CIR vs UNIOIL Corp

On January 26, 2009, respondent received a Formal Letter of Demand and Final
Assessment Notice finding it liable for deficiency withholding tax on compensation and
deficiency expanded withholding tax for the year ending Dec 2005.

UNIOIL files its protest to the FAN on February 25, 2009 and submitted the supporting
documents on April 24, 2009. Thereafter, the same filed the instant Petition for Review on
November 2009 considering that the CIR failed to act on its protest and the one hundred eighty
day period has already expired.

Held: The Supreme Court emphasized that it is not a trier of facts, and such evidence should
have been submitted to the CTA. The CTA was especially created by law for the purpose of
reviewing tax cases. The CTA undertakes trial on the issues brought before it and accordingly
exercises the power to receive evidence. It is not the Supreme Court’s duty to look and sift
through the evidence of the parties. The BIR’s failure to offer proof of the taxpayer’s receipt of
the PAN as evidence before the CTA means that it failed to establish the fact of issuance of the
PAN to the taxpayer, which means that it failed to comply with the notice requirements under the
Tax Code. This effectively denied the taxpayer its right to due process and renders BIR’s
assessment void.

CIR vs. MCC Transport Singapore, PTE Ltd.,

The Court NOTES the manifestation and compliance  dated May 6, 2021 by the Office of the
Solicitor General with the Resolution  dated March 3, 2021, stating that the petition was served
and filed through registered mail along with the postal money order (PMO) in the amount of
P1,000.00 as payment for the sheriff's trust fund, per the attached copy of the remitter's receipt of
said PMO.
After a judicious study of the case, the Court resolves to DENY the instant
petition  and AFFIRM the Court of Tax Appeals En Banc's (CTA EB) Decision  dated July 14,
2020 and Resolution  dated January 19, 2021 in CTA EB No. 1961 for failure of petitioner
Commissioner of Internal Revenue (petitioner) to show that the CTA EB committed any
reversible error in cancelling the deficiency value-added tax (VAT) assessment against
respondent MCC Transport Singapore Pte. Ltd. (respondent) for taxable year 2009.
As correctly ruled by the CTA EB, petitioner cannot insist on the applicability of Revenue
Memorandum Order (RMO) No. 13-2012  to justify the use of unverified third-party information
as basis for its assessment in this case. The transitory provision of RMO No. 13-2012 clearly
provides that it can only be retroactively applied for the 2009 and 2010 Letter Notices. The
Letter Notice in this case was issued on May 24, 2011, and thus, outside of the coverage of the
RMO. Even assuming that the said RMO is applicable, the same likewise provides that the
Confirmation Requests sent out to third parties by registered mail must be supported by
registered return cards, which were not submitted as evidence in this case. Consequently, the
CTA EB was correct in not relying on the third-party information since unverified data cannot be
considered as proper factual bases for the assessment against respondent. In order to be valid, an
assessment must be based on actual facts supported by credible evidence.  Related thereto, the
CTA EB was also correct in finding that petitioner failed to prove that respondent filed false or
fraudulent returns. Necessarily, the extraordinary period under Section 222 (a) of Republic Act
No. 8424  cannot apply in this case, and the prescriptive period must be counted three (3) years
from the filing of the VAT returns. Undoubtedly, the Formal Assessment Notice received by
respondent on January 22, 2014 was already beyond this three (3)-year period. It is settled that
the CTA's findings can only be disturbed on appeal if they are not supported by substantial
evidence, or there is a showing of gross error or abuse on the part of the Tax Court. In the
absence of any clear and convincing proof to the contrary, the Court must presume that the CTA
rendered a decision which is valid in every respect,  as in this case. Therefore, the deficiency
VAT assessment against respondent must be cancelled and set aside.

