefore be assessed and collected against the said corporation. Since no taxes are to be collected, no informer's reward is due to private respondents as the informer's heirs. Informer's reward is contingent upon the payment and collection of unpaid or deficiency taxes. An informer is entitled by way of reward only to a percentage of the taxes actually assessed and collected. Since no assessment, much less any collection, has been made in the instant case, respondent judge's writ for the Commissioner to pay respondents 20% informer's reward is gross error and without factual nor legal basis. WHEREFORE, the petitions are hereby granted and the questioned decision of respondent judge dated January 10, 1973 and order dated April 6, 1973 are hereby reversed and set aside. With costs against private respondents. Melencio-Herrera, Plana, Vasquez and Relova JJ., concur. Gutierrez, Jr., J., took no part.

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/---!e-library! 6.0 Philippines Copyright 2000 by Sony Valdez---\ [1989V400] ILDEFONSO O. ELEGADO, as Ancillary Administrator of the Testate Estate of the late WARREN Taylor GRAHAM, petitioner, vs. HON. COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents.1989 May 121st DivisionG.R. No. L-68385D E C I S I O N CRUZ, J.: What the petitioner presents as a rather complicated problem is in reality a very simple question from the viewpoint of the Solicitor General. We agree with the latter. There is actually only one issue to be resolved in this action. That issue is whether or not the respondent Court of Tax Appeals erred in dismissing the petitioner's appeal on grounds of jurisdiction and lack of a cause of action. Appeal from what? That indeed is the question. But first the facts. On March 14, 1976, Warren Taylor Graham, an American national formerly resident in the Philippines, died in Oregon, U.S.A. 1 As he left certain shares of stock in the Philippines, his son, Ward Graham, filed an estate tax return on September 16, 1976, with the Philippine Revenue Representative in San Francisco, U.S.A. 2 On the basis of this return, the respondent Commissioner of Internal Revenue assessed the decedent's estate an estate tax in the amount of P96,509.35 on February 9, 1978. 3 This assessment was protested on March 7, 1978, by the law firm of Bump, Young and Walker on behalf of the estate. 4 The protest was denied by the Commissioner on July 7, 1978. 5 No further action was taken by the estate in pursuit of that protest. Meanwhile, on January 18, 1977, the decedent's will had been admitted to probate in the Circuit Court of Oregon. 6 Ward Graham, the designated executor, then appointed Ildefonso Elegado, the herein petitioner, as his attorney-in-fact for the allowance of the will in the Philippines. 7 Pursuant to such authority, the petitioner commenced probate proceedings in the Court of First Instance of Rizal. 8 The will was allowed on December 18, 1978, with the petitioner as ancillary administrator. 9 As such, he filed a second estate tax return with the Bureau of Internal Revenue on June 4, 1980. 10 On the basis of this second return, the Commissioner imposed an assessment on the estate in the amount of P72,948.87. 11 This was protested on behalf of the estate by the Agrava, Lucero and Gineta Law Office on August 13, 1980 12 While this protest was pending, the Commissioner filed in the probate proceedings a motion for the allowance of the basic estate tax of P96,509.35 as assessed on February 9, 1978. 13 He said that this liability had not yet been paid although the assessment had long become final and executory. The petitioner regarded this motion as an implied denial of the protest filed on August 13, 1980, against the second assessment of P72,948.87. 14 On this understanding, he filed on September 15, 1981, a petition for review with the Court of Tax Appeals challenging the said assessment. 15

The Commissioner did not immediately answer (in fact, as the petitioner stressed, no answer was filed during a delay of 195 days) and in the end instead cancelled the protested assessment in a letter to the decedent's estate dated March 31, 1982. 16 This cancellation was notified to the Court of Tax Appeals in a motion to dismiss on the ground that the protest had become moot and academic. 17 The motion was granted and the petition dismissed on April 25, 1984. 18 The petitioner then came to this Court on certiorari under Rule 45 of the Rules of Court. The petitioner raises three basic questions, to wit, (1) whether the shares of stocks left by the decedent should be treated as his exclusive, and not conjugal, property; (2) whether the said stocks should be assessed as of the time of the owner's death or six months thereafter; and (3) whether the appeal filed with the respondent court should be considered moot and academic. We deal first with the third issue as it is decisive of this case. In the letter to the decedent's estate dated March 31,1982, the Commissioner of Internal Revenue wrote as follows: Estate of WARREN T. GRAHAM c/o Mr. ILDEFONSO O. ELEGADO Ancillary Administrator Philex Building cor. Brixton & Fairlane Sts. Pasig, Metro Manila Sir: This is with regard to the estate of the late WARREN TAYLOR GRAHAM, who died a resident of Oregon, U.S.A. on March 14, 1976. It appears that two (2) letters of demand were issued by this Bureau. One is for the amount of P96,509.35 based on the first return filed, and the other in the amount of P72,948.87, based on the second return filed. It appears that the first assessment of P96,509.35 was issued on February 9, 1978 on the basis of the estate tax return filed on September 16, 1976. The said assessment was, however, protested in a letter dated March 7, 1978 but was denied on July 7, 1978. Since no appeal was made within the regulatory period, the same has become final. In view thereof, it is requested that you settle the aforesaid assessment for P96,509.35 within fifteen (15) days upon receipt thereof to the Receivable Accounts Division, this Bureau, BIR National Office Building, Diliman, Quezon City. The assessment for P72,949.57 dated July 3, 1980, referred to above is hereby cancelled. Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner 19 It is obvious from the express cancellation of the second assessment for P72,948.87 that the petitioner had been deprived of a cause of action as it was precisely from this assessment that he was appealing.

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In its decision, the Court of Tax Appeals said that the petition questioning the assessment of July 3, 1980, was "premature" since the protest to the assessment had not yet been resolved. 20 As a matter of fact it had: the said assessment had been cancelled by virtue of the above-quoted letter. The respondent court was on surer ground, however, when it followed with the finding that the said cancellation had rendered the petition moot and academic. There was really no more assessment to review. The petitioner argues that the issuance of the second assessment on July 3, 1980, had the effect of canceling the first assessment of February 9, 1978, and that the subsequent cancellation of the second assessment did not have the effect of automatically reviving the first. Moreover, the first assessment is not binding on him because it was based on a return filed by foreign lawyers who had no knowledge of our tax laws or access to the Court of Tax Appeals. The petitioner is clutching at straws. It is noted that in the letter of July 3, 1980, imposing the second assessment of P72,948.87, the Commissioner made it clear that "the aforesaid amount is considered provisional only based on the estate tax return filed subject to investigation by this Office for final determination of the correct estate tax due from the estate. Any amount that may be found due after said investigation will be assessed and collected later. 21 It is illogical to suggest that a provisional assessment can supersede an earlier assessment which had clearly become final and executory. The second contention is no less flimsy. The petitioner cannot be serious when he argues that the first assessment was invalid because the foreign lawyers who filed the return on which it was based were not familiar with our tax laws and procedure. Is the petitioner suggesting that they are excused from compliance therewith because of their ignorance? If our own lawyers and taxpayers cannot claim a similar preference because they are not allowed to claim a like ignorance, it stands to reason that foreigners cannot be any less bound by our own laws in our own country. A more obvious and shallow discrimination than that suggested by the petitioner is indeed difficult to find. But the most compelling consideration in this case is the fact that the first assessment is already final and executory and can no longer be questioned at this late hour. The assessment was made on February 9, 1978. It was protested on March 7, 1978. The protest was denied on July 7, 1978. As no further action was taken thereon by the decedent's estate, there is no question that the assessment has become final and executory. In fact, the law firm that had lodged the protest appears to have accepted its denial. In his motion with the probate court, the respondent Commissioner stressed that "in a letter dated January 29, 1980, the Estate of Warren Taylor Graham thru the aforesaid foreign law firm informed claimant that they have paid said tax liability thru the Agrava, Velarde, Lucero and Puno, Philippine law firm of 313 Buendia Avenue Ext., Makati, Metro Manila that initiated the instant ancillary proceedings" although he added that such payment had not yet been received. 22 This letter was an acknowledgment by the estate of the validity and finality of the first assessment. Significantly, it has not been denied by the petitioner.

In view of the finality of the first assessment, the petitioner cannot now raise the question of its validity before this Court any more than he could have done so before the Court of Tax Appeals. What the estate of the decedent should have done earlier, following the denial of its protest on July 7, 1978, was to appeal to the Court of Tax Appeals within the reglementary period of 30 days after it received notice of said denial. It was in such appeal that the petitioner could then have raised the first two issues he now raises without basis in the present petition. The question of whether or not the shares of stock left by the decedent should be considered conjugal property or belonging to him alone is immaterial in these proceedings. So too is the time at which the assessment of these shares of stock should have been made by the BIR. These questions were not resolved by the Court of Tax Appeals because it had no jurisdiction to act on the petitioner's appeal from an assessment that had already been cancelled. The assessment being no longer controversial or renewable, there was no justification for the respondent court to rule on the petition except to dismiss it. If indeed the Commissioner of Internal Revenue committed an error in the computation of the estate tax, as the petitioner insists, that error can no longer be rectified because the original assessment has long become final and executory. If that assessment was not challenged on time and in accordance with the prescribed procedure, that error ---- for error it was ---- was committed not by the respondents but by the decedent's estate itself which the petitioner represents. So how can he now complain? WHEREFORE, the petition is DENIED, with costs against the petitioner. It is so ordered. Narvasa (Chairman), Grio-Aquino and Medialdea, JJ., concur. Gancayco, J., on leave. --------------Footnotes 1. Rollo, p. 9. 2. Ibid., p.40. 3. Id. 4. Id. 5. Id. 6. Id., p. 65. 7. Id., pp. 65-66. 8. Id., p. 66; Sp. Proc. No. 8869. 9. Id. 10. Id. 11. Id., p. 67. 12. Id., p. 68. 13. Id., pp. 47-50. 14. Id., p. 69. 15. Id., p. 50. 16. Appendix B, Rollo, p. 35. 17. Rollo, p. 50. 18. Decision, penned by Judge Alex Z. Reyes, with Presiding Judge Amante Filler and Judge Constante C. Roaquin, concurring. 19. Appendix B, Rollo, p. 35. 20. Rollo, pp. 53-54. 21. Ibid., p. 11.

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22. Id., p. 49. \---!e-library! 6.0 Philippines Copyright 2000 by Sony Valdez---/ ([1989V400] ILDEFONSO O. ELEGADO, as Ancillary Administrator of the Testate Estate of the late WARREN Taylor GRAHAM, petitioner, vs. HON. COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents., G.R. No. L68385, 1989 May 12, 1st Division)

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\COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. ISABELA CULTURAL CORPORATION, respondent.2001 Jul 113rd DivisionG.R. No. 135210D E C I S I O N PANGANIBAN, J.: A final demand letter from the Bureau of Internal Revenue, reiterating to the taxpayer the immediate payment of a tax deficiency assessment previously made, is tantamount to a denial of the taxpayers request for reconsideration. Such letter amounts to a final decision on a disputed assessment and is thus appealable to the Court of Tax Appeals (CTA). The Case Before this Court is a Petition for Review on Certiorari[1] pursuant to Rule 45 of the Rules of Court, seeking to set aside the August 19, 1998 Decision[2] of the Court of Appeals[3] (CA) in CA-GR SP No. 46383 and ultimately to affirm the dismissal of CTA Case No. 5211. The dispositive portion of the assailed Decision reads as follows: WHEREFORE, the assailed decision is REVERSED and SET ASIDE. Accordingly, judgment is hereby rendered REMANDING the case to the CTA for proper disposition.[4] The Facts The facts are undisputed. The Court of Appeals quoted the summary of the CTA as follows: As succinctly summarized by the Court of Tax appeals (CTA for brevity), the antecedent facts are as follows: In an investigation conducted on the 1986 books of account of [respondent, petitioner] had the preliminary [finding] that [respondent] incurred a total income tax deficiency of P9,985,392.15, inclusive of increments. Upon protest by [respondents] counsel, the said preliminary assessment was reduced to the amount of P325,869.44, a breakdown of which follows: Deficiency Income Tax Deficiency Expanded Withholding Tax 4,846.76 ___________ Total = (pp. 187-189, BIR records) On February 23, 1990, [respondent] received from [petitioner] an assessment letter, dated February 9, 1990, demanding payment of the amounts of P333,196.86 and P4,897.79 as deficiency income tax and expanded withholding tax inclusive of surcharge and interest, respectively, for the taxable period from January 1, 1986 to December 31, 1986. (pp. 204 and 205, BIR rec.) P325,869.44 ========= P321,022.68

In a letter, dated March 22, 1990, filed with the [petitioners] office on March 23, 1990 (pp. 296-311, BIR rec.), [respondent] requested x x x a reconsideration of the subject assessment. Supplemental to its protest was a letter, dated April 2, 1990, filed with the [petitioners] office on April 18, 1990 (pp. 224 & 225, BIR rec.), to which x x x were attached certain documents supportive of its protest, as well as a Waiver of Statute of Limitation, dated April 17, 1990, where it was indicated that [petitioner] would only have until April 5, 1991 within which to asses and collect the taxes that may be found due from [respondent] after the re-investigation. On February 9, 1995, [respondent] received from [petitioner] a Final Notice Before Seizure, dated December 22, 1994 (p. 340, BIR rec.). In said letter, [petitioner] demanded payment of the subject assessment within ten (10) days from receipt thereof. Otherwise, failure on its part would constrain [petitioner] to collect the subject assessment through summary remedies. [Respondent] considered said final notice of seizure as [petitioners] final decision. Hence, the instant petition for review filed with this Court on March 9, 1995. The CTA having rendered judgment dismissing the petition, [respondent] filed the instant petition anchored on the argument that [petitioners] issuance of the Final Notice Before Seizure constitutes [its] decision on [respondents] request for reinvestigation, which the [respondent] may appeal to the CTA.[5] Ruling of the Court of Appeals In its Decision, the Court of Appeals reversed the Court of Tax Appeals. The CA considered the final notice sent by petitioner as the latters decision, which was appealable to the CTA. The appellate court reasoned that the final Notice before seizure had effectively denied petitioners request for a reconsideration of the commissioners assessment. The CA relied on the long-settled tax jurisprudence that a demand letter reiterating payment of delinquent taxes amounted to a decision on a disputed assessment. Hence, this recourse.[6] Issues In his Memorandum,[7] petitioner presents for this Courts consideration a solitary issue: Whether or not the Final Notice Before Seizure dated February 9, 1995 signed by Acting Chief Revenue Collection Officer Milagros Acevedo against ICC constitutes the final decision of the CIR appealable to the CTA.[8] The Courts Ruling The Petition is not meritorious. Sole Issue: The Nature of the Final Notice Before Seizure The Final Notice Before Seizure sent by the Bureau of Internal Revenue (BIR) to respondent reads as follows:

