REPUBLIC v. GMCC UNITED DEVELOPMENT CORPORATION, GR No.

191856, 2016-12-07
Facts:
On March 28, 2003, the Bureau of Internal Revenue National Investigation Division issued a Letter
of Authority, authorizing its revenue officers to examine the books of accounts and other accounting
records of GMCC United Development Corporation (GMCC) covering taxable years 1998 and
1999.[6] On April 3, 2003 GMCC was served a copy of said Letter of Authority and was requested to
present its books of accounts and other accounting records.[7] GMCC failed to respond to the Letter
of Authority as well as the subsequent letters requesting that its records and documents be
produced.
Due to GMCC's failure to act on the requests, the Assistant Commissioner of the Enforcement
Service of the Bureau of Internal Revenue issued a Subpoena Duces Tecum on GMCC president,
Jose C. Go (Go).[9] When GMCC still failed to comply with the Subpoena Duces Tecum, the
revenue officers were constrained to investigate GMCC through Third Party Information.[
The investigation revealed that in 1998, GMCC, through Go, executed two dacion en pago
agreements to pay for the obligations of GMCC's sister companies, Ever Emporium, Inc., Gotesco
Properties, Inc. and Ever Price Club, Inc., to Rizal Commercial Banking Corporation.[11] GMCC
allegedly failed to declare the income it earned from these agreements for taxation purposes in
1998.[12] Moreover, these transactions constituted a donation in favor of GMCC's sister companies
for which GMCC failed to pay the corresponding donor's tax.[13] The BIR also assessed the value
added tax over the said transactions.
It was also discovered that in 1999, GMCC sold condominium units and parking slots for a total
amount of P5,350,000.00 to a Valencia K. Wong.[15] However, GMCC did not declare the income it
earned from these transactions in its 1999 Audited Financial Statements
Thus, on November 17, 2003, the Bureau of Internal Revenue issued a Notice to Taxpayer to
GMCC, which GMCC ignored.[17] On December 8, 2003, the Bureau of Internal Revenue issued a
Preliminary Assessment Notice.[18] It was only when the Bureau of Internal Revenue issued the
Final Assessment Notice that GMCC responded.[19] In a Letter dated November 23, 2004, GMCC
protested the issuance of the Final Assessment Notice citing that the period to assess and collect
the tax had already prescribed. The Bureau of Internal Revenue denied the protest in a Final
Decision dated February 10, 2005.[
In light of the discovered tax deficiencies, the Bureau of Internal Revenue, on October 7, 2005, filed
with the Department of Justice a criminal complaint for violation of Sections 254,[21] 255,[22] and
267,[23] of the National Internal Revenue Code against GMCC, its president, Jose C. Go, and its
treasurer, Xu Xian Chun.[24]
In his Counter-Affidavit, Go prayed that the complaint be dismissed, arguing, among others, that the
action had already prescribed and that GMCC did not defraud the government.[25] Assuming that
the period to assess had not yet prescribed, GMCC argued that there was nothing to declare since it
earned no income from the dacion en pago transactions.[26] Furthermore, even though the dacion
en pago transactions were not included in the GMCC 1998 Financial Statement, they had been duly
reflected in the GMCC 2000 Financial Statement.
On May 26, 2006, the Department of Justice, through the Chief State Prosecutor, issued a
Resolution[27] dismissing the criminal complaint against the GMCC officers. The State Prosecutor
ruled that there was no proof that GMCC defrauded the government. The Bureau went beyond its
authority when it assessed and issued the Letter of Authority knowing that the period to assess had
already lapsed. Moreover, the prosecutor ruled that since GMCC did not gain from the assailed
transactions, the imposition of income, VAT, and donor's taxes were improper... he Court of Appeals
denied the Petition and affirmed in toto the Department of Justice's Resolution... the Court of
Appeals denied the Petition and affirmed in toto the Department of Justice's Resolution.
Issues:
the Court of Appeals denied the Petition and affirmed in toto the Department of Justice's
Resolution... whether the Court of Appeals erred in declaring that the Secretary of Justice did not
commit grave abuse of discretion when he found no probable cause and dismissed the tax evasion
case against the respondent officers of GMCC.
whether the applicable prescriptive period for the tax assessment is the ten-year period or the three-
year period.
hether the applicable prescriptive period for the tax assessment is the ten-year period or the three-
year period. The Petition must be denied.
Ruling:
We are convinced that the Court of Appeals committed no reversible error in affirming the ruling of
the Secretary of Justice that there was no probable cause to file a tax evasion case against the
respondent officers. Since the assessment for the tax had already prescribed, no proceeding in court