CIR vs. Pacific Plans, Inc.,

"G.R. No. 191587 (Commissioner of Internal Revenue, Petitioner, v. Pacific Plans,

Inc., Respondent). — This Petition for Review on Certiorari  under Rule 45 seeks to reverse and
set aside the Decision  dated 06 January 2010 and the Resolution  dated 12 March 2010 of the
Court of Tax Appeals (CTA) En Banc in C.T.A. E.B. No. 502. The CTA En Banc affirmed the
Decision  dated 09 February 2009 and Resolution  dated 11 June 2009 of the CTA Division in
C.T.A. Case No. 7537, which cancelled the assessment notices regarding the late payment of
withholding taxes for the months of March and April 2005 by respondent Pacific Plans, Inc.
(PPI).
Antecedents
Respondent PPI, a duly registered withholding agent of the Bureau of Internal Revenue
(BIR), is a pre-need company that sells traditional open-ended educational plans. PPI was
supposed to remit to the BIR creditable withholding taxes in the amount of P954,798.02 for the
month of March 2005, which became due on 15 April 2005, and the amount of P952,377.71 for
the month of April 2005, which became due on 16 May 2005. However, due to liquidity
problems and foreseeing the impossibility of meeting its obligations to its planholders as they fall
due, PPI filed, on 07 April 2005, a petition for corporate rehabilitation entitled "In the Matter of:
Petition for Corporate Rehabilitation with Prayer for Suspension of Payments of Pacific Plans,
Inc." before the Regional Trial Court of Makati (Makati RTC), which was docketed as Special
Proceedings No. M-6059.

The Makati RTC issued a Stay Order  dated 12 April 2005, directing as follows: CAIHTE
a) a stay in the enforcement of all claims, whether for money or otherwise, against petitioner PPI,
its guarantors and sureties not solidarily liable with it; b) prohibiting PPI from making any
payment of its liabilities as of the filing of the instant petition. PPI, however, is allowed to
disburse the amount of at least P341 Million as tuition fee support to its availing planholders who
agree to such support, and provided that such disbursement shall not entail any disposition of the
covering assets (NAPOCOR bonds) in the Trust Fund; hence, availing planholders who agree to
the proposed tuition fee support are directed to coordinate with PPI;
c) prohibiting PPI from selling, encumbering, transferring or disposing in any manner any of its
properties except in the ordinary course of business;
d) prohibiting PPI's suppliers of goods and services from withholding supply of goods and
services as long as PPI makes payments for the goods and services supplied after the issuance of
this Stay Order; and
e) directing the payment in full of all administrative expenses incurred after the issuance of this
Stay Order. 
In the same order, the Makati RTC also appointed Mr. Mamerto A. Marcelo, Jr., a certified
public accountant, as the rehabilitation receiver of PPI. Marcelo was tasked to closely oversee
and monitor PPI's operations during the pendency of the rehabilitation proceedings.
Consequently, PPI sent a letter dated 15 April 2005 to the BIR Large Taxpayers Service, which
was received on 18 April 2005, informing it of the Stay Order dated 12 April 2005. On 10 May
2005, PPI received from the BIR a Collection Letter dated 03 March 2005 for unsettled
withholding tax due for the month of March 2005 in the amount of P1,237,300.64, inclusive of
surcharge, interest, and compromise penalty. In reply, PPI filed with the BIR a letter dated 16
May 2005, explaining that it is in the process of getting clearance from the court-appointed
rehabilitation receiver for the payment of the withholding tax for the months of March and April
2005. The letter also requested for the waiver of surcharges and interest on the withholding tax
due.
On 18 May 2005, after getting clearance from the rehabilitation receiver, PPI immediately paid
the withholding taxes due for the months of March and April 2005, in the amounts of
P954,798.02 and P952,377.71, respectively. Despite said payment, BIR sent a Final Notice of
Seizure to PPI, dated 16 June 2005, imposing surcharge, interest, and compromise penalty in the
amount of P282,502.62 for the late payment of withholding tax for the month of March 2005.
Moreover, on 10 October 2005, PPI received a Collection Letter from BIR, imposing surcharge,
interest, and compromise penalty in the amount of P259,665.85 for the late payment of
withholding tax for the month of April 2005. In both instances, PPI requested BIR to reconsider
the imposition of the penalty charges. DETACa
PPI then filed an Application for Abatement of Tax/Penalties for the late payment of withholding
tax for the months of March and April 2005 on 06 October 2005 and 28 December 2005,
respectively. On 17 March 2006, pending the decision of BIR on PPI's Application for
Abatement, PPI received Assessment Notices Nos. QA-06-000122 and QA-06-000123, issued
on 20 January 2006, imposing surcharge, interest, and compromise penalties in the amounts of
P275,964.35 and P259,138.13 for the late payment of creditable withholding taxes for the
months of March and April 2005, respectively.
On 04 April 2006, PPI filed a letter protesting the assessment. When the BIR failed to act on the
protest, PPI filed on 30 October 2006 a petition for review before the CTA.