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On Feb.9, 1990, [this] Office sent you a letter requesting you to settle the abovecaptioned assessment. To date, however, despite the lapse of a considerable length of time, we have not been honored with a reply from you. In this connection, we are giving you this LAST OPPORTUNITY to settle the adverted assessment within ten (10) days after receipt hereof. Should you again fail, and refuse to pay, this Office will be constrained to enforce its collection by summary remedies of Warrant of Levy of Road Property, Distraint of Personal Property or Warrant of Garnishment, and/or simultaneous court action. Please give this matter your preferential attention. Very truly yours, ISIDRO B. TECSON, JR. Revenue District Officer By: (Signed) MILAGROS M. ACEVEDO Actg. Chief Revenue Collection Officer[9] Petitioner maintains that this Final Notice was a mere reiteration of the delinquent taxpayers obligation to pay the taxes due. It was supposedly a mere demand that should not have been mistaken for a decision on a protested assessment. Such decision, the commissioner contends, must unequivocably indicate that it is the resolution of the taxpayers request for reconsideration and must likewise state the reason therefor. Respondent, on the other hand, points out that the Final Notice Before Seizure should be considered as a denial of its request for reconsideration of the disputed assessment. The Notice should be deemed as petitioners last act, since failure to comply with it would lead to the distraint and levy of respondents properties, as indicated therein. We agree with respondent. In the normal course, the revenue district officer sends the taxpayer a notice of delinquent taxes, indicating the period covered, the amount due including interest, and the reason for the delinquency. If the taxpayer disagrees with or wishes to protest the assessment, it sends a letter to the BIR indicating its protest, stating the reasons therefor, and submitting such proof as may be necessary. That letter is considered as the taxpayers request for reconsideration of the delinquent assessment. After the request is filed and received by the BIR, the assessment becomes a disputed assessment on which it must render a decision. That decision is appealable to the Court of Tax Appeals for review. Prior to the decision on a disputed assessment, there may still be exchanges between the commissioner of internal revenue (CIR) and the taxpayer. The former may ask clarificatory questions or require the latter to submit additional evidence. However, the CIRs position regarding the disputed assessment must be indicated in the final decision. It is this decision that is properly appealable to the CTA for review.

Indisputably, respondent received an assessment letter dated February 9, 1990, stating that it had delinquent taxes due; and it subsequently filed its motion for reconsideration on March 23, 1990. In support of its request for reconsideration, it sent to the CIR additional documents on April 18, 1990. The next communication respondent received was already the Final Notice Before Seizure dated November 10, 1994. In the light of the above facts, the Final Notice Before Seizure cannot but be considered as the commissioners decision disposing of the request for reconsideration filed by respondent, who received no other response to its request. Not only was the Notice the only response received; its content and tenor supported the theory that it was the CIRs final act regarding the request for reconsideration. The very title expressly indicated that it was a final notice prior to seizure of property. The letter itself clearly stated that respondent was being given this LAST OPPORTUNITY to pay; otherwise, its properties would be subjected to distraint and levy. How then could it have been made to believe that its request for reconsideration was still pending determination, despite the actual threat of seizure of its properties? Furthermore, Section 228 of the National Internal Revenue Code states that a delinquent taxpayer may nevertheless directly appeal a disputed assessment, if its request for reconsideration remains unacted upon 180 days after submission thereof. We quote: Sec. 228. Protesting an Assessment. x x x Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment based on his findings. Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have become final. If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within (30) days from receipt of the said decision, or from the lapse of the one hundred eighty (180)day period; otherwise the decision shall become final, executory and demandable.[10] In this case, the said period of 180 days had already lapsed when respondent filed its request for reconsideration on March 23, 1990, without any action on the part of the CIR. Lastly, jurisprudence dictates that a final demand letter for payment of delinquent taxes may be considered a decision on a disputed or protested assessment. In Commissioner of Internal Revenue v. Ayala Securities Corporation, this Court held: The letter of February 18, 1963 (Exh. G), in the view of the Court, is tantamount to a denial of the reconsideration or [respondent corporations] x x x protest o[f] the assessment made by the petitioner, considering that the said letter [was] in itself a

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reiteration of the demand by the Bureau of Internal Revenue for the settlement of the assessment already made, and for the immediate payment of the sum of P758,687.04 in spite of the vehement protest of the respondent corporation on April 21, 1961. This certainly is a clear indication of the firm stand of petitioner against the reconsideration of the disputed assessment, in view of the continued refusal of the respondent corporation to execute the waiver of the period of limitation upon the assessment in question. This being so, the said letter amount[ed] to a decision on a disputed or protested assessment and, there, the court a quo did not err in taking cognizance of this case.[11] Similarly, in Surigao Electric Co., Inc. v. Court of Tax Appeals[12] and again in CIR v. Union Shipping Corp.,[13] we ruled: x x x. The letter of demand dated April 29, 1963 unquestionably constitutes the final action taken by the commissioner on the petitioners several requests for reconsideration and recomputation. In this letter the commissioner not only in effect demanded that the petitioner pay the amount of P11,533.53 but also gave warning that in the event it failed to pay, the said commissioner would be constrained to enforce the collection thereof by means of the remedies provided by law. The tenor of the letter, specifically the statement regarding the resort to legal remedies, unmistakably indicate[d] the final nature of the determination made by the commissioner of the petitioners deficiency franchise tax liability. As in CIR v. Union Shipping,[14] petitioner failed to rule on the Motion for Reconsideration filed by private respondent, but simply continued to demand payment of the latters alleged tax delinquency. Thus, the Court reiterated the dictum that the BIR should always indicate to the taxpayer in clear and unequivocal language what constitutes final action on a disputed assessment. The object of this policy is to avoid repeated requests for reconsideration by the taxpayer, thereby delaying the finality of the assessment and, consequently, the collection of the taxes due. Furthermore, the taxpayer would not be groping in the dark, speculating as to which communication or action of the BIR may be the decision appealable to the tax court.[15] In the instant case, the second notice received by private respondent verily indicated its nature that it was final. Unequivocably, therefore, it was tantamount to a rejection of the request for reconsideration. Commissioner v. Algue[16] is not in point here. In that case, the Warrant of Distraint and Levy, issued to the taxpayer without any categorical ruling on its request for reconsideration, was not deemed equivalent to a denial of the request. Because such request could not in fact be found in its records, the BIR cannot be presumed to have taken it into consideration. The request was considered only when the taxpayer gave a copy of it, duly stamp-received by the BIR. Hence, the Warrant was deemed premature. In the present case, petitioner does not deny receipt of private respondents protest letter. As a matter of fact, it categorically relates the following in its Statement of Relevant Facts:[17] 3. On March 23, 1990, respondent ICC wrote the CIR requesting for a reconsideration of the assessment on the ground that there was an error committed in the computation of interest and that there were expenses which were disallowed (Ibid., pp. 296-311).

4. On April 2, 1990, respondent ICC sent the CIR additional documents in support of its protest/reconsideration. The letter was received by the BIR on April 18, 1990. Respondent ICC further executed a Waiver of Statute of Limitation (dated April 17, 1990) whereby it consented to the BIR to assess and collect any taxes that may be discovered in the process of reinvestigation, until April 3, 1991 (Ibid., pp. 296-311). A copy of the waiver is hereto attached as Annex C. Having admitted as a fact private respondents request for reconsideration, petitioner must have passed upon it prior to the issuance of the Final Notice Before Seizure. WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. SO ORDERED. Melo, (Chairman), Vitug, and Sandoval-Gutierrez, JJ., concur. Gonzaga-Reyes, J., on leave. [1] Rollo, pp. 7-16. The Petition was signed by Sol. Gen. Ricardo P. Galvez, Asst. Sol. Gen. Roman G. del Rosario and Sol. Irahlyn P. Sacupayo-Lariba. [2] Rollo, pp. 20-27. [3] Second Division. Written by J. Artemio G. Tuquero; concurred in by JJ Emeterio C. Cui (Division chairman) and Eubulo G. Verzola (member). [4] Assailed Decision, p. 8; rollo, p. 27. [5] Assailed Decision, pp. 1-3; rollo, pp. 20-22. This case was deemed submitted for resolution on July 14, 1999, upon receipt by the Court of petitioners Memorandum, which was signed by Sol. Gen. Ricardo P. Galvez, Asst. Sol. Gen. Roman G. del Rosario and Sol. Irahlyn P. Sacupayo-Lariba. Respondents Memorandum was received on the same date and was signed by Atty. Mary Jane B. Austria of Bengzon Narciso Cudala Jimenez Gonzales and Liwanag.[6] [7] Rollo, pp. 364-373. Petitioners Memorandum was signed by Solicitor Irahlyn P. Sacupayo-Lariba. [8] Memorandum for Petitioner, p. 4; rollo, p. 367. [9] Memorandum for Petitioner, p. 8; rollo, p. 371. [10] Section 228, National Internal Revenue Code. [11] 70 SCRA 204, 209, March 31, 1976, per Esguerra, J. [12] 57 SCRA 523, 526, June 28, 1974, per Castro, J. [13] 185 SCRA 547, May 21, 1990. [14] Supra. [15] Surigao Electric Co., Inc. v. CTA, supra.

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[16] 158 SCRA 9, February 17, 1988. [17] Petition, p. 4. See also petitioners Memorandum, pp. 3-4. \---!e-library! 6.0 Philippines Copyright 2000 by Sony Valdez---/ ([2001V706] COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. ISABELA CULTURAL CORPORATION, respondent., G.R. No. 135210, 2001 Jul 11, 3rd Division)

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/---!e-library! 6.0 Philippines Copyright 2000 by Sony Valdez---\ [2006V85] COMMISSIONER OF INTERNAL REVENUE, Petitioner, versus AZUCENA T. REYES, Respondent.2006 Jan 271st DivisionG.R. No. 159694D E C I S I O N PANGANIBAN, CJ.: Under the present provisions of the Tax Code and pursuant to elementary due process, taxpayers must be informed in writing of the law and the facts upon which a tax assessment is based; otherwise, the assessment is void. Being invalid, the assessment cannot in turn be used as a basis for the perfection of a tax compromise. The Case Before us are two consolidated[1] Petitions for Review[2] filed under Rule 45 of the Rules of Court, assailing the August 8, 2003 Decision[3] of the Court of Appeals (CA) in CA-GR SP No. 71392. The dispositive portion of the assailed Decision reads as follows: WHEREFORE, the petition is GRANTED. The assailed decision of the Court of Tax Appeals is ANNULLED and SET ASIDE without prejudice to the action of the National Evaluation Board on the proposed compromise settlement of the Maria C. Tancinco estates tax liability.[4] The Facts The CA narrated the facts as follows: On July 8, 1993, Maria C. Tancinco (or decedent) died, leaving a 1,292 squaremeter residential lot and an old house thereon (or subject property) located at 4931 Pasay Road, Dasmarias Village, Makati City. On the basis of a sworn information-for-reward filed on February 17, 1997 by a certain Raymond Abad (or Abad), Revenue District Office No. 50 (South Makati) conducted an investigation on the decedents estate (or estate). Subsequently, it issued a Return Verification Order. But without the required preliminary findings being submitted, it issued Letter of Authority No. 132963 for the regular investigation of the estate tax case. Azucena T. Reyes (or [Reyes]), one of the decedents heirs, received the Letter of Authority on March 14, 1997. On February 12, 1998, the Chief, Assessment Division, Bureau of Internal Revenue (or BIR), issued a preliminary assessment notice against the estate in the amount of P14,580,618.67. On May 10, 1998, the heirs of the decedent (or heirs) received a final estate tax assessment notice and a demand letter, both dated April 22, 1998, for the amount of P14,912,205.47, inclusive of surcharge and interest. On June 1, 1998, a certain Felix M. Sumbillo (or Sumbillo) protested the assessment [o]n behalf of the heirs on the ground that the subject property had already been sold by the decedent sometime in 1990. On November 12, 1998, the Commissioner of Internal Revenue (or [CIR]) issued a preliminary collection letter to [Reyes], followed by a Final Notice Before Seizure dated December 4, 1998.