on the basis of such return can be filed.
In ruling that there was no probable cause to indict the respondent officers for the acts charged, the
Court of Appeals said there was no clear showing that there was deliberate intent on the part of the
respondents to evade payment of the taxes. Both the State Prosecutor[37] and the Court of
Appeals[38] emphasized that if respondents really intended to evade payment, they would have
omitted the assailed transactions completely in all their financial statements.
As it stands, while the dacion en pago transactions were missing in the GMCC 1998 Financial
Statement, they had been listed in the GMCC 2000 Financial Statement.[39] Respondents' act of
filing and recording said transactions in their 2000 Financial Statement belie the allegation that they
intended to evade paying their tax liability. Petitioner's contention that the belated filing is a mere
afterthought designed to make it appear that the non-reporting was not deliberate, does not
persuade considering that the filing of the 2000 Financial Statement was done prior to the issuance
of the March 2003 Letter of Authority, which authorized the investigation of GMCC's books.
Moreover, a prosecutor's grave abuse of discretion in dismissing a case must be clearly shown
before the Courts can interven... bsent any indication that the Secretary of Justice gravely abused
his discretion in not finding probable cause for the complaint against respondent officers to prosper,
the dismissal stands.
As to the issue on the applicable prescriptive period, it is the three-year prescriptive period that
applies in this case.
The power of the Commissioner of Internal Revenue to assess and collect taxes is provided under
Section 2 of the National Internal Revenue Code
However, this power to assess and collect taxes is limited by Section 203 of the National Internal
Revenue Code
SEC. 203. Period of Limitation Upon Assessment and Collection.- Except as provided in Section
222, internal revenue taxes shall be assessed within three (3) years after the last day prescribed by
law for the filing of the return, and no proceeding in court without assessment for the collection of
such taxes shall be begun after the expiration of such period: Provided, That in a case where a
return is filed beyond the period prescribed by law, the three (3)-year period shall be counted from
the day the return was filed.
For purposes of this Section, a return filed before the last day prescribed by law for the filing thereof
shall be considered as filed on such last day.
As found by the Court of Appeals, there is no clear and deliberate intent to evade payment of taxes
in relation to the dacion en pago transactions[50] or on the sale transaction with Valencia Wong.[51]
The dacion en pago transactions, though not included in the 1998 Financial Statement, were
properly listed in GMCC's Financial Statement for the year 2000.[52] Regarding the sale transaction
with Valencia Wong, the respondents said that it was not reflected in the year 1999 because it was
an installment sale. Units sold on installment, they explained, are recognized not in the year they are
fully paid, but in the year when at least 25% of the selling price is paid.[53] In this instance, the unit
and the parking lot were sold prior to 1996, thus, in the Schedule of Unsold Units filed by GMCC as
of December 31, 1996, the said properties were no longer included.
A reading of Section 203 will show that it prohibits two acts after the expiration of the three-year
period. First, an assessment for the collection of the taxes in the return, and second, initiating a court
proceeding on the basis of such return. The State Prosecutor was correct in dismissing the
complaint for tax evasion since it was clear that the prescribed return cannot be used as basis for
the case.
All told, the dismissal of the tax evasion case against respondent officers was proper. The Court of
Appeals did not err in affirming the dismissal. Petitioner failed to prove that respondent officers
wilfully intended to evade paying tax. Moreover, having found no basis to disregard the three-year
period of prescription, it is clear that the assessments were issued beyond the statute of limitations
WHEREFORE, the Petition is DENIED.
Principles:
A reading of Section 203 will show that it prohibits two acts after the expiration of the three-year
period. First, an assessment for the collection of the taxes in the return, and second, initiating a court
proceeding on the basis of such return. The State Prosecutor was correct in dismissing the
complaint for tax evasion since it was clear that the prescribed return cannot be used as basis for
the case.
Commissioner of Internal Revenue v. Standard Chartered Bank,
FACTS:

Respondent received CIR's Formal Letter of Demand for alleged deficiency income tax, final income
tax, withholding tax - final and compensation, and increments for the taxable year worth P
33,326,211.37.