Ruling of the Court of Tax Appeals Division

On 09 February 2009, the CTA Division promulgated its Decision, the dispositive portion
of which reads:
WHEREFORE, premises considered, the present Petition for Review is hereby GRANTED.

Accordingly, Assessment Notices Nos. QA-06-000122 and QA-06-000123, representing

surcharges, interests and compromise penalties for the late payment of withholding taxes for the
months of March and April 2005, in the amounts of P275,964.35 and P259,138.13, respectively,
are hereby ordered CANCELLED and SET ASIDE.
SO ORDERED. 
 The CTA Division held that PPI should not be held liable for surcharge and interest on
the late payment of its creditable withholding tax in view of the Stay Order issued by the RTC
Makati. It noted that the Stay Order, which prohibited the enforcement of all claims against PPI
and also prohibited PPI from making any payments of its liabilities, was issued and received by
PPI on 12 April 2005, before the due dates for the payment of its creditable withholding taxes for
the months of March and April 2005.

Considering that the Stay Order does not make any distinction as to the claims enjoined
and the liabilities prohibited from payment, the CTA Division maintained that such order is a
justifiable reason for PPI not to pay the creditable withholding taxes due on 15 April 2005 and
15 May 2005. The CTA Division opined that it was only prudent for PPI to seek clearance first
from the court-appointed rehabilitation receiver before effecting any payment of the said
creditable withholding taxes. Moreover, it ruled that there is no basis for the imposition of the
P20,000.00 compromise penalty since there is no showing that PPI consented thereto.
Petitioner Commissioner of Internal Revenue (CIR) moved for reconsideration, which the CTA
Division denied in its Resolution dated 11 June 2009. 

Ruling of the CTA En Banc

The CTA En Banc affirmed the decision and resolution of the CTA Division, ruling that
the payment of withholding taxes falls under the category of claim and liability, considering that
it is for pecuniary considerations, and is thus covered in the Stay Order. Since PPI was legally
restrained by the Stay Order, the CTA En Banc held that it should not be liable for civil penalties
on its late payment of creditable withholding taxes for the months of March and April 2005. 
The CTA En Banc found untenable the CIR's argument that PPI, as a withholding agent
of the BIR, is under obligation to collect and remit the money it withheld in trust for the
government and that such obligation to pay the withholding taxes is not covered by the Stay
Order. The CTA En Banc cited this Court's decision in Abrera v. Barza,  where it was held that
"even if the relationship is one of trust, there is no provision in the Interim Rules that a claim
arising from a trust relationship is excluded from the Stay Order." 
The CIR filed a motion for reconsideration, which was denied by the CTA En Banc in its
Resolution dated 12 March 2010. 

Issue
The lone issue for Court's resolution is whether PPI is liable for surcharge, interest, and
compromise penalties for the late payments of its creditable withholding taxes for the months of
March and April 2005.