On January 5, 1999, a Warrant of Distraint and/or Levy was served upon the estate, followed on February 11, 1999 by Notices of Levy on Real Property and Tax Lien against it. On March 2, 1999, [Reyes] protested the notice of levy. However, on March 11, 1999, the heirs proposed a compromise settlement of P1,000,000.00. In a letter to [the CIR] dated January 27, 2000, [Reyes] proposed to pay 50% of the basic tax due, citing the heirs inability to pay the tax assessment. On March 20, 2000, [the CIR] rejected [Reyess] offer, pointing out that since the estate tax is a charge on the estate and not on the heirs, the latters financial incapacity is immaterial as, in fact, the gross value of the estate amounting to P32,420,360.00 is more than sufficient to settle the tax liability. Thus, [the CIR] demanded payment of the amount of P18,034,382.13 on or before April 15, 2000[;] otherwise, the notice of sale of the subject property would be published. On April 11, 2000, [Reyes] again wrote to [the CIR], this time proposing to pay 100% of the basic tax due in the amount of P5,313,891.00. She reiterated the proposal in a letter dated May 18, 2000. As the estate failed to pay its tax liability within the April 15, 2000 deadline, the Chief, Collection Enforcement Division, BIR, notified [Reyes] on June 6, 2000 that the subject property would be sold at public auction on August 8, 2000. On June 13, 2000, [Reyes] filed a protest with the BIR Appellate Division. Assailing the scheduled auction sale, she asserted that x x x the assessment, letter of demand[,] and the whole tax proceedings against the estate are void ab initio. She offered to file the corresponding estate tax return and pay the correct amount of tax without surcharge [or] interest. Without acting on [Reyess] protest and offer, [the CIR] instructed the Collection Enforcement Division to proceed with the August 8, 2000 auction sale. Consequently, on June 28, 2000, [Reyes] filed a [P]etition for [R]eview with the Court of Tax Appeals (or CTA), docketed as CTA Case No. 6124. On July 17, 2000, [Reyes] filed a Motion for the Issuance of a Writ of Preliminary Injunction or Status Quo Order, which was granted by the CTA on July 26, 2000. Upon [Reyess] filing of a surety bond in the amount of P27,000,000.00, the CTA issued a [R]esolution dated August 16, 2000 ordering [the CIR] to desist and refrain from proceeding with the auction sale of the subject property or from issuing a [W]arrant of [D]istraint or [G]arnishment of [B]ank [A]ccount[,] pending determination of the case and/or unless a contrary order is issued. [The CIR] filed a [M]otion to [D]ismiss the petition on the grounds (i) that the CTA no longer has jurisdiction over the case[,] because the assessment against the estate is already final and executory; and (ii) that the petition was filed out of time. In a [R]esolution dated November 23, 2000, the CTA denied [the CIRs] motion. During the pendency of the [P]etition for [R]eview with the CTA, however, the BIR issued Revenue Regulation (or RR) No. 6-2000 and Revenue Memorandum Order (or RMO) No. 42-2000 offering certain taxpayers with delinquent accounts and disputed assessments an opportunity to compromise their tax liability. On November 25, 2000, [Reyes] filed an application with the BIR for the compromise settlement (or compromise) of the assessment against the estate

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pursuant to Sec. 204(A) of the Tax Code, as implemented by RR No. 6-2000 and RMO No. 42-2000. On December 26, 2000, [Reyes] filed an Ex-Parte Motion for Postponement of the hearing before the CTA scheduled on January 9, 2001, citing her pending application for compromise with the BIR. The motion was granted and the hearing was reset to February 6, 2001. On January 29, 2001, [Reyes] moved for postponement of the hearing set on February 6, 2001, this time on the ground that she had already paid the compromise amount of P1,062,778.20 but was still awaiting approval of the National Evaluation Board (or NEB). The CTA granted the motion and reset the hearing to February 27, 2001. On February 19, 2001, [Reyes] filed a Motion to Declare Application for the Settlement of Disputed Assessment as a Perfected Compromise. In said motion, she alleged that [the CIR] had not yet signed the compromise[,] because of procedural red tape requiring the initials of four Deputy Commissioners on relevant documents before the compromise is signed by the [CIR]. [Reyes] posited that the absence of the requisite initials and signature[s] on said documents does not vitiate the perfected compromise. Commenting on the motion, [the CIR] countered that[,] without the approval of the NEB, [Reyess] application for compromise with the BIR cannot be considered a perfected or consummated compromise. On March 9, 2001, the CTA denied [Reyess] motion, prompting her to file a Motion for Reconsideration Ad Cautelam. In a [R]esolution dated April 10, 2001, the CTA denied the [M]otion for [R]econsideration with the suggestion that[,] for an orderly presentation of her case and to prevent piecemeal resolutions of different issues, [Reyes] should file a [S]upplemental [P]etition for [R]eview[,] setting forth the new issue of whether there was already a perfected compromise. On May 2, 2001, [Reyes] filed a Supplemental Petition for Review with the CTA, followed on June 4, 2001 by its Amplificatory Arguments (for the Supplemental Petition for Review), raising the following issues: 1. Whether or not an offer to compromise by the [CIR], with the acquiescence by the Secretary of Finance, of a tax liability pending in court, that was accepted and paid by the taxpayer, is a perfected and consummated compromise. 2. Whether this compromise is covered by the provisions of Section 204 of the Tax Code (CTRP) that requires approval by the BIR [NEB]. Answering the Supplemental Petition, [the CIR] averred that an application for compromise of a tax liability under RR No. 6-2000 and RMO No. 42-2000 requires the evaluation and approval of either the NEB or the Regional Evaluation Board (or REB), as the case may be. On June 14, 2001, [Reyes] filed a Motion for Judgment on the Pleadings; the motion was granted on July 11, 2001. After submission of memoranda, the case was submitted for [D]ecision. On June 19, 2002, the CTA rendered a [D]ecision, the decretal portion of which pertinently reads:

WHEREFORE, in view of all the foregoing, the instant [P]etition for [R]eview is hereby DENIED. Accordingly, [Reyes] is hereby ORDERED to PAY deficiency estate tax in the amount of Nineteen Million Five Hundred Twenty Four Thousand Nine Hundred Nine and 78/100 (P19,524,909.78), computed as follows: xxx xxx xxx

[Reyes] is likewise ORDERED to PAY 20% delinquency interest on deficiency estate tax due of P17,934,382.13 from January 11, 2001 until full payment thereof pursuant to Section 249(c) of the Tax Code, as amended. In arriving at its decision, the CTA ratiocinated that there can only be a perfected and consummated compromise of the estates tax liability[,] if the NEB has approved [Reyess] application for compromise in accordance with RR No. 62000, as implemented by RMO No. 42-2000. Anent the validity of the assessment notice and letter of demand against the estate, the CTA stated that at the time the questioned assessment notice and letter of demand were issued, the heirs knew very well the law and the facts on which the same were based. It also observed that the petition was not filed within the 30-day reglementary period provided under Sec. 11 of Rep. Act No. 1125 and Sec. 228 of the Tax Code.[5] Ruling of the Court of Appeals In partly granting the Petition, the CA said that Section 228 of the Tax Code and RR 12-99 were mandatory and unequivocal in their requirement. The assessment notice and the demand letter should have stated the facts and the law on which they were based; otherwise, they were deemed void.[6] The appellate court held that while administrative agencies, like the BIR, were not bound by procedural requirements, they were still required by law and equity to observe substantive due process. The reason behind this requirement, said the CA, was to ensure that taxpayers would be duly apprised of -- and could effectively protest -the basis of tax assessments against them.[7] Since the assessment and the demand were void, the proceedings emanating from them were likewise void, and any order emanating from them could never attain finality. The appellate court added, however, that it was premature to declare as perfected and consummated the compromise of the estates tax liability. It explained that, where the basic tax assessed exceeded P1 million, or where the settlement offer was less than the prescribed minimum rates, the National Evaluation Boards (NEB) prior evaluation and approval were the conditio sine qua non to the perfection and consummation of any compromise.[8] Besides, the CA pointed out, Section 204(A) of the Tax Code applied to all compromises, whether government-initiated or not.[9] Where the law did not distinguish, courts too should not distinguish. Hence, this Petition.[10] The Issues In GR No. 159694, petitioner raises the following issues for the Courts consideration: I.

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Whether petitioners assessment against the estate is valid. II. Whether respondent can validly argue that she, as well as the other heirs, was not aware of the facts and the law on which the assessment in question is based, after she had opted to propose several compromises on the estate tax due, and even prematurely acting on such proposal by paying 20% of the basic estate tax due.[11] The foregoing issues can be simplified as follows: first, whether the assessment against the estate is valid; and, second, whether the compromise entered into is also valid. The Courts Ruling The Petition is unmeritorious. First Issue: Validity of the Assessment Against the Estate The second paragraph of Section 228 of the Tax Code[12] is clear and mandatory. It provides as follows: Sec. 228. Protesting of Assessment. -xxx xxx xxx

requirement under Section 228. Moreover, the Letter of Authority received by respondent on March 14, 1997 was for the sheer purpose of investigation and was not even the requisite notice under the law. The procedure for protesting an assessment under the Tax Code is found in Chapter III of Title VIII, which deals with remedies. Being procedural in nature, can its provision then be applied retroactively? The answer is yes. The general rule is that statutes are prospective. However, statutes that are remedial, or that do not create new or take away vested rights, do not fall under the general rule against the retroactive operation of statutes.[14] Clearly, Section 228 provides for the procedure in case an assessment is protested. The provision does not create new or take away vested rights. In both instances, it can surely be applied retroactively. Moreover, RA 8424 does not state, either expressly or by necessary implication, that pending actions are excepted from the operation of Section 228, or that applying it to pending proceedings would impair vested rights. Second, the non-retroactive application of Revenue Regulation (RR) No. 12-99 is of no moment, considering that it merely implements the law. A tax regulation is promulgated by the finance secretary to implement the provisions of the Tax Code.[15] While it is desirable for the government authority or administrative agency to have one immediately issued after a law is passed, the absence of the regulation does not automatically mean that the law itself would become inoperative. At the time the pre-assessment notice was issued to Reyes, RA 8424 already stated that the taxpayer must be informed of both the law and facts on which the assessment was based. Thus, the CIR should have required the assessment officers of the Bureau of Internal Revenue (BIR) to follow the clear mandate of the new law. The old regulation governing the issuance of estate tax assessment notices ran afoul of the rule that tax regulations -- old as they were -- should be in harmony with, and not supplant or modify, the law.[16] It may be argued that the Tax Code provisions are not self-executory. It would be too wide a stretch of the imagination, though, to still issue a regulation that would simply require tax officials to inform the taxpayer, in any manner, of the law and the facts on which an assessment was based. That requirement is neither difficult to make nor its desired results hard to achieve. Moreover, an administrative rule interpretive of a statute, and not declarative of certain rights and corresponding obligations, is given retroactive effect as of the date of the effectivity of the statute.[17] RR 12-99 is one such rule. Being interpretive of the provisions of the Tax Code, even if it was issued only on September 6, 1999, this regulation was to retroact to January 1, 1998 -- a date prior to the issuance of the preliminary assessment notice and demand letter. Third, neither Section 229 nor RR 12-85 can prevail over Section 228 of the Tax Code. No doubt, Section 228 has replaced Section 229. The provision on protesting an assessment has been amended. Furthermore, in case of discrepancy between the law as amended and its implementing but old regulation, the former necessarily prevails.[18] Thus, between Section 228 of the Tax Code and the pertinent provisions of RR 12-85, the latter cannot stand because it cannot go beyond the provision of the law. The law must still be followed, even though the existing tax

The taxpayers shall be informed in writing of the law and the facts on which the assessment is made: otherwise, the assessment shall be void. In the present case, Reyes was not informed in writing of the law and the facts on which the assessment of estate taxes had been made. She was merely notified of the findings by the CIR, who had simply relied upon the provisions of former Section 229[13] prior to its amendment by Republic Act (RA) No. 8424, otherwise known as the Tax Reform Act of 1997. First, RA 8424 has already amended the provision of Section 229 on protesting an assessment. The old requirement of merely notifying the taxpayer of the CIRs findings was changed in 1998 to informing the taxpayer of not only the law, but also of the facts on which an assessment would be made; otherwise, the assessment itself would be invalid. It was on February 12, 1998, that a preliminary assessment notice was issued against the estate. On April 22, 1998, the final estate tax assessment notice, as well as demand letter, was also issued. During those dates, RA 8424 was already in effect. The notice required under the old law was no longer sufficient under the new law. To be simply informed in writing of the investigation being conducted and of the recommendation for the assessment of the estate taxes due is nothing but a perfunctory discharge of the tax function of correctly assessing a taxpayer. The act cannot be taken to mean that Reyes already knew the law and the facts on which the assessment was based. It does not at all conform to the compulsory

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regulation at that time provided for a different procedure. The regulation then simply provided that notice be sent to the respondent in the form prescribed, and that no consequence would ensue for failure to comply with that form. Fourth, petitioner violated the cardinal rule in administrative law that the taxpayer be accorded due process. Not only was the law here disregarded, but no valid notice was sent, either. A void assessment bears no valid fruit. The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax collection without first establishing a valid assessment is evidently violative of the cardinal principle in administrative investigations: that taxpayers should be able to present their case and adduce supporting evidence.[19] In the instant case, respondent has not been informed of the basis of the estate tax liability. Without complying with the unequivocal mandate of first informing the taxpayer of the governments claim, there can be no deprivation of property, because no effective protest can be made.[20] The haphazard shot at slapping an assessment, supposedly based on estate taxations general provisions that are expected to be known by the taxpayer, is utter chicanery. Even a cursory review of the preliminary assessment notice, as well as the demand letter sent, reveals the lack of basis for -- not to mention the insufficiency of -- the gross figures and details of the itemized deductions indicated in the notice and the letter. This Court cannot countenance an assessment based on estimates that appear to have been arbitrarily or capriciously arrived at. Although taxes are the lifeblood of the government, their assessment and collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself.[21] Fifth, the rule against estoppel does not apply. Although the government cannot be estopped by the negligence or omission of its agents, the obligatory provision on protesting a tax assessment cannot be rendered nugatory by a mere act of the CIR . Tax laws are civil in nature.[22] Under our Civil Code, acts executed against the mandatory provisions of law are void, except when the law itself authorizes the validity of those acts.[23] Failure to comply with Section 228 does not only render the assessment void, but also finds no validation in any provision in the Tax Code. We cannot condone errant or enterprising tax officials, as they are expected to be vigilant and law-abiding. Second Issue: Validity of Compromise It would be premature for this Court to declare that the compromise on the estate tax liability has been perfected and consummated, considering the earlier determination that the assessment against the estate was void. Nothing has been settled or finalized. Under Section 204(A) of the Tax Code, where the basic tax involved exceeds one million pesos or the settlement offered is less than the prescribed minimum rates, the compromise shall be subject to the approval of the NEB composed of the petitioner and four deputy commissioners. Finally, as correctly held by the appellate court, this provision applies to all compromises, whether government-initiated or not. Ubi lex non distinguit, nec nos distinguere debemos. Where the law does not distinguish, we should not distinguish.

WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. No pronouncement as to costs. SO ORDERED. ARTEMIO V. PANGANIBAN Chief Justice Chairperson, First Division WE C O N C U R:

CONSUELO YNARES-SANTIAGO Associate Justice MA. ALICIA AUSTRIA-MARTINEZ Associate Justice ROMEO J. CALLEJO SR. Associate Justice MINITA V. CHICO-NAZARIO Associate Justice CERTIFICATION

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THIRD DIVISION [G.R. No. 167560, September 17, 2008] COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. DOMINADOR MENGUITO, RESPONDENT. DECISION AUSTRIA-MARTINEZ, J.: Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the March 31, 2005 Decision[1] of the Court of Appeals (CA) which reversed and set aside the Court of Tax Appeals (CTA) April 2, 2002 Decision[2] and October 10, 2002 Resolution[3] ordering Dominador Menguito (respondent) to pay the Commissioner of Internal Revenue (petitioner) deficiency income and percentage taxes and delinquency interest. Based on the Joint Stipulation of Facts and Admissions[4] of the parties, the CTA summarized the factual and procedural antecedents of the case, the relevant portions of which read: Petitioner Dominador Menguito [herein respondent] is a Filipino citizen, of legal age, married to Jeanne Menguito and is engaged in the restaurant and/or cafeteria business. For the years 1991, 1992 and 1993, its principal place of business was at Gloriamaris, CCP Complex, Pasay City and later transferred to Kalayaan Bar (Copper Kettle Cafeteria Specialist or CKCS), Departure Area, Ninoy Aquino International Airport, Pasay City. During the same years, he also operated a branch at Club John Hay, Baguio City carrying the business name of Copper Kettle Cafeteria Specialist (Joint Stipulation of Facts and Admissions, p. 133, CTA records). xxxx Subsequently, BIR Baguio received information that Petitioner [herein respondent] has undeclared income from Texas Instruments and Club John Hay, prompting the BIR to conduct another investigation. Through a letter dated July 28, 1997, Spouses Dominador Menguito and Jeanne Menguito (Spouses Menguito) were informed by the Assessment Division of the said office that they have underdeclared sales totaling P48,721,555.96 (Exhibit 11, p. 83, BIR records). This was followed by a Preliminary Ten (10) Day Letter dated August 11, 1997, informing Petitioner [herein respondent] that in the investigation of his 1991, 1992 and 1993 income, business and withholding tax case, it was found out that there is still due from him the total sum of P34,193,041.55 as deficiency income and percentage tax. On September 2, 1997, the assessment notices subject of the instant petition were issued. These were protested by Ms. Jeanne Menguito, through a letter dated September 28, 1997 (Exhibit 14, p. 112, BIR Records), on the ground that the 40% deduction allowed on their computed gross revenue, is unrealistic. Ms. Jeanne Menguito requested for a period of thirty (30) days within which to coordinate with the BIR regarding the contested assessment. On October 10, 1997, BIR Baguio replied, informing the Spouses Menguito that the source of assessment was not through the disallowance of claimed expenses but on data received from Club John Hay and Texas Instruments Phils., Inc. Said letter gave the spouses ten (10) days to present evidence (Exhibit 15, p. 110, BIR Records).

In an effort to clear an alleged confusion regarding Copper Kettle Cafeteria Specialist (CKCS) being a sole proprietorship owned by the Spouses, and Copper Kettle Catering Services, Inc. (CKCS, Inc.) being a corporation with whom Texas Instruments and Club John Hay entered into a contract, Petitioner [respondent] submitted to BIR Baguio a photocopy of the SEC Registration of Copper Kettle Catering Services, Inc. on March 23, 1999 (pp. 134-141, BIR Records). On April 12, 1999, BIR Baguio wrote a letter to Spouses Menguito, informing the latter that a reinvestigation or reconsideration cannot be given due course by the mere submission of an uncertified photocopy of the Certificate of Incorporation. Thus, it avers that the amendment issued is still valid and enforceable. On May 26, 1999, Petitioner [respondent] filed the present case, praying for the cancellation and withdrawal of the deficiency income tax and percentage tax assessments on account of prescription, whimsical factual findings, violation of procedural due process on the issuance of assessment notices, erroneous address of notices and multiple credit/ investigation by the Respondent [petitioner] of Petitioner's [respondent's] books of accounts and other related records for the same tax year. Instead of filing an Answer, Respondent [herein petitioner] moved to dismiss the instant petition on July 1, 1999, on the ground of lack of jurisdiction. According to Respondent [petitioner], the assessment had long become final and executory when Petitioner [respondent] failed to comply with the letter dated October 10, 1997. Petitioner opposed said motion on July 21, 1999, claiming that the final decision on Petitioner's [respondent's] protest is the April 12, 1999 letter of the Baguio Regional Office; therefore, the filing of the action within thirty (30) days from receipt of the said letter was seasonably filed. Moreover, Petitioner [respondent] asserted that granting that the April 12, 1999 letter in question could not be construed to mean as a denial or final decision of the protest, still Petitioner's [respondent's] appeal was timely filed since Respondent [petitioner] issued a Warrant of Distraint and/or Levy against the Petitioner [respondent] on May 3, 1999, which warrant constituted a final decision of the Respondent [petitioner] on the protest of the taxpayer. On September 3, 1999, this Court denied Respondent's [petitioner's] 'Motion to Dismiss' for lack of merit. Respondent [petitioner] filed his Answer on September 24, 1999, raising the following Special and Affirmative Defenses: xxxx 5. Investigation disclosed that for taxable years 1991, 1992 and 1993, petitioner [respondent] filed false or fraudulent income and percentage tax returns with intent to evade tax by under declaring his sales. The alleged duplication of investigation of petitioner [respondent] by the BIR Regional Office in Baguio City and by the Revenue District Office in Pasay City is justified by the finding of fraud on the part of the petitioner [respondent], which is an exception to the provision in the Tax Code that the examination and inspection of books and records shall be made only once in a taxable year (Section 235, Tax Code). At any rate, petitioner

6.

24

[respondent], in a letter dated July 18, 1994, waived his right to the consolidation of said investigation. 7. The aforementioned falsity or fraud was discovered on August 5, 1997. The assessments were issued on September 2, 1997, or within ten (10) years from the discovery of such falsity or fraud (Section 223, Tax Code). Hence, the assessments have not prescribed. Petitioner's [respondent's] allegation that the assessments were not properly addressed is rendered moot and academic by his acknowledgment in his protest letter dated September 28, 1997 that he received the assessments. Respondent [petitioner] complied with the provisions of Revenue Regulations No. 12-85 by informing petitioner [respondent] of the findings of the investigation in letters dated July 28, 1997 and August 11, 1997 prior to the issuance of the assessments.

Based on the unrefuted[11] CTA summary, the CA rendered the Decision assailed herein, the dispositive portion of which reads: WHEREFORE, the instant petition is GRANTED. Reversing the assailed Decision dated April 2, 2002 and Resolution dated October 10, 2002, the deficiency income tax and percentage income tax assessments against petitioner in the amounts of P11,333,233.94 and P2,573,655.82 for taxable years 1991, 1992 and 1993 plus the 20% delinquency interest thereon are annulled. SO ORDERED.[12] Petitioner filed a motion for reconsideration but the CA denied the same in its October 10, 2002 Resolution.[13] Hence, herein recourse to the Court for the reversal of the CA decision and resolution on the following grounds: I The Court of Appeals erred in reversing the decision of the Court of Tax Appeals and in holding that Copper Kettle Cafeteria Specialist owned by respondent and Copper Kettle Catering Services, Inc. owned and managed by respondent's wife are not one and the same. II The Court of Appeals erred in holding that respondent was denied due process for failure of petitioner to validly serve respondent with the post-reporting and preassessment notices as required by law. On the first issue, the CTA has ruled that CKCS, Inc. and CKCS are one and the same corporation because "[t]he contract between Texas Instruments and Copper Kettle was signed by petitioner's [respondent's] wife, Jeanne Menguito as proprietress."[14] However, the CA reversed the CTA on these grounds: Respondent's [herein petitioner's] allegation that Copper Kettle Catering Services, Inc. and Copper Kettle Cafeteria Specialists are not distinct entities and that the under-declared sales/revenues of Copper Kettle Catering Services, Inc. pertain to Copper Kettle Cafeteria Specialist are belied by the evidence on record. In the Joint Stipulation of Facts submitted before the tax court, respondent [petitioner] admitted "that petitioner's [herein respondent's] business name is Copper Kettle Cafeteria Specialist." Also, the Certification of Club John Hay and Letter dated July 9, 1997 of Texas Instruments both addressed to respondent indicate that these companies transacted with Copper Kettle Catering Services, Inc., owned and managed by JEANNE G. MENGUITO, NOT petitioner Dominador Menguito. The alleged under-declared sales income subject of the present assessments were shown to have been earned by Copper Kettle Catering Services, Inc. in its commercial transaction with Texas Instruments and Camp John Hay; NOT by petitioner's dealing with these companies. In fact, there is nothing on record which shows that Texas Instruments and Camp John Hay conducted business relations with Copper Kettle Cafeteria Specialist, owned by herein petitioner Dominador Menguito. In the absence, therefore, of clear and convincing evidence showing that Copper Kettle Cafeteria Specialist and Copper Kettle Catering Services, Inc. are one and the same, respondent can NOT validly impute alleged underdeclared sales income earned by Copper Kettle Catering Services, Inc. as sales income of Copper Kettle Cafeteria Specialist.[15] (Emphasis supplied)

8.

9.

10. Petitioner [respondent] did not allege in his administrative protest that there was a duplication of investigation, that the assessments have prescribed, that they were not properly addressed, or that the provisions of Revenue Regulations No. 12-85 were not observed. Not having raised them in the administrative level, petitioner [respondent] cannot raise the same for the first time on appeal (Aguinaldo Industries Corp. vs. Commissioner of Internal Revenue, 112 SCRA 136). 11. The assessments were issued in accordance with law and regulations.

12. All presumptions are in favor of the correctness of tax assessments (CIR vs.
Construction Resources of Asia, Inc., 145 SCRA 67), and the burden to prove otherwise is upon petitioner [respondent].[5] (Emphasis supplied) On April 2, 2002, the CTA rendered a Decision, the dispositive portion of which reads: Accordingly, Petitioner [herein respondent] is ORDERED to PAY the Respondent [herein petitioner] the amount of P11,333,233.94 and P2,573,655.82 as deficiency income and percentage tax liabilities, respectively for taxable years 1991, 1992 and 1993 plus 20% delinquency interest from October 2, 1997 until full payment thereof. SO ORDERED.[6] Respondent filed a motion for reconsideration but the CTA denied the same in its Resolution of October 10, 2002.[7] Through a Petition for Review[8] filed with the CA, respondent questioned the CTA Decision and Resolution mainly on the ground that Copper Kettle Catering Services, Inc. (CKCS, Inc.) was a separate and distinct entity from Copper Kettle Cafeteria Specialist (CKCS); the sales and revenues of CKCS, Inc. could not be ascribed to CKCS; neither may the taxes due from one, charged to the other; nor the notices to be served on the former, coursed through the latter.[9] Respondent cited the Joint Stipulation in which petitioner acknowledged that its (respondent's) business was called Copper Kettle Cafeteria Specialist, not Copper Kettle Catering Services, Inc.[10]

25

Respondent is adamant that the CA is correct. Many times in the past, the BIR had treated CKCS separately from CKCS, Inc.: from May 1994 to June 1995, the BIR sent audit teams to examine the books of account and other accounting records of CKCS, and based on said audits, respondent was held liable for deficiency taxes, all of which he had paid.[16] Moreover, the certifications[17] issued by Club John Hay and Texas Instruments identify the concessionaire operating therein as CKCS, Inc., owned and managed by his spouse Jeanne Menguito, and not CKCS.[18] Petitioner impugns the findings of the CA, claiming that these are contradicted by evidence on record consisting of a reply to the September 2, 1997 assessment notice of BIR Baguio which Jeanne Menguito wrote on September 28, 1997, to wit: We are in receipt of the assessment notice you have sent us, dated September 2, 1997. Having taken hold of the same only now following our travel overseas, we were not able to respond immediately and manifest our protest. Also, with the impending termination of our businesses at 19th Tee, Club John Hay and at Texas Instruments, Loakan, Baguio City, we have already started the transfer of our records and books in Baguio City to Manila that we will need more time to review and sort the records that may have to be presented relative to the assessment x x x.[19] (Emphasis supplied) Petitioner insists that said reply confirms that the assessment notice is directed against the businesses which she and her husband, respondent herein, own and operate at Club John Hay and Texas Instruments, and establishes that she is protesting said notice not just for herself but also for respondent.[20] Moreover, petitioner argues that if it were true that CKCS, Inc. and CKCS are separate and distinct entities, respondent could have easily produced the articles of incorporation of CKCS, Inc.; instead, what respondent presented was merely a photocopy of the incorporation articles.[21] Worse, petitioner adds, said document was not offered in evidence before the CTA, but was presented only before the CA.
[22]

that where a corporation is merely an adjunct, business conduit or alter ego of another corporation or when they practice fraud on our internal revenue laws,[29] the fiction of their separate and distinct corporate identities shall be disregarded, and both entities treated as one taxable person, subject to assessment for the same taxable transaction. The Court considers the presence of the following circumstances, to wit: when the owner of one directs and controls the operations of the other, and the payments effected or received by one are for the accounts due from or payable to the other;[30] or when the properties or products of one are all sold to the other, which in turn immediately sells them to the public,[31] as substantial evidence in support of the finding that the two are actually one juridical taxable personality. In the present case, overwhelming evidence supports the CTA in disregarding the separate identity of CKCS, Inc. from CKCS and in treating them as one taxable entity. First, in respondent's Petition for Review before the CTA, he expressly admitted that he "is engaged in restaurant and/or cafeteria business" and that "[i]n 1991, 1992 and 1993, he also operated a branch at Club John Hay, Baguio Citywith a business name of Copper Kettle Cafeteria Specialist."[32] Respondent repeated such admission in the Joint Stipulation.[33] And then in Exhibit "1"[34] for petitioner, a July 18, 1994 letter sent by Jeanne Menguito to BIR, Baguio City, she stated thus: "in connection with the investigation of Copper Kettle Cafeteria Specialist which is located at 19th Tee Club John Hay, Baguio City under letter of authority nos. 0392897, 0392898, and 0392690 dated May 16, 1994, investigating my income, business, and withholding taxes for the years 1991, 1992, and 1993."[35] (Emphasis supplied) Jeanne Menguito signed the letter as proprietor of Copper Kettle Cafeteria Specialist.
[36]