Respondent protested the said assessment by filing a letter-protest with the CIR requesting the
assessment to be withdrawn.

In the middle of things, respondent paid the BIR the assessed deficiency for both the withholding
taxes.

Respondent then filed for a petition for the cancellation and setting aside of the assessments which
the CTA granted. The CTA held that it has already prescribed as it covered the taxable year of 1998.

The NIRC provides that the assessments should have been issued within the three-year
prescriptive period. The CIR also presented the Waivers of Statute of Limitations executed by the
parties which extended the period to assess respondent. The CTA held that the CIR failed to strictly
comply and conform with the provisions of Revenue Memorandum Order No. 20-90. The CTA held
that the waivers were invalid.

ISSUE: Whether the assessments were already prescribed. Whether the waiver was invalid.

RULING:

Yes and yes.

The NIRC is clear that in a case where a return is filed beyond the period prescribed by law, the
three-year period shall be counted from the day the return was filed.

The waiver, as also provided by the NIRC, is an exception to the three-day prescription. But, as the
CTA first held, the provisions of the RMO should have been strictly complied with. Failing to comply
renders a waiver defective and ineffectual.

CIR v. BPI
G.R. No. 178490 July 7, 2009
Chico-Nazario, J.

Doctrine:
1. The phrase “for that taxable period” merely identifies the excess income tax, subject of the
option, by referring to the taxable period when it was acquired by the taxpayer.

2. When circumstances show that a choice has been made by the taxpayer to carry over the
excess income tax as credit, it should be respected; but when indubitable circumstances clearly
show that another choice, a tax refund, is in order, it should be granted. As to which option the
taxpayer chose is generally a matter of evidence.
“Technicalities and legalisms, however exalted, should not be misused by the government to
keep money not belonging to it and thereby enrich itself at the expense of its law-abiding
citizens.”

Facts:
In filing its Corporate Income Tax Return for the Calendar Year 2000, BPI carried over the
excess tax credits from the previous years of 1997, 1998 and 1999. However, BPI failed to
indicate in its ITR its choice of whether to carry over its excess tax credits or to claim the refund
of or issuance of a tax credit certificate.

BPI filed with the Commissioner of Internal Revenue (CIR) an administrative claim for refund.
The CIR failed to act on the claim for tax refund of BPI. Hence, BPI filed a Petition for Review
before the CTA, whom denied the claim.

The CTA relied on the irrevocability rule laid down in Section 76 of the National Internal
Revenue Code (NIRC) of 1997, which states that once the taxpayer opts to carry over and apply
its excess income tax to succeeding taxable years, its option shall be irrevocable for that taxable
period and no application for tax refund or issuance of a tax credit shall be allowed for the same.

The Court of Appeals reversed the CTA decision stating that there was no actual carrying over of
the excess tax credit, given that BPI suffered a net loss in 1999, and was not liable for any
income tax for said taxable period, against which the 1998 excess tax credit could have been
applied.

The Court of Appeals further stated that even if Section 76 was to be construed strictly and
literally, the irrevocability rule would still not bar BPI from seeking a tax refund of its 1998
excess tax credit despite previously opting to carry over the same. The phrase “for that taxable
period” qualified the irrevocability of the option of BIR to carry over its 1998 excess tax credit to
only the 1999 taxable period; such that, when the 1999 taxable period expired, the irrevocability
of the option of BPI to carry over its excess tax credit from 1998 also expired.

Issue:
1. What is the period captured by the irrevocability rule?
2. Whether or not the taxpayer’s failure to mark the option chosen is fatal to whatever claim

Held:
1. The last sentence of Section 76 of the NIRC of 1997 reads: “Once the option to carry-over and
apply the excess quarterly income tax against income tax due for the taxable quarters of the
succeeding taxable years has been made, such option shall be considered irrevocable for that
taxable period and no application for tax refund or issuance of a tax credit certificate shall
be allowed therefor.” The phrase “for that taxable period” merely identifies the excess income
tax, subject of the option, by referring to the taxable period when it was acquired by the taxpayer.