Ruling of the Court

The petition is denied for mootness.
A moot and academic case is one that ceases to present a justiciable controversy by virtue
of supervening events, so that a declaration thereon will be of no practical use or value. 
The Court notes that on 21 September 2020, PPI submitted to the Court a certified true copy of
the BIR Termination Letter dated 9 March 2011,  pertaining to Assessment Notices Nos. QA-06-
000122 and QA-06-000123, issued on 20 January 2006, imposing surcharge, interest, and
compromise penalties in the amounts of P275,964.35 and P259,138.13.
The BIR Termination Letter states:

TERMINATION LETTER
(ABATEMENT PROGRAM UNDER RR 3-2007)
Case No. TL-121-11-0000040
March 9, 2011
PACIFIC PLANS, INC.
2/F Grepalife Bldg., 221 Sen. Gil Puyat Ave., Makati City

Sir/Madam:
This refers to your availment of the ONE TIME ADMINISTRATIVE ABATEMENT of
Surcharge & Compromise Penalties pursuant to the provisions of Section 204 of the Tax Code,
as amended and implemented by Revenue Regulations No. 3-2007, Section 2(n) dated January
16, 2007, bearing on your internal revenue tax liabilities, to wit:
 
NAME OF : PACIFIC PLANS, INC.
TAXPAYER
TIN : 000-799-984
ADDRESS : 2/F Grepalife Bldg., 221 Sen. Gil Puyat
Ave., Makati City
 
DETAILS OF          
ASSESSMENT:
Assessmen Tax Return Surcharg Interest Compromi Total Remarks (pai
t No. Typ Period e se d updated
e amount of
interest)
QA-06- WE
000122
dated
01/20/200 03/31/200 238,699. 17,264. 275,964.
6 5 51 84 20,000.00 35 23,803.11
QA-06-
000123
dated
01/20/200 04/30/200 238,094. 1,043.7 259,138.
6 5 43 0 20,000.00 13 1,571.42
Total 476,793.94 18,308.54 40,000.00 535,102.48 25,374.53
 
In this connection, we are pleased to inform you that in view of your availment of the aforesaid
benefits granted under the special provisions of Section 204 of the National Internal Revenue
Code (NIRC), as amended, and its implementing rules and regulations, and the payment of the
total amount of Twenty Five Thousand Three Hundred Seventy Four Pesos and 53/100
(P25,374.53), representing ONE HUNDRED PERCENT (100%) of the updated
interest assessed under this ABATEMENT PROGRAM, the tax liability stated above is
hereby CLOSED and TERMINATED. ETHIDa
Very truly yours,
KIM S. JACINTO-HENARES
Commissioner of Internal Revenue

To recall, PPI filed with the BIR Application for Abatement of Tax/Penalties for the late
payment of withholding tax for the months of March and April 2005 on 06 October 2005 and 28
December 2005, respectively. The Abatement Applications were made pursuant to Section 204
of the National Internal Revenue Code, as amended, and implemented by Revenue Regulations
No. 3-2007 (RR No. 3-2007).  Section 4 of RR No. 3-2007, which reads:
SECTION 4. WHO MAY AVAIL. — Any person/taxpayer, natural or juridical, may settle thru
the abatement program any delinquent account or disputed assessment where the Assessment
Notice has been released as of November 30, 2006, by paying an amount equal to One Hundred
Percent (100%) or more of the Basic Tax assessed with the Accredited Agent Bank (AAB) of the
Revenue District Office (RDO)/Large Taxpayers Service (LTS)/Large Taxpayers District Office
(LTDO) that has jurisdiction over the taxpayer. In the absence of an AAB, payment may be
made with the Revenue Collection Officer/Deputized Treasurer of the RDO that has jurisdiction
over the taxpayer. After payment of the basic tax,  the assessment for penalties/surcharge
and interest shall be cancelled by the concerned BIR Office following existing rules and
procedures. Thereafter, the docket of the case shall be forwarded to the Office of the
Commissioner, thru the Deputy Commissioner for Operations Group, for issuance of
Termination Letter.
This Abatement Program shall include taxpayers who have already paid any portion of the
increments (surcharge, interest, etc.) on their tax liabilities, provided, they will waive any claim
for refund of paid amount in excess of 100% of the basic tax paid.
Taxpayers with existing tax case(s) on which the Presidential Commission on Good Government
has/have an interest are not covered by this Program. (Emphasis supplied)
Clearly, the BIR acted favorably on PPI's Application for Abatement of Tax/Penalties for the late
payment of withholding tax for the months of March and April 2005. As stated in the
Termination Letter, upon payment by PPI of P25,374.53 representing 100% of the updated
interest assessed under the Abatement Program, PPI's tax liability is deemed closed and
terminated. In other words, the assessment for penalties/surcharge and interest issued against
PPI, which is the subject of this case, was already cancelled.
Himlayang Pilipino Plans, Inc. vs. CIR