Petitioner further insists that CKCS, Inc. and CKCS are merely employing the fiction of their separate corporate existence to evade payment of proper taxes; that the CTA saw through their ploy and rightly disregarded their corporate individuality, treating them instead as one taxable entity with the same tax base and liability;[23] and that the CA should have sustained the CTA.[24] In effect, petitioner would have the Court resolve a purely factual issue[25] of whether or not there is substantial evidence that CKCS, Inc. and CKCS are one and the same taxable entity. As a general rule, the Court does not venture into a trial of facts in proceedings under Rule 45 of the Rules of Courts, for its only function is to review errors of law. [26] The Court declines to inquire into errors in the factual assessment of the CA, for the latter's findings are conclusive, especially when these are synonymous to those of the CTA.[27] But when the CA contradicts the factual findings of the CTA, the Court deems it necessary to determine whether the CA was justified in doing so, for one basic rule in taxation is that the factual findings of the CTA, when supported by substantial evidence, will not be disturbed on appeal unless it is shown that the CTA committed gross error in its appreciation of facts.[28] The Court finds that the CA gravely erred when it ignored the substantial evidence on record and reversed the CTA. In a number of cases, the Court has shredded the veil of corporate identity and ruled

Related to Exhibit "1" is petitioner's Exhibit "14," which is another letter dated September 28, 1997, in which Jeanne Menguito protested the September 2, 1997 assessment notices directed at Copper Kettle Cafeteria Specialist and referred to the latter as "our business at 19th Tee Club John Hay and at Texas Instruments."[37] Taken along with the Joint Stipulation, Exhibits "A" through "C" and the August 3, 1993 Certification of Camp John Hay, Exhibits "1" and "14," confirm that respondent, together with his spouse Jeanne Menguito, own, operate and manage a branch of Copper Kettle Cafeteria Specialist, also called Copper Kettle Catering Services at Camp John Hay. Moreover, in Exhibits "A" to "A-1,"[38] Exhibits "B" to "B-1"[39] and Exhibits "C" to "C1"[40] which are lists of concessionaires that operated in Club John Hay in 1992, 1993 and 1991, respectively,[41] it appears that there is no outlet with the name "Copper Kettle Cafeteria Specialist" as claimed by respondent. The name that appears in the lists is "19th TEE CAFETERIA (Copper Kettle, Inc.)." However, in the light of the express admission of respondent that in 1991, 1992 and 1993, he operated a branch called Copper Kettle Cafeteria Specialist in Club John Hay, the entries in Exhibits "A" through "C" could only mean that said branch refers to "19th Tee Cafeteria (Copper Kettle, Inc.)." There is no evidence presented by respondent that contradicts this conclusion. In addition, the August 9, 1993 Certification issued by Club John Hay that "COPPER KETTLE CATERING SERVICES owned and managed by MS. JEANNE G. MENGUITO is a concessionaire in John Hay since July 1991 up to the present and is operating the outlet 19TH TEE CAFETERIA AND THE TEE BAR"[42] convincingly establishes that

26

respondent's branch which he refers to as Copper Kettle Cafeteria Specialist at Club John Hay also appears in the latter's records as "Copper Kettle Catering Services" with an outlet called "19th Tee Cafeteria and The Tee Bar." Second, in Exhibit "8"[43] and Exhibit "E,"[44] Texas Instruments identified the concessionaire operating its canteen as "Copper Kettle Catering Services, Inc."[45] and/or "COPPER KETTLE CAFETERIA SPECIALIST SVCS."[46] It being settled that respondent's "Copper Kettle Cafeteria Specialist" is also known as "Copper Kettle Catering Services," and that respondent and Jeanne Menguito both own, manage and act as proprietors of the business, Exhibit "8" and Exhibit "E" further establish that, through said business, respondent also had taxable transactions with Texas Instruments. In view of the foregoing facts and circumstances, the Articles of Incorporation of CKCS, Inc. -- a certified true copy of which respondent attached only to his Reply filed with the CA[47] -- cannot insulate it from scrutiny of its real identity in relation to CKCS. It is noted that said Articles of Incorporation of CKCS, Inc. was issued in 1989, but documentary evidence indicate that after said date, CKCS, Inc. has also assumed the name CKCS, and vice-versa. The most concrete indication of this practice is the 1991 Quarterly Percentage Tax Returns covering the business name/trade "19th Tee Camp John Hay." In said returns, the taxpayer is identified as "Copper Kettle Cafeteria Specialist"[48] or CKCS, not CKCS, Inc. Yet, in several documents already cited, the purported owner of 19th Tee Bar at Club John Hay is CKCS, Inc. All these pieces of evidence buttress the finding of the CTA that in 1991, 1992 and 1993, respondent, together with his spouse Jeanne Menguito, owned and operated outlets in Club John Hay and Texas Instruments under the names Copper Kettle Cafeteria Specialist or CKCS and Copper Kettle Catering Services or Copper Kettle Catering Services, Inc.. Turning now to the second issue. In respondent's Petition for Review with the CTA, he questioned the validity of the Assessment Notices,[49] all dated September 2, 1997, issued by BIR, Baguio City against him on the following grounds:

The Court notes that nowhere in his Petition for Review did respondent deny that he received the September 2, 1997 assessment notices. Instead, during the trial, respondent's witness, Ma. Theresa Nalda (Nalda), testified that she informed the BIR, Baguio City "that there was no Notice or letter, that we did not receive, perhaps, because they were not addressed to Mr. Menguito's head office."[54] The CTA correctly upheld the validity of the assessment notices. Citing Section 223 of the Tax Code which provides that the prescriptive period for the issuance of assessment notices based on fraud is 10 years, the CTA ruled that the assessment notices issued against respondent on September 2, 1997 were timely because petitioner discovered the falsity in respondent's tax returns for 1991, 1992 and 1993 only on February 19, 1997.[55] Moreover, in accordance with Section 2 of Revenue Regulation No. 12-85, which requires that assessment notices be sent to the address indicated in the taxpayer's return, unless the latter gives a notice of change of address, the assessment notices in the present case were sent by petitioner to Camp John Hay, for this was the address respondent indicated in his tax returns.[56] As to whether said assessment notices were actually received, the CTA correctly held that since respondent did not testify that he did not receive said notices, it can be presumed that the same were actually sent to and received by the latter. The Court agrees with the CTA in considering as hearsay the testimony of Nalda that respondent did not receive the notices, because Nalda was not competent to testify on the matter, as she was employed by respondent only in June 1998, whereas the assessment notices were sent on September 2, 1997.[57] Anent compliance with the requirements of Revenue Regulation No. 12-85, the CTA held: BIR records show that on July 28, 1997, a letter was issued by BIR Baguio to Spouses Menguito, informing the latter of their supposed underdeclaration of sales totaling P48,721,555.96 and giving them 5 days to communicate any objection to the results of the investigation (Exhibit 11, p. 83, BIR Records). Records likewise reveal the issuance of a Preliminary Ten (10) Day Letter on August 11, 1997, informing Petitioner [respondent herein] that the sum of P34,193,041.55 is due from him as deficiency income and percentage tax (Exhibit 13, p. 173, BIR Records). Said letter gave the Petitioner [respondent herein] a period of ten (10) days to submit his objection to the proposed assessment, either personally or in writing, together with any evidence he may want to present. xxxx As to Petitioner's allegation that he was given only ten (10) days to reply to the findings of deficiency instead of fifteen (15) days granted to a taxpayer under Revenue Regulations No. 12-85, this Court believes that when Respondent [petitioner herein] gave the Petitioner [respondent herein] on October 10, 1997 an additional period of ten (10) days to present documentary evidence or a total of twenty (20) days, there was compliance with Revenue Regulations No. 12-85 and the latter was amply given opportunity to present his side x x x.[58] The CTA further held that respondent was estopped from raising procedural issues against the assessment notices, because these were not cited in the September 28, 1997 letter-protest which his spouse Jeanne Menguito filed with petitioner.[59] On appeal by respondent,[60] the CA resolved the issue, thus: Moreover, if the taxpayer denies ever having received an assessment from the BIR, it is incumbent upon the latter to prove by competent evidence that such notice was indeed received by the addressee. Here, respondent [petitioner herein] merely alleged that it "forwarded" the assessment notices to petitioner [respondent herein]. The respondent did not show any proof of mailing,

1.

The assessment notices, based on income and percentage tax returns filed for 1991, 1992 and 1993, were issued beyond the three-year prescriptive period under Section 203 of the Tax Code;[50] The assessment notices were addressed to Copper Kettle Specialist, Club John Hay, Baguio City, despite notice to petitioner that respondent's principal place of business was at the CCP Complex, Pasay City.[51] The assessment notices were issued in violation of the requirement of Revenue Regulations No. 12-85, dated November 27, 1985, that the taxpayer be issued a post-reporting notice and pre-assessment notice before the preliminary findings of deficiency may ripen into a formal assessment;[52] and The assessment notices did not give respondent a 15-day period to reply to the findings of deficiency.[53]

2.

3.

4.

27

registry receipt or acknowledgment receipt signed by the petitioner [respondent herein]. Since respondent [petitioner herein] has not adduced sufficient evidence that petitioner [respondent herein] had in fact received the preassessment notice and post-reporting notice required by law, it cannot be assumed that petitioner [respondent herein] had been served said notices.
[61]

No other ground was cited by the CA for the reversal of the finding of the CTA on the issue. The CA is gravely mistaken. In their Petition for Review with the CTA, respondent expressly stated that "[s]ometime in September 1997, petitioner [respondent herein] received various assessment notices, all dated 02 September 1997, issued by BIR-Baguio for alleged deficiency income and percentage taxes for taxable years ending 31 December 1991, 1992 and 1993 x x x."[62] In their September 28, 1997 protest to the September 2, 1997 assessment notices, respondent, through his spouses Jeanne Menguito, acknowledged that "[they] are in receipt of the assessment notice you have sent us, dated September 2, 1997 x x x."[63] Respondent is therefore estopped from denying actual receipt of the September 2, 1997 assessment notices, notwithstanding the denial of his witness Nalda. As to the address indicated on the assessment notices, respondent cannot question the same for it is the said address which appears in its percentage tax returns.[64] While respondent claims that he had earlier notified petitioner of a change in his business address, no evidence of such written notice was presented. Under Section 11 of Revenue Regulation No. 12-85, respondent's failure to give written notice of change of address bound him to whatever communications were sent to the address appearing in the tax returns for the period involved in the investigation.[65] Thus, what remain in question now are: whether petitioner issued and mailed a postreporting notice and a pre-assessment notice; and whether respondent actually received them. There is no doubt that petitioner failed to prove that it served on respondent a postreporting notice and a pre-assessment notice. Exhibit "11"[66] of petitioner is a mere photocopy of a July 28, 1997 letter it sent to respondent, informing him of the initial outcome of the investigation into his sales, and the release of a preliminary assessment upon completion of the investigation, with notice for the latter to file any objection within five days from receipt of the letter. "Exhibit "13"[67] of petitioner is also a mere photocopy of an August 11, 1997 Preliminary Ten (10) Day Letter to respondent, informing him that he had been found to be liable for deficiency income and percentage tax and inviting him to submit a written objection to the proposed assessment within 10 days from receipt of notice. But nowhere on the face of said documents can be found evidence that these were sent to and received by respondent. Nor is there separate evidence, such as a registry receipt of the notices or a certification from the Bureau of Posts, that petitioner actually mailed said notices. However, while the lack of a post-reporting notice and pre-assessment notice is a deviation from the requirements under Section 1[68] and Section 2[69] of Revenue Regulation No. 12-85, the same cannot detract from the fact that formal assessments were issued to and actually received by respondents in accordance with Section 228 of the National Internal Revenue Code which was in effect at the time of assessment.

It should be emphasized that the stringent requirement that an assessment notice be satisfactorily proven to have been issued and released or, if receipt thereof is denied, that said assessment notice have been served on the taxpayer,[70] applies only to formal assessments prescribed under Section 228 of the National Internal Revenue Code, but not to post-reporting notices or pre-assessment notices. The issuance of a valid formal assessment is a substantive prerequisite to tax collection,[71] for it contains not only a computation of tax liabilities but also a demand for payment within a prescribed period, thereby signaling the time when penalties and interests begin to accrue against the taxpayer and enabling the latter to determine his remedies therefor. Due process requires that it must be served on and received by the taxpayer.[72] A post-reporting notice and pre-assessment notice do not bear the gravity of a formal assessment notice. The post-reporting notice and pre-assessment notice merely hint at the initial findings of the BIR against a taxpayer and invites the latter to an "informal" conference or clarificatory meeting. Neither notice contains a declaration of the tax liability of the taxpayer or a demand for payment thereof. Hence, the lack of such notices inflicts no prejudice on the taxpayer for as long as the latter is properly served a formal assessment notice. In the case of respondent, a formal assessment notice was received by him as acknowledged in his Petition for Review and Joint Stipulation; and, on the basis thereof, he filed a protest with the BIR, Baguio City and eventually a petition with the CTA. WHEREFORE, the petition is GRANTED. The March 31, 2005 Decision of the Court of Appeals is REVERSED and SET ASIDE and the April 2, 2002 Decision and October 10, 2002 Resolution of the Court of Tax Appeals are REINSTATED. SO ORDERED. Ynares-Santiago, (Chairperson), Chico-Nazario, Nachura, and Reyes, JJ., concur

28

/---!e-library! 6.0 Philippines Copyright 2000 by Sony Valdez---\ [1988V794] CECILIA TEODORO DAYRIT, TORIBIA TEODORO CASTANEDA, PRUDENCIO J. TEODORO, FRANCISCO J. TEODORO, AND JOSEFINA TEODORO TIONGSON, petitioners, vs. THE HONORABLE FERNANDO A CRUZ, Presiding Judge, Branch XII, Court of First Instance of Rizal, and MISAEL P. VERA, in his capacity as the Commissioner of Internal Revenue, respondents.1988 September 261st DivisionG.R. No. L-39910D E C I S I O N GANCAYCO, J.: The application of tax amnesty to the estate of the Teodoros is the issue in this case. Petitioners are the legitimate children and heirs of the deceased spouses Marta J. Teodoro who died intestate on July 1, 1965 and Don Toribio Teodoro who died testate on August 30, 1965. Thereafter, the heirs of the deceased filed separate estate and inheritance tax returns for the estates of the late spouses with the Bureau of Internal Revenue. * In the meantime, testate and intestate proceedings for the settlement of the decedents' estates were filed 1 by Cecilia Teodoro-Dayrit, one of the petitioners herein, in the then Court of First Instance of Caloocan City, ** Branch XII docketed as Special Proceedings No. C-113. 2 On August 14, 1968, said petitioner was appointed administratrix of the estate of Doa Marta and letters testamentary was issued in her favor as executrix of the estate of Don Toribio. On August 9, 1972, the respondent Commissioner of Internal Revenue issued the following deficiency estate and inheritance tax assessments: 3 Estate of Doa Marta Estate Tax & penalties P1,662,072.34 Inheritance Tax & interests 1,747,790.941, Estate of Don Toribio *** P1,542,293.01 518,458.72.