In the present case, the excess income tax credit, which BPI opted to carry over, was acquired by
the said bank during the taxable year 1998. The option of BPI to carry over its 1998 excess
income tax credit is irrevocable; it cannot later on opt to apply for a refund of the very same
1998 excess income tax credit.

2. No. Failure to signify one’s intention in the FAR does not mean outright barring of a valid
request for a refund, should one still choose this option later on. The reason for requiring that a
choice be made in the FAR upon its filing is to ease tax administration (Philam Asset
Management, Inc. v. CIR G.R. No. 156637 and No. 162004, 14 December 2005). When
circumstances show that a choice has been made by the taxpayer to carry over the excess income
tax as credit, it should be respected; but when indubitable circumstances clearly show that
another choice – a tax refund – is in order, it should be granted. Therefore, as to which option the
taxpayer chose is generally a matter of evidence.

“Technicalities and legalisms, however exalted, should not be misused by the government to
keep money not belonging to it and thereby enrich itself at the expense of its law-abiding
citizens.”

CIR V PASCOR REALTY & DEV’T CORP et. al. (GR No. 128315, June 29,
1999)

Facts: The CIR authorized certain BIR officers to examine the books of
accounts and other accounting records of Pascor Realty and Development Corp.
(PRDC) for 1986, 1987 and 1988. The examination resulted in recommendation
for the issuance of an assessment of P7,498,434.65 and P3,015,236.35 for
1986 and 1987, respectively.

On March 1, 1995, Commissioner filed a criminal complaint for tax evasion

against PRDC, its president and treasurer before the DOJ. Private respondents
filed immediately an urgent request for reconsideration on reinvestigation
disputing the tax assessment and tax liability.

On March 23, 1995, private respondents received a subpoena from the DOJ in
connection with the criminal complaint. In a letter dated, May 17, 1995, the
Commissioner denied private respondent’s request for reconsideration
(reinvestigation on the ground that no formal assessment has been issued
which the latter elevated to the CTA on a petition for review. The
Commissioner’s motion to dismiss on the ground of the CTA’s lack of jurisdiction
inasmuch as no formal assessment was issued against private respondent was
denied by CTA and ordered the Commissioner to file an answer but did not
instead filed a petition with the CA alleging grave abuse of discretion and lack of
jurisdiction on the part of CTA for considering the affidavit/report of the revenue
officers and the endorsement of said report as assessment which may be
appealed to he CTA. The CA sustained the CTA decision and dismissed the
petition.

Issues:

1. Whether or not the criminal complaint for tax evasion can be construed as an
assessment.
2. Whether or not an assessment is necessary before criminal charges for tax
evasion may be instituted.

Held:
The filing of the criminal complaint with the DOJ cannot be construed as a
formal assessment. Neither the Tax Code nor the revenue regulations governing
the protest assessments provide a specific definition or form of an assessment.

An assessment must be sent to and received by the taxpayer, and must

demand payment of the taxes described therein within a specific period. The
revenue officer’s affidavit merely contained a computation of respondent’s tax
liability. It did not state a demand or period for payment. It was addressed to
the Secretary of Justice not to the taxpayer. They joint affidavit was meant to
support the criminal complaint for tax evasion; it was not meant to be a notice
of tax due and a demand to private respondents for the payment thereof. The
fact that the complaint was sent to the DOJ, and not to private respondent,
shows that commissioner intended to file a criminal complaint for tax evasion,
not to issue an assessment.

An assessment is not necessary before criminal charges can be filed. A criminal

charge need not only be supported by a prima facie showing of failure to file a
required return. The CIR had, in such tax evasion cases, discretion on whether
to issue an assessment, or to file a criminal case against the taxpayer, or to do
both.

CIR vs. GJM Philippines Manufacturing Inc.

