Monday, 4 April 2016



Accused was charged for violation of Section 255 of the National Internal Revenue Code -for filing a false and fraudulent Income Tax Return ("lTR") for taxable year 2002. The offense being attributed to the accused is willful failure to supply correct and accurate information, which resulted to income tax deficiency. According to the Court, the essential elements of the said offense are as follows:

1) That a person is required to supply correct and accurate information;
2) That there is failure to supply correct and accurate information at the time or times
required by law or rules and regulations; and
3) That such failure Lo supply correct and accurate information is done willfully.

The element of willful failure to supply correct and accurate information must be fully established as a positive act or stale of mind. It cannot be presumed nor attributed to mere inadvertent or negligent acts. The prosecution was able to prove that the accused failed to supply correct and accurate information in her ITR for the year 2002. However, it is well settled that mere understatement of a tax is not itself proof of fraud for the purpose of tax evasion. Based on the records of the case, the accused denied the signature appearing on top of the name "Judy Anne Santos" in the ITR for taxable year 2002 presented by the prosecution, and that the Certified Public Accountant, who's participation is limited to the
preparation of the Financial Statements attached to the return, likewise, denied signing the return on behalf of the accused.

Further, the working papers, i.e., the Balance Sheet andIncome Statement, as well as the value-added tax returns, Income Tax Return for year 2002, quarterly tax return, schedule of input taxes and creditable tax certificates, were all provided by the Manager of the accused. The Court, therefore, finds the records bereft of any evidence to establish the key element of willfulness on the part of the accused to supply the correct and accurate information on her subject return. The burden of proof is on the prosecution to prove beyond reasonable doubt that accused willfully failed to supply correct and accurate information. Staled differently, the prosecution must prove that the accused, a Filipino citizen residing in ti1e Philippines, is required not only to file an income tax return on income from all sources, on or before the fifteenth (15th) day of April of each year, covering the income for the preceding taxable year, but also to supply correct and accurate information thereof, and that any failure thereof is done willfully. The Court, however, only finds the accused negligent; and such is not enough to convict her in the case at bench.

Negligence, whether slight or gross, is not equivalent to the fraud with intent to evade the tax contemplated by the law. Fraud must amount to intentional wrongdoing with the sole object of avoiding the tax. In all criminal cases, mere speculations cannot substitute for proof in establishing the guilt of the accused. In sum, the Court finds the failure of the prosecution to establish the guilt of the accused beyond the required reasonable doubt. (People of the Philippines vs. Judy Anne Santos y Lumagui, CTA Crim. Case NO. O-012, January 16, 2012)


The Court notes that for the taxable year 1992, the claimed expenses for spouses Alderson, Chairman and Vice-Chairman of petitioner Benjoy’s board, are almost four (4) times than that of its President. With such difference, the salaries of the spouses Alderson are inordinately large, hence should be reduced accordingly.

Section 58 of the NIRC of 1997 obliges the withholding agent to file the withholding tax return and pay to the BIR the withheld tax at a certain period after the end of each month. In this case, petitioner paid the supposed tax withheld only when respondent had made an assessment thereon, which was beyond the required period. Thus, even if petitioner paid the deficiency expanded withholding tax upon being assessed thereof, it shall not be allowed to deduct the subject expenses or income payments to the pertinent withholding tax rates were applied. Benjoy, Inc. v. Commissioner of Internal Revenue, C.T.A. Case No. 7597, November 25, 2009

RR 12-2013

Friday, 1 April 2016

Violation? Simultaneous issuance of PAN and FAN...

On December 17, 2010, the BIR issued to taxpayer a Preliminary Assessment Notice (PAN), which the latter received on December 29, 2010. Thereafter, on January 7, 2011, the BIR issued the Formal Letter of Demand (FLD) and Assessment Notices. On January 13, 2011, taxpayer filed a letter of protest against the PAN. Subsequently, on February 14, 2011, taxpayer filed a letter of protest against the FLD. In view of the BIR’s failure to act o
n the protest within 180 days from the submission of documents, taxpayer filed a petition for review with the CTA. The taxpayer argued, among others, that the assessment is null and void, the FLD having been issued before the lapse of taxpayer’s 15-day period to file protest to the PAN. According to the Court, the issuance of the FLD and Assessment Notices before the lapse of the 15-day period does not violate the due process requirement under the law. This must be so because the essence of due process in administrative proceedings is the opportunity to explain one’s side or seek a reconsideration of the action or ruling complained of. In this case, the taxpayer was given ample opportunity to explain its side or to contest the PAN and the FLD. (Merial Philippines, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 8370, May 13, 2015)

When a Waiver of the Statute of Limitation Becomes Valid? -

Is a waiver of the statute of limitation executed after the expiration of the ordinary prescriptive periods for assessment and collection, and which does not state a definite period of extension, valid?
On April 15, 1986 and April 15, 1987, St. Luke’s filed its profit and loss statement and balance sheet for the taxable year 1985 and 1986 respectively.
Pursuant to a Letter of Authority (LOA) dated February 26, 1988, the BIR conducted an investigation to ascertain the tax liabilities of petitioner for said taxable years.

St. Luke’s executed a Waiver of the Defense of Prescription for the taxable year 1985.
On April 11, 1990, St. Luke’s received final assessment notices for 1985 and 1986 deficiency income tax and deficiency expanded withholding tax.
On May 25, 1990, St. Luke’s filed an administrative protest. The BIR, then, cancelled the 1985 and 1986 income tax deficiency, but affirmed the 1985 and 1986 withholding tax deficiency.
Thus, St. Luke’s filed this present Petition for Review.
Period to Assess
According to the then 268 and 269 of the Tax Code, the BIR had a period of 3 years, or 10 years in case of false or fraudulent return, after the last day prescribed by law for the filing of return to assess deficiency taxes from St. Luke’s.
As for the 10 year period of assessment to apply, the filing of false returns must be with intent to evade tax. As found by the Revenue Examiner, however, there was no showing that St. Luke’s filed a false Annual Returns for withholding taxes nor was there intention to evade tax. Hence, the BIR had only until April 15, 1989 and April 15, 1990, respectively, to assess petitioner.
Since the assessments were received by St. Luke’s beyond April 15, 1990, the BIR’s right to assess it has already prescribed, regardless of the execution of a Waiver of Defense of Prescription .
Requisites for a Valid Waiver of Statute of Limitations
A valid waiver of the statute of limitations under paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended, must be:
(1) in writing;

(2) agreed by both the Commissioner and the taxpayer;
(3) before the expiration of the ordinary prescriptive periods of assessment and collection; and

(4) for a definitive period beyond the ordinary prescriptive periods for assessment and collection. The period agreed upon can still be extended by subsequent written agreement, provided that it is executed prior to the expiration of the first period agreed upon.
Here, the waiver shows that it was executed after the expiration of the ordinary prescriptive periods for assessment and collection; and did not state a definite period beyond the ordinary prescriptive periods for assessment and collection.
For the purpose of safeguarding taxpayers from any unreasonable examination, our tax law provides a statute of limitations in the collection of taxes. Thus, the law on prescription, being a remedial measure, should be liberally construed in order to afford such protection. As a corollary, the exceptions to the law on prescription should perforce be strictly construed.3
Here, the respondent CIR did not strictly comply with the requisites for a valid waiver, hence it is declared invalid and without effect.