(a) Such previously untaxed income must have been earned or realized prior to 1972; (b) The taxpayer must file a notice and return with the Commissioner of Internal Revenue on or before March 31, 1972 showing such previously untaxed income; . . . 2. The tax imposed under Paragraph 1 hereof, shall be paid within the following period: (a) If the amount does not exceed P10,000.00 the tax must be paid at the time of the filing of notice and return but not later than March 31, 1973; (b) If the amount exceeds P10,000.00 the tax may be paid in two (2) installments, the first installment to be paid upon the filing of the notice and return but not later than March 31, 1973; and the second installment within three (3) months from the date of the filing of the return but not later than June 30, 1973 . . ." On November 24, 1972, P.D. No. 67, was issued amending paragraphs 1 and 3 of P.D. No. 23, to read as follows: "xxx xxx xxx

The aforementioned notice of deficiency assessments was received by petitioner Dayrit on August 14, 1972. In a letter dated October 7, 1972, **** petitioners through counsel asked for a reconsideration of the said assessments alleging that the same are contrary to law and not supported by sufficient evidence. 4 In the same letter, petitioners requested a period of thirty (30) days within which to submit their position paper in support of their claim. Meanwhile, on October 16, 1972, Presidential Decree (P.D) No. 23, entitled "Proclaiming Tax Amnesty Subject to Certain Conditions," was issued by then President Ferdinand E. Marcos, quoted hereunder as follows: xxx xxx xxx

"1. In all cases of voluntary disclosures of previously untaxed income and/or wealth such as earnings, receipts, gifts, bequests or any other acquisitions from any source whatsoever which are taxable under the National Internal Revenue Code, as amended, realized here or ;abroad by any taxpayer, natural or juridical; the collection of all internal revenue taxes including the increments or penalties on account of non-payment as well as all civil, criminal or administrative liabilities arising from or incident to such disclosures under the National Internal Revenue Code, the Revised Penal Code, the Anti-Graft and Corrupt Practices Act, the Revised Administrative Code, the Civil Service laws and regulations, laws and regulations on Immigration and Deportation, or any other applicable law or proclamation, are hereby condoned and, in lieu thereof, a tax of ten per centum (10%) on such previously untaxed income or wealth is hereby imposed, subject to the following conditions: a. Such previously untaxed income and/or wealth must have been earned or realized prior to 1972; b. The taxpayer must file a return with the Commissioner of Internal Revenue on or before March 31, 1973, showing such previously untaxed income and/or wealth; . . ." In a tax return dated March 31, 1973, petitioner Cecilia Teodoro-Dayrit declared an additional amount of P3,655,595.78 as part of the estates of the Teodoro spouses, for additional valuation over and above the amount declared in the previous return for estates and inheritance taxes of the said late spouses. 5 The Bureau of Internal Revenue issued tax payment acceptance order Nos. 1127185-86 and 1533011. 6 Pursuant to the aforesaid tax acceptance orders, the estates and heirs of the deceased spouses Teodoro paid the amounts of P5,000.00, P30,046.68 and P250,000.00 per official receipts Nos. 73201, 774037 and 964467 dated April 2, 1973, July 17, 1973 and October 31, 1973, respectively, 7 amounting to a total of P285,046.68.

"1. In all cases of voluntary disclosure of previously untaxed income realized here or abroad by any taxpayer, natural or juridical, the collection of the income tax and penalties incident to nonpayment, as well as all criminal and civil liabilities under the National Internal Revenue Code, the Revised Penal Code, the Anti-Graft and Corrupt Practices Act or any other law applicable thereto, is hereby condoned and, in lieu thereof, a tax of TEN PERCENTUM (10%) on such previously untaxed income is hereby imposed, subject to the following conditions:

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On March 14, 1974, respondent Commissioner of Internal Revenue filed a motion for Allowance of Claim against the estates of spouses Teodoro and for an order of payment of taxes in S.P. No. C-113 with the then Court of First Instance of Rizal, Branch XII, praying that petitioner Dayrit be ordered to pay the Bureau of Internal Revenue the sum of P6,470,396.81 plus surcharges and interest. 8 Petitioners filed two (2) separate oppositions alleging that the estate and inheritance taxes sought to be collected have already been settled in accordance with the provisions of P.D. No. 23, as amended by P.D. No. 67 and that at any rate, the assessments have not become final and executory. 9 In reply thereto, respondent Commissioner alleged that petitioners could not avail of the tax amnesty in view of the existence of a prior assessment. 10 Petitioners insisted that the tax amnesty could still be availed of invoking Section 4, BIR Revenue Regulation No. 8-72. 11 On July 10, 1974, respondent Judge issued an order approving the claim of respondent Commissioner and directing the payment of the estate and inheritance taxes. 12 Dissatisfied with the decision, petitioners filed a motion for reconsideration 13 but it was denied 14 in an order dated September 30, 1974. ***** Hence, the present petition. Petitioners contend that respondent Judge acted without jurisdiction or in excess of jurisdiction or with grave abuse of discretion amounting to lack of jurisdiction in granting the respondent Commissioner's claim for estate and inheritance taxes against the estates of the Teodoro spouses on the ground that due to the pendency of their motion for reconsideration of the deficiency assessments issued by the Commissioner, said tax assessments are not yet final and executory. Petitioners stressed that the absence of a decision on the disputed assessments was a bar against collection of taxes. Finally, petitioners insist that their act of filing an estate and inheritance tax return of a previously untaxed wealth of the estates entitles said estates to tax amnesty under P.D. No. 23, as amended by P.D. 67 and hence, it is an error to grant respondent Commissioner's claim for collection of estate and inheritance taxes. On the other hand, respondent Commissioner contends that petitioners cannot avail of the tax amnesty in view of the prior existing assessments issued against the estates of the deceased spouses before the promulgation of P.D. No. 23. In support thereof, respondent cited Section 4 of Revenue Regulation No. 15-72, amending Section 4 of Regulation No. 8-12. Respondent Commissioner contends further that neither may petitioners' act of filing a return of a previously untaxed income or wealth in the amount of P3,655,595.98 entitled the estates to tax amnesty where petitioners failed to pay the 10% tax in full within the time frame required under P.D. No. 23, and that to allow petitioners to avail of the tax amnesty will render nugatory the provisions of P.D. No. 68. Moreover, said respondent argues that certiorari is not the proper remedy in that respondent Judge committed no grave abuse of discretion in allowing the claim for collection of taxes and that if at all, it was merely an error of judgment which can be corrected only on appeal, and in which case the reglementary period for the same has already prescribed. The main issue in this petition is whether an estate may avail of tax amnesty under Presidential Decree No. 23 where there is already an existing assessment made prior to the issuance of the said decree on the basis of the submitted estate and inheritance tax returns by merely filing separate estate tax returns of an undeclared and untaxed income over and above the original amount of the estate declared. Anent petitioners' claim that the tax assessments against the estates of the Teodoro spouses are not yet final, the court finds the claim untenable. In petitioners' motion

for reconsideration of the aforementioned assessments, petitioners requested then Commissioner Misael P. Vera for a period of thirty (30) days from October 7, 1972 within which to submit a position paper that would embody their grounds for reconsideration. However, no position paper was ever filed. 15 Such failure to file a position paper may be construed as abandonment of the petitioners' request for reconsideration. The court notes that it took the respondent Commissioner a period of more than one (1) year and five (5) months, from October 7, 1972 to March 14, 1974, before finally instituting the action for collection. Under the circumstances of the case, the act of the Commissioner in filing an action for allowance of the claim for estate and inheritance taxes, may be considered as an outright denial of petitioners' request for reconsideration. From the date of receipt of the copy of the Commissioner's letter for collection of estate and inheritance taxes against the estates of the late Teodoro spouses, petitioners must contest or dispute the same and, upon a denial thereof, the petitioners have a period of thirty (30) days within which to appeal the case to the Court of Tax Appeals. 16 This they failed to avail of. Tax assessments made by tax examiners are presumed correct and made in good faith. A taxpayer has to prove otherwise. 17 Failure of the petitioners to appeal to the Court of Tax Appeals in due time made the assessments in question, final, executory and demandable. 18 The petitioners' allegation that the Court of First Instance (CFI) lacks jurisdiction over the subject of the case is likewise untenable. The assessments having become final and executory, the CFI properly acquired jurisdiction. 19 Neither is there merit in petitioners' claim that the exclusive jurisdiction of the Court of Tax Appeals (CTA) applies in the case. The aforesaid exclusive jurisdiction of the CTA arises only in cases of disputed tax assessments. 20 As noted earlier, petitioners' letter dated October 7, 1972 asking for reconsideration of the questioned assessments cannot be considered as one disputing the assessments because petitioners failed to substantiate their claim that the deficiency assessments are contrary to law. Petitioners asked for a period of thirty (30) days within which to submit their position paper but they failed to submit the same nonetheless. Hence, petitioners' letter for a reconsideration of the assessments is nothing but a mere scrap of paper. Petitioners' contention that the absence of a decision on their request for reconsideration of the assessments is a bar to granting the claim for collection is likewise without merit. In Republic vs. Lim Tian Teng Sons & Co., Inc., 21 this Court had occasion to rule that a decision on a request for reinvestigation is not a condition precedent to the filing of an action for collection of taxes already assessed. This Court ruled that "nowhere in the Tax Code is the Collector of Internal Revenue required to rule first on a taxpayer's request for reconsideration before he can go to court for the purpose of collecting the tax assessed. On the contrary, Section 305 of the same Code withheld from all courts, except the Court of Tax Appeals under Republic Act No. 1125, 22 the authority to restrain the collection of any national internal revenue tax, fee or charge, thereby indicating the legislative policy to allow the Collector of Internal Revenue much latitude on the speedy and prompt collection of taxes." Petitioners argue, however, that the Commissioner of Internal Revenue must first rule on the taxpayer's protest against tax assessment so as not to deprive the taxpayer of the remedy of appeal and that it is only from the receipt of the decision that the right to appeal to the Court of Tax Appeals should run, citing for the purpose San Juan vs. Velasquez 23 as well as Commissioner of Internal Revenue vs. Gonzales. 24

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The aforementioned cases are both not in point. In San Juan, the taxpayer concerned, through his accountant, disputed the assessments of income tax and deficiency income tax by adducing the reasons and explanations why said assessments of income tax were not due and owing from the taxpayer. Thus, it was therein ruled that having disputed the assessments at the opportune time, the Commissioner of Internal Revenue cannot ignore the disputed assessments by immediately bringing an action to collect. By the same token in Commissioner of Internal Revenue vs. Gonzales, the assessments of estate and inheritance taxes were disputed by the taxpayer by invoking prescription as a defense claiming that the assessments were made after the lapse of more than five (5) years. Payment of taxes being admittedly a burden, taxpayers should not be left without any recourse when they feel aggrieved due to the erroneous and burdensome assessments made by a Bureau of Internal Revenue agent or by the Commissioner. Said right is vested upon adversely affected taxpayers under Republic Act No. 1125. It cannot be rendered nugatory through the Commissioner's act of immediately filing an action for collection without ruling beforehand on the disputed assessments. 25 However, the remedy of an aggrieved taxpayer is not without any limitation. A taxpayer's right to contest assessments, particularly the right to appeal to the Court of Tax Appeals, may be waived or lost as in this case. 26 The requirement for the Commissioner to rule on disputed assessments before bringing an action for collection is applicable only in cases where the assessment was actually disputed, adducing reasons in support thereto. In the present case where the petitioners did not actually contest the assessments by stating the basis thereof, the respondent Commissioner need not rule on their request. Taxes are the lifeblood of the nation through which the government agencies continue to operate and with which the State effects its functions for the welfare of its constituents. We cannot tolerate taxpayers hampering expedient collection of taxes by their failure to act within a reasonable period. No government could exist if all litigants were permitted to delay the collection of its taxes. 27 Thus, this Court ruled earlier that a suit for the collection of internal revenue taxes, as in this case, where the assessment has already become final and executory, the action to collect is akin to an action to enforce the judgment. No inquiry can be made therein as to the merits of the original case or the justness of the judgment relied upon. 28. In view of the foregoing discussions, petitioners' allegation of grave abuse of discretion on the part of the respondent judge must perforce fall. Considering further that the court a quo properly acquired jurisdiction over the subject matter of the case, petitioners should have appealed the case. The order of the court a quo dated September 30, 1974, was received by the petitioners on October 16, 1974. Petitioners should have appealed within a period of fifteen (15) days from receipt thereof but they failed to do so. ****** As petitioners failed to file a timely appeal from the order of the trial court, they can no longer avail of the remedy of a special civil action for certiorari in lieu of appeal. There is no error of jurisdiction committed by the trial court. 29 On the other hand with respect the petitioners' plea that the estate is at any rate entitled to tax amnesty, a reading of P.D. No. 23 30 reveals that in order to avail of tax amnesty, it is required, among others, that there should be a voluntary disclosure of a previously untaxed income. This was the pronouncement of this Court in Nepomuceno vs. Montecillo 31 with respect to P.D. 370 32 which was decreed as a complement of P.D. Nos. 23 and 157. In addition thereto, said income must have been earned or realized prior to 1972 and the tax return must be filed on

or before March 31, 1973. Considering that P.D. No. 23 was issued on October 16, 1972, the court rules that the said decree embraces only those income declared in pursuance thereof within the taxable year 1972. The time frame cannot be stretched to include declarations made prior to the issuance of the said decree or those made outside of the time frame as envisioned in the said decree. Thus, the estates of the Teodoro spouses which have been declared separately sometime in the 1960's are clearly outside the coverage of the tax amnesty provision. Petitioners argue, however, that even if a notice of deficiency assessment had already been issued, the estates may still avail of tax amnesty if the basis of such deficiency assessment is either the failure to file a return or the omission of items of taxable income for a return already filed or the under declaration of said return, citing P.D. No. 67 and Section 4 of BIR Revenue Regulation No. 8-72. There is no merit in this contention. Even if P.D. No. 67, as an amendment to P.D. 23, enlarges the coverage of tax amnesty to include wealth such as earnings, receipts, gifts, bequests or any other acquisitions from any source whatsoever, said decree reiterates the need of voluntary disclosure on the part of the taxpayer filing the return in order to avail of the tax amnesty. The only noticeable departure from P.D. No. 23 is the extension of the date for the filing of the return from March 31, 1972 to March 31, 1973. Thus, this Court finds that the same policy observed in the issuance of P.D. No. 23, governs P.D. No. 67. In addition thereto, it gives the tax evaders who failed to avail of the provisions of P.D. No. 23 a chance to reform themselves. An examination of both decrees does not show that taxpayers availing of the tax amnesty in accordance with P.D. No. 67, are entitled to blanket coverage of declarations made prior to the issuance of said decrees. Petitioners argue that the estates of their parents declared for estate tax valuation sometime in the 1960's can avail of the tax amnesty when petitioners declared an additional amount of the estates over and above that which was previously declared. A reading of P.D. No. 67 reveals that tax amnesty is extendible only to those declarations made pursuant to said decree. Thus, if at all, it is only the estates in the amount of P3,655,595.78 declared pursuant to P.D. No. 67 that is covered, upon payment of 10% of the said amount within the period prescribed under P.D. No. 23, which was up to June 30, 1973. Considering that there has been partial compliance with the said requirement by the payment of P285,046.68, petitioner may claim the benefit of amnesty for said declared amount upon payment of the balance of 10% thereof required to be paid. WHEREFORE, with the above modification of the questioned order of July 10, 1974, said order is hereby affirmed in all other respect. No pronouncement as to costs. SO ORDERED. Cruz, Grio-Aquino and Medialdea, JJ., concur. Narvasa, J., no part. Related to Party. --------------Footnotes * The date of filing of the returns does not appear in the record of the case, but appears to be before the issuance of P.D. No. 23, proclaiming tax amnesty. 1. September 2, 1965. ** The deceased were both residents of Caloocan City. 2. Entitled "In the Matter of the Estate of the Spouses Don Toribio Teodoro, Testamentary & Doa Marta J. Teodoro, Intestate."