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G.R. No. 202695

February 29, 2016

Facts: On April 12, 2000, GJM filed its Annual Income Tax Return for the year 1999. CIR found out
that GJM had tax deficiencies due to disallowances/understatements, therefore, CIR had the right to
assess GJM within the 3 year prescriptive period under Sec. 203 of the NIRC or until April 15, 2003.
On February 17, 2003, CIR delivered the Preliminary Assessment Notice (PAN) to GJM.
Subsequently, on April 14, 2003, the Formal Assessment Notice (FAN) were delivered by the CIR.
GJM denied having received any assessment from the BIR, thus, such right of assessment by the
latter has prescribed.

Issue: Whether or not the denial of GJM having received the Formal Assessment Notice (FAN)
made such right of assessment by the CIR prescribe;

Held: Yes, it has been settled that while a mailed letter is deemed received by the addressee in the
course of mail, this is merely a disputable presumption subject to controversion, the direct denial of
which shifts the burden to the sender to prove that the mailed letter was, in fact, received by the
addressee. In the case at bar, CIR was not able to prove that GJM has received the FAN sent by
them ergo their right to assess has prescribed.

CIR v. ASALUS
COMMISSIONER OF INTERNAL REVENUE vs. ASALUS CORPORATION

February 22, 2017

GR No. 221590

FACTS:
On December 16, 2010, respondent Asalus Corporation (Asalus) received a Notice of Informal
Conference from Revenue District Office No. 47 of the Bureau of Internal Revenue (BIR). It was in
connection with the investigation conducted by Revenue Officer Fidel M. Bañares II on the Value-Added
Tax transactions of Asalus for the taxable year 2007. Asalus filed its Letter-Reply, dated December 29,
2010, questioning the basis of Bañares' computation for its VAT liability.

On January 10, 2011, petitioner Commissioner of Internal Revenue issued the Preliminary Assessment
Notice finding Asalus liable for deficiency VAT for 2007 in the aggregate amount of P413,378,058.11.

On August 26, 2011, Asalus received the Formal Assessment Notice stating that it was liable for
deficiency VAT for 2007 in the total amount of P95,681,988.64, inclusive of surcharge and interest.
Consequently, it filed its protest against the FAN, dated September 6, 2011.

On October 16, 2012, Asalus received the Final Decision on Disputed Assessment showing VAT
deficiency for 2007 in the aggregate amount of P106,761,025.17, inclusive of surcharge and interest and
P25,000.00 as compromise penalty. As a result, it filed a petition for review before the CTA Division.

In its April 2, 2014 Decision, the CTA Division ruled that the VAT assessment issued on August 26, 2011
had prescribed and consequently deemed invalid.

ISSUE:

WHETHER OR NOT the CTA erred in the decision and that the petition be granted in favor of the
petitioner.

HELD:

The statement given by the CTA were correct in a way, and it was given due respect for they found it
partly correct but, after a review of the records and applicable laws and jurisprudence, the Court finds that
the CTA erred in concluding that the assessment against Asalus had prescribed. Internal revenue taxes
shall be assessed within three years after the last day prescribed by law for the filing of the return, or
where the return is filed beyond the period, from the day the return was actually filed. Section 222 of the
NIRC, however, provides for exceptions to the general rule. It states that in the case of a false or
fraudulent return with intent to evade tax or of failure to file a return, the assessment may be made within
ten years from the discovery of the falsity, fraud or omission.

In the oft-cited Aznar v. CTA, the Court compared a false return to a fraudulent return in relation to the
applicable prescriptive periods for assessments, to wit:

Petitioner argues that Sec. 332 of the NIRC does not apply because the taxpayer did not file false and
fraudulent returns with intent to evade tax, while respondent Commissioner of Internal Revenue insists
contrariwise, with respondent Court of Tax Appeals concluding that the very "substantial under
declarations of income for six consecutive years eloquently demonstrate the falsity or fraudulence of the
income tax returns with an intent to evade the payment of tax."

WHEREFORE, petition is GRANTED. The July 30, 2015 Decision and the November 6, 2015 Resolution
of the Court of Tax Appeals En Banc are REVERSED and SET ASIDE. The case is ordered REMANDED
to the Court of Tax Appeals for the determination of the Value Added Tax liabilities of the Asalus
Corporation.