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3. Page 22, Rollo, Annex B. Petition. *** After due investigation the BIR found that the late spouses have a total conjugal estate of P20,374,634.24 with Doa Marta leaving a net taxable estate of P7,633,897.11 while Don Toribio with a net taxable estate of P7,425,020.20. **** According to respondent Commissioner, said letter was received on October 9, 1972. 4. Page 22, Rollo; Annex B, Petition. 5. Page 23, Rollo; Annex C, Petition. 6. Pages 24-26, Rollo; Annex D-D-2, Petition. 7. Pages 27-29, Rollo; Annex E, Petition. 8. Pages 30-31, Rollo. 9. Pages 32-42, Rollo; Annex G to G-1. 10. Pages 43-46, Rollo; Annex H. 11. Pages 47-51, Rollo; Annex I. 12. Pages 52-53, Rollo; Annex J. 13. Pages 54-59, Rollo; Annex K. 14. Page 75, Rollo; Annex N. ***** The order of denial was received by the petitioners on October 16, 1974 while the present petition for certiorari was filed on January 3, 1975. 15. Page 96, Rollo; page 8, Comment of Respondent Commissioner of Internal Revenue. 16. Commissioner of Internal Revenue v. Villa, 22 SCRA 3. 17. CIR v. Construction Resources of Asia, Inc., 145 SCRA 671 1986). 18. Republic v. Manila Port Service, 12 SCRA 384 (1964). 19. Yabes v. Flojo, 115 SCRA 278 (1982). 20. Republic v. Plan, 84 SCRA 688 (1978). 21. 16 SCRA 584 (1966). 22. Act Creating the Court of Tax Appeals. 23. 3 SCRA 93 (1961). 24. 18 SCRA 754 (1966). 25. San Juan v. Velasquez, supra. 26. Republic v. Lim Tian Teng & Sons & Co., Inc. supra. 27. Churchill & Tailt v. Rafferty, 32 Phil. 580, (1932). 28. Mambulao Lumber Co. v. Republic, 132 SCRA 1 (1984). ******See footnote No. 14. 29. Mabuhay Insurance & Guaranty, Inc. v. Court of Appeals, 32 SCRA 245 (1970). 30. Supra. 31. 118 SCRA 254 (1982). 32. Entitled "Enlarging the Coverage of Tax Amnesty on Previously Untaxed Income and/or Wealth Subject to Certain Conditions." \---!e-library! 6.0 Philippines Copyright 2000 by Sony Valdez---/ ([1988V794] CECILIA TEODORO DAYRIT, TORIBIA TEODORO CASTANEDA, PRUDENCIO J. TEODORO, FRANCISCO J. TEODORO, AND JOSEFINA TEODORO TIONGSON, petitioners, vs. THE HONORABLE FERNANDO A CRUZ, Presiding Judge, Branch XII, Court of First Instance of Rizal, and MISAEL P. VERA, in his capacity as the Commissioner of Internal Revenue, respondents., G.R. No. L-39910, 1988 September 26, 1st Division)

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Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. L-59758 December 26, 1984 ADVERTISING ASSOCIATES, INC., petitioner, vs. COURT OF APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents. Bito, Misa & Lozada Law Office for petitioner. The Solicitor General for respondents.

It paid sales taxes for selling billboards, electric signs, calendars, posters, etc., realty dealer's tax for leasing billboards and electric signs and 3% contractor's tax for repairing electric signs. The billboards and electric signs manufactured by it are either sold or leased, As already stated, the Commissioner of Internal Revenue subjected to 3% contractor's tax its rental income from billboards and electric signs (p. 10, Appellant's brief ). The Commissioner required Advertising Associates to pay P297,927.06 and P84,773.10 as contractor's tax for 1967-1971 and 1972, respectively, including 25% surcharge (the latter amount includes interest) on its income from billboards and neon signs. The basis of the assessment is the fact that the taxpayer's articles of incorporation provide that its primary purpose is to engage in general advertising business. Its income tax returns indicate that its business was advertising (Exh. 14 and 15, etc.). It is supposed "to conduct a general advertising business, both as principal and agent, including the preparation and arrangements of advertising devices and novelties; to erect, construct, purchase, lease or otherwise acquire fences, billboards, signboards, buildings and other structures suitable for advertising purposes; to carry on the business of printers, publishers, binders, and decorators in connection with advertising business and to make and carry out contracts of every kind and character that may be necessary or conducive to the accomplishment of any of the purposes of the company; to engage in and carry on a general advertising business by the circulation and distribution and the display of cards, signs, posters, dodgers, handbills, programs, banners and flags to be placed in and on railroad cars, street cars, steam boats, cabs, hacks, omnibuses, stages and any and all kinds of conveyances used for passengers or for any other purposes; to display moveable or changeable signs, cards, pictures, designs, mottoes, etc., operated by clockwork, electricity or any other power; to use, place and display the same in depots, hotels, halls, and other public places, to advertise in the air by airplanes, streamers, skywriting and other similar or dissimilar operation." (Exh. 14-A, pp. 48-49, BIR Records, Vol. I). Advertising Associates contested the assessments in its 'letters of June 25, 1973 (for the 1967-71 deficiency taxes) and March 7, 1974 (for the 1972 deficiency). The Commissioner reiterated the assessments in his letters of July 12 and September 16,1974 (p. 3, Rollo). The taxpayer requested the cancellation of the assessments in its letters of September 13 and November 21, 1974 (p. 3, Rollo). Inexplicably, for about four years there was no movement in the case. Then, on March 31, 1978, the Commissioner resorted to the summary remedy of issuing two warrants of distraint, directing the collection enforcement division to levy on the taxpayer's personal properties as would be sufficient to satisfy the deficiency taxes (pp. 4, 29 and 30, Rollo). The warrants were served upon the taxpayer on April 18 and May 25, 1978. More than a year later, Acting Commissioner Efren I. Plana wrote a letter dated May 23, 1979 in answer to the requests of the taxpayer for the cancellation of the assessments and the withdrawal of the warrants of distraint (Annex C of Petition, pp. 31-32, Rollo).

AQUINO, J.: This case is about the liability of Advertising Associates, lnc. for P382,700.16 as 3% contractor's percentage tax on its rental income from the lease of neon signs and billboards imposed by section 191 of the Tax Code (as amended by Republic Acts Nos. 1612 and 6110) on business agents and independent contractors. Parenthetically, it may be noted that Presidential Decree No. 69, effective November 24, 1972, added paragraph 17 to section 191 by taxing lessors of personal property. Section 191 defines an independent contractor as including all persons whose activity consists essentially of the sale of all kinds of services for a fee. Section 194(v) of the Tax Code defines a business agent as including persons who conduct advertising agencies. It should be noted that in Advertising Associates, Inc. vs. Collector of Internal Revenue, 97 Phil. 636, the taxpayer was held liable as a manufacturer for the.90% sales tax on its sales of neon-tube signs under section 185(k) of the Tax Code as amended. It paid P11,986.18 as sales tax for the 4th quarter of 1948 to 1951. This Court rejected the taxpayer's contention that it was only a contractor of neontube signs and that it should pay only the 3% contractor's tax under section 191 of the Tax Code. In the instant case, Advertising Associates alleged that it sold in 1949 its advertising agency business to Philippine Advertising Counsellors, that its business is limited to the making, construction and installation of billboards and electric signs and making and printing of posters, signs, handbills, etc. (101 tsn). It contends that it is a media company, not an advertising company,

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He justified the assessments by stating that the rental income of Advertising Associates from billboards and neon signs constituted fees or compensation for its advertising services. He requested the taxpayer to pay the deficiency taxes within ten days from receipt of the demand; otherwise, the Bureau would enforce the warrants of distraint. He closed his demand letter with this paragraph: This constitutes our final decision on the matter. If you are not agreeable, you may appeal to the Court of Tax Appeals within 30 days from receipt of this letter. Advertising Associates received that letter on June 18, 1979. Nineteen days later or on July 7, it filed its petition for review. In its resolution of August 28, 1979, the Tax Court enjoined the enforcement of the warrants of distraint. The Tax Court did not resolve the case on the merits. It ruled that the warrants of distraint were the Commissioner's appealable decisions. Since Advertising Associates appealed from the decision of May 23, 1979, the petition for review was filed out of time. It was dismissed. The taxpayer appealed to this Court. We hold that the petition for review was filed on time. The reviewable decision is that contained in Commissioner Plana's letter of May 23, 1979 and not the warrants of distraint. No amount of quibbling or sophistry can blink the fact that said letter, as its tenor shows, embodies the Commissioner's final decision within the meaning of section 7 of Republic Act No. 1125. The Commissioner said so. He even directed the taxpayer to appeal it to the Tax Court. That was the same situation in St. Stephen's Association and St. Stephen's Chinese Girl's School vs. Collector of Internal Revenue, 104 Phil. 314, 317-318. The directive is in consonance with this Court's dictum that the Commissioner should always indicate to the taxpayer in clear and unequivocal language what constitutes his final determination of the disputed assessment. That procedure is demanded by the pressing need for fair play, regularity and orderliness in administrative action (Surigao Electric Co., Inc. vs. Court of Tax Appeals, L-25289, June 28, 1974, 57 SCRA 523). On the merits of the case, the petitioner relies on the Collector's rulings dated September 12, 1960 and June 20, 1967 that it is neither an independent contractor nor a business agent (Exh. G and H). As already stated, it considers itself a media company, like a newspaper or a radio broadcasting company, but not an advertising agency in spite of the purpose stated in its articles of incorporation. It argues that its act of leasing its neon signs and billboards does not make it a business agent or an independent contractor. It stresses that it is a mere lessor of neon signs and billboards and does not perform advertising services. But the undeniable fact is that neon signs and billboards are primarily designed for advertising. We hold that the petitioner is a business agent and an independent contractor as contemplated in sections 191 and 194(v).

However, in view of the prior rulings that the taxpayer is not a business agent nor an independent contractor and in view of the controversial nature of the deficiency assessments, the 25% surcharge should be eliminated (C. M. Hoskins & Co., Inc. vs. Commissioner of Internal Revenue, L-28383, June 22, 1976, 71 SCRA 511, 519; Imus Electric Co., Inc. vs. Commissioner of Internal Revenue, 125 Phil. 1084). Petitioner's last contention is that the collection of the tax had already prescribed. Section 332 of the 1939 Tax Code, now section 319 of the 1977 Tax Code, Presidential Decree No. 1158, effective on June 3, 1977, provides that the tax may be collected by distraint or levy or by a judicial proceeding begun 'within five years after the assessment of the tax". The taxpayer received on June 18, 1973 and March 5, 1974 the deficiency assessments herein. The warrants of distraint were served upon it on April 18 and may 25,1978 or within five years after the assessment of the tax. Obviously, the warrants were issued to interrupt the five-year prescriptive period. Its enforcement was not implemented because of the pending protests of the taxpayer and its requests for withdrawal of the warrants which were eventually resolved in Commissioner Plana's letter of May 23, 1979. It should be noted that the Commissioner did not institute any judicial proceeding to collect the tax. He relied on the warrants of distraint to interrupt the running of the statute of limitations. He gave the taxpayer ample opportunity to contest the assessments but at the same time safeguarded the Government's interest by means of the warrants of distraint. WHEREFORE, the judgment of the Tax Court is reversed and set aside. The Commissioner's deficiency assessments are modified by requiring the petitioner to pay the tax proper and eliminating the 25% surcharge, interest and penalty. In case of non-payment, the warrants of distrant should be implemented. The preliminary injunction issued by the Tax Court on August 28, 1979 restraining the enforcement of said warrants is lifted. No costs. SO ORDERED. Makasiar (Chairman), Concepcion, Jr., Abad Santos, Escolin and Cuevas, JJ., concur.

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FIRST DIVISION OCEANIC WIRELESS NETWORK, INC., G.R. No. 148380 Petitioner, Present:

- versus -

DAVIDE, JR., C.J. (Chairman), QUISUMBING, YNARES-SANTIAGO, CARPIO, and AZCUNA, JJ. Promulgated: December 9, 2005

Deficiency Contractors 29,849.06 Tax Deficiency Fixed Tax 12,083.65 Deficiency Franchise Tax ___227,712.00 Total P8,644,998.71

FAR-4-1984-88-001132 FAR-4--88-001133 FAR-484-88-001134 --------

COMMISSIONER OF INTERNAL REVENUE, THE COURT OF TAX APPEALS, and THE COURT OF APPEALS, Respondents.

Petitioner filed its protest against the tax assessments and requested a reconsideration or cancellation of the same in a letter to the BIR Commissioner dated April 12, 1988. Acting in behalf of the BIR Commissioner, then Chief of the BIR Accounts Receivable and Billing Division, Mr. Severino B. Buot, reiterated the tax assessments while denying petitioners request for reinvestigation in a letter [1] dated January 24, 1991, thus: Note: Your request for re-investigation has been denied for failure to submit the necessary supporting papers as per endorsement letter from the office of the Special Operation Service dated 12-12-90. Said letter likewise requested petitioner to pay the total amount of P8,644,998.71 within ten (10) days from receipt thereof, otherwise the case shall be referred to the Collection Enforcement Division of the BIR National Office for the issuance of a warrant of distraint and levy without further notice. Upon petitioners failure to pay the subject tax assessments within the prescribed period, the Assistant Commissioner for Collection, acting for the Commissioner of Internal Revenue, issued the corresponding warrants of distraint and/or levy and garnishment. These were served on petitioner on October 10, 1991 and October 17, 1991, respectively.[2] On November 8, 1991, petitioner filed a Petition for Review with the Court of Tax Appeals (CTA) to contest the issuance of the warrants to enforce the collection of the tax assessments. This was docketed as CTA Case No. 4668. The CTA dismissed the petition for lack of jurisdiction in a decision dated September 16, 1994, declaring that said petition was filed beyond the thirty (30)day period reckoned from the time when the demand letter of January 24, 1991 by the Chief of the BIR Accounts Receivable and Billing Division was presumably received by petitioner, i.e., within a reasonable time from said date in the regular course of mail pursuant to Section 2(v) of Rule 131 of the Rules of Court.[3] The decision cited Surigao Electric Co., Inc. v. Court of Tax Appeals[4] wherein this Court considered a mere demand letter sent to the taxpayer after his protest of the assessment notice as the final decision of the Commissioner of Internal Revenue on the protest. Hence, the filing of the petition on November 8, 1991 was held clearly beyond the reglementary period.[5] The court a quo likewise stated that the finality of the denial of the protest by petitioner against the tax deficiency assessments was bolstered by the subsequent issuance of the warrants of distraint and/or levy and garnishment to enforce the

x-----------------------------------------------------------------------------------------x DECISION AZCUNA, J.: This is a Petition for Review on Certiorari seeking to reverse and set aside the Decision of the Court of Appeals dated October 31, 2000, and its Resolution dated May 3, 2001, in Oceanic Wireless Network, Inc. v. Commissioner of Internal Revenue docketed as CA-G.R. SP No. 35581, upholding the Decision of the Court of Tax Appeals dismissing the Petition for Review in CTA Case No. 4668 for lack of jurisdiction. Petitioner Oceanic Wireless Network, Inc. challenges the authority of the Chief of the Accounts Receivable and Billing Division of the Bureau of Internal Revenue (BIR) National Office to decide and/or act with finality on behalf of the Commissioner of Internal Revenue (CIR) on protests against disputed tax deficiency assessments. The facts of the case are as follows: On March 17, 1988, petitioner received from the Bureau of Internal Revenue (BIR) deficiency tax assessments for the taxable year 1984 in the total amount of P8,644,998.71, broken down as follows: Kind of Tax Deficiency Income Tax P8,381,354.00 Penalties for late payment 3,000.00 of income and failure to file quarterly returns Assessment No. FAR-4-1984-88-001130 FAR-4-1984-88-001131 Amount

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collection of the deficiency taxes. The issuance was not barred by prescription because the mere filing of the letter of protest by petitioner which was given due course by the Bureau of Internal Revenue suspended the running of the prescription period as expressly provided under the then Section 224 of the Tax Code: SEC. 224. Suspension of Running of the Statute of Limitations. The running of the Statute of Limitations provided in Section 203 and 223 on the making of assessment and the beginning of distraint or levy or a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty (60) days thereafter; when the taxpayer requests for a reinvestigation which is granted by the Commissioner; when the taxpayer cannot be located in the address given by him in the return files upon which a tax is being assessed or collected: Provided, That if the taxpayer inform the Commissioner of any change of address, the running of the statute of limitations will not be suspended; when the warrant of distraint and levy is duly served upon the taxpayer, his authorized representative, or a member of his household with sufficient discretion, and no property could located; and when the taxpayer is out of the Philippines. [6] (Underscoring supplied.) Petitioner filed a Motion for Reconsideration arguing that the demand letter of January 24, 1991 cannot be considered as the final decision of the Commissioner of Internal Revenue on its protest because the same was signed by a mere subordinate and not by the Commissioner himself.[7] With the denial of its motion for reconsideration, petitioner consequently filed a Petition for Review with the Court of Appeals contending that there was no final decision to speak of because the Commissioner had yet to make a personal determination as regards the merits of petitioners case.[8] The Court of Appeals denied the petition in a decision dated October 31, 2000, the dispositive portion of which reads: WHEREFORE, the petition is DISMISSED for lack of merit. SO ORDERED. Petitioners Motion for Reconsideration was likewise denied in a resolution dated May 3, 2001. Hence, this petition with the following assignment of errors:[9] I THE HONORABLE RESPONDENT CA ERRED IN FINDING THAT THE DEMAND LETTER ISSUED BY THE (THEN) ACCOUNTS RECEIVABLE/BILLING DIVISION OF THE BIR NATIONAL OFFICE WAS THE FINAL DECISION OF THE RESPONDENT CIR ON THE DISPUTED ASSESSMENTS, AND HENCE CONSTITUTED THE DECISION APPEALABLE TO THE HONORABLE RESPONDENT CTA; AND, II THE HONORABLE RESPONDENT CA ERRED IN DECLARING THAT THE DENIAL OF THE PROTEST OF THE SUBJECT ALLEGED DEFICIENCY TAX ASSESSMENTS HAD LONG BECOME FINAL AND EXECUTORY FOR FAILURE OF THE PETITIONER TO INSTITUTE

THE APPEAL FROM THE DEMAND LETTER OF THE CHIEF OF THE ACCOUNTS RECEIVABLE/BILLING DIVISION, BIR NATIONAL OFFICE, TO THE HONORABLE RESPONDENT CTA, WITHIN THIRTY (30) DAYS FROM RECEIPT THEREOF. Thus, the main issue is whether or not a demand letter for tax deficiency assessments issued and signed by a subordinate officer who was acting in behalf of the Commissioner of Internal Revenue, is deemed final and executory and subject to an appeal to the Court of Tax Appeals. We rule in the affirmative. A demand letter for payment of delinquent taxes may be considered a decision on a disputed or protested assessment. The determination on whether or not a demand letter is final is conditioned upon the language used or the tenor of the letter being sent to the taxpayer. We laid down the rule that the Commissioner of Internal Revenue should always indicate to the taxpayer in clear and unequivocal language what constitutes his final determination of the disputed assessment, thus: . . . we deem it appropriate to state that the Commissioner of Internal Revenue should always indicate to the taxpayer in clear and unequivocal language whenever his action on an assessment questioned by a taxpayer constitutes his final determination on the disputed assessment, as contemplated by Sections 7 and 11 of Republic Act No. 1125, as amended. On the basis of his statement indubitably showing that the Commissioners communicated action is his final decision on the contested assessment, the aggrieved taxpayer would then be able to take recourse to the tax court at the opportune time. Without needless difficulty, the taxpayer would be able to determine when his right to appeal to the tax court accrues. The rule of conduct would also obviate all desire and opportunity on the part of the taxpayer to continually delay the finality of the assessment and, consequently, the collection of the amount demanded as taxes by repeated requests for recomputation and reconsideration. On the part of the Commissioner, this would encourage his office to conduct a careful and thorough study of every questioned assessment and render a correct and definite decision thereon in the first instance. This would also deter the Commissioner from unfairly making the taxpayer grope in the dark and speculate as to which action constitutes the decision appealable to the tax court. Of greater import, this rule of conduct would meet a pressing need for fair play, regularity, and orderliness in administrative action.[10] In this case, the letter of demand dated January 24, 1991, unquestionably constitutes the final action taken by the Bureau of Internal Revenue on petitioners request for reconsideration when it reiterated the tax deficiency assessments due from petitioner, and requested its payment. Failure to do so would result in the issuance of a warrant of distraint and levy to enforce its collection without further notice.[11] In addition, the letter contained a notation indicating that petitioners request for reconsideration had been denied for lack of supporting documents. The above conclusion finds support in Commissioner of Internal Revenue v. Ayala Securities Corporation,[12] where we held: The letter of February 18, 1963 (Exh. G), in the view of the Court, is tantamount to a denial of the reconsideration or [respondent corporations]protest o[f] the assessment made by the petitioner, considering that the said letter [was] in itself a reiteration of the demand by the Bureau of Internal Revenue for the

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settlement of the assessment already made, and for the immediate payment of the sum of P758,687.04 in spite of the vehement protest of the respondent corporation on April 21, 1961. This certainly is a clear indication of the firm stand of petitioner against the reconsideration of the disputed assessmentThis being so, the said letter amount[ed] to a decision on a disputed or protested assessment, and, there, the court a quo did not err in taking cognizance of this case. Similarly, in Surigao Electric Co., Inc v. Court of Tax Appeals,[13] and in CIR v. Union Shipping Corporation,[14] we held: . . . In this letter, the commissioner not only in effect demanded that the petitioner pay the amount of P11,533.53 but also gave warning that in the event it failed to pay, the said commissioner would be constrained to enforce the collection thereof by means of the remedies provided by law. The tenor of the letter, specifically the statement regarding the resort to legal remedies, unmistakably indicate[d] the final nature of the determination made by the commissioner of the petitioners deficiency franchise tax liability. The demand letter received by petitioner verily signified a character of finality. Therefore, it was tantamount to a rejection of the request for reconsideration. As correctly held by the Court of Tax Appeals, while the denial of the protest was in the form of a demand letter, the notation in the said letter making reference to the protest filed by petitioner clearly shows the intention of the respondent to make it as [his] final decision.[15] This now brings us to the crux of the matter as to whether said demand letter indeed attained finality despite the fact that it was issued and signed by the Chief of the Accounts Receivable and Billing Division instead of the BIR Commissioner. The general rule is that the Commissioner of Internal Revenue may delegate any power vested upon him by law to Division Chiefs or to officials of higher rank. He cannot, however, delegate the four powers granted to him under the National Internal Revenue Code (NIRC) enumerated in Section 7. As amended by Republic Act No. 8424, Section 7 of the Code authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provisions of the Code to any subordinate official with the rank equivalent to a division chief or higher, except the following: (a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance; (b) The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau; (c) The power to compromise or abate under Section 204(A) and (B) of this Code, any tax deficiency: Provided, however, that assessments issued by the Regional Offices involving basic deficiency taxes of five hundred thousand pesos (P500,000) or less, and minor criminal violations as may be determined by rules and regulations to be promulgated by the Secretary of Finance, upon the recommendation of the Commissioner, discovered by regional and district officials, may be compromised by a regional evaluation board which shall be composed of the Regional Director as Chairman, the Assistant Regional Director, heads of the Legal, Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer, as members; and

(d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept. It is clear from the above provision that the act of issuance of the demand letter by the Chief of the Accounts Receivable and Billing Division does not fall under any of the exceptions that have been mentioned as non-delegable. Section 6 of the Code further provides: SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement. (A) Examination of Returns and Determination of Tax Due. - After a return has been filed as required under the provisions of this Code, the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax; Provided, however, That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer. The tax or any deficiency tax so assessed shall be paid upon notice and demand from the Commissioner or from his duly authorized representative. . . . (Emphasis supplied) Thus, the authority to make tax assessments may be delegated to subordinate officers. Said assessment has the same force and effect as that issued by the Commissioner himself, if not reviewed or revised by the latter such as in this case.[16] A request for reconsideration must be made within thirty (30) days from the taxpayers receipt of the tax deficiency assessment, otherwise, the decision becomes final, unappealable and therefore, demandable. A tax assessment that has become final, executory and enforceable for failure of the taxpayer to assail the same as provided in Section 228 can no longer be contested, thus: SEC. 228. Protesting of Assessment. When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findingsSuch assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final. If the protest is denied in whole or in part, or is not acted upon within one hundred (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of the one hundred eighty (180) - day period; otherwise, the decision shall become final, executory and demandable. Here, petitioner failed to avail of its right to bring the matter before the Court of Tax Appeals within the reglementary period upon the receipt of the demand letter reiterating the assessed delinquent taxes and denying its request for reconsideration which constituted the final determination by the Bureau of Internal

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Revenue on petitioners protest. Being a final disposition by said agency, the same would have been a proper subject for appeal to the Court of Tax Appeals. The rule is that for the Court of Tax Appeals to acquire jurisdiction, an assessment must first be disputed by the taxpayer and ruled upon by the Commissioner of Internal Revenue to warrant a decision from which a petition for review may be taken to the Court of Tax Appeals. Where an adverse ruling has been rendered by the Commissioner of Internal Revenue with reference to a disputed assessment or a claim for refund or credit, the taxpayer may appeal the same within thirty (30) days after receipt thereof.[17] We agree with the factual findings of the Court of Tax Appeals that the demand letter may be presumed to have been duly directed, mailed and was received by petitioner in the regular course of the mail in the absence of evidence to the contrary. This is in accordance with Section 2(v), Rule 131 of the Rules of Court, and in this case, since the period to appeal has commenced to run from the time the letter of demand was presumably received by petitioner within a reasonable time after January 24, 1991, the period of thirty (30) days to appeal the adverse decision on the request for reconsideration had already lapsed when the petition was filed with the Court of Tax Appeals only on November 8, 1991. Hence, the Court of Tax Appeals properly dismissed the petition as the tax delinquency assessment had long become final and executory. WHEREFORE, premises considered, the Decision of the Court of Appeals dated October 31, 2000 and its Resolution dated May 3, 2001 in CA-G.R. SP No. 35581 are hereby AFFIRMED. The petition is accordingly DENIED for lack of merit. SO ORDERED.

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