Facts: On September 29, 2010, Jonas Amora, Officer-In-Charge (OIC) Regional Director of
Quezon City issued an electronic LOA SN: eLA201000017400 LOA-039-2010-00000072,
authorizing the examination of petitioner's books of accounts and other accounting records for all
internal revenue taxes for the period covering January 1, 2009 to December 31, 2009. Petitioner
received the LOA on October 12, 2010. 
Petitioner submitted pertinent documents relevant to the examination of its books of
accounts for taxable year 2009 on different dates. However, the revenue officers who conducted
the examination found that petitioner has deficiency taxes for taxable year 2009. 
Thereafter, on December 14, 2012, the CIR issued a Preliminary Assessment Notice (PAN) with
Details of Discrepancies. Petitioner received the PAN and the attached Details of Discrepancies
on even date. 
 Petitioner contested the PAN on December 28, 2012. However, on January 14, 2013, an
FLD dated January 4, 2013 with Final Assessment Notices (FAN) and Details of Discrepancies
dated January 14, 2013 were issued against petitioner, which petitioner received on January 14,
2013. 
Petitioner administratively protested the FAN on February 14, 2013. Petitioner likewise
submitted documents in support of its administrative protest on April 12, 2013. Due to the
alleged inaction of respondent on its protest, petitioner filed a Petition for Review on November
7, 2013 to the CTA in Division. 
On December 16, 2013, the CIR filed its Answer arguing that the assessment has become
final, executory, and demandable; therefore, the CTA no longer has jurisdiction over the petition.
The CIR likewise raised that tax assessments made by examiners are presumed correct and in
good faith. Thereafter, pre-trial and trial ensued. 
On April 10, 2014, upon motion of petitioner, Enrico T. Pizarro was commissioned by
the Court as the Independent Certified Public Accountant for the case. 
During trial, petitioner presented Leah Laxamana and Enrico T. Pizarro as its witnesses.
On the other hand, the CIR presented as witnesses, Bernard R. Bugauisan and Bacolor D.
Yambing. 
The CTA declared the case submitted for decision on July 20, 2015, after the filing of the
parties' respective Memoranda.

Issue: The issue in this case is whether the assessment conducted against petitioner was null and
void.

Ruling of the Court

The petition is meritorious. Revenue officer Bagauisan is not authorized by a new LOA
to conduct an audit of petitioner's books of accounts for taxable year 2009.

A LOA is the authority given to the appropriate revenue officer assigned to perform
assessment functions. It empowers or enables said revenue officer to examine the books of
account and other accounting records of a taxpayer for the purpose of collecting the correct
amount of tax.

In Commissioner of Internal Revenue v. Sony Philippines, Inc.  the Court nullified the

deficiency VAT assessment made against Sony Philippines because the revenue officers went
beyond their authority when they based the assessment on records from January to March 1998
or using the fiscal year which ended in March 31, 1998 when the LOA covered only "the period
1997 and unverified prior years." According to the Court:

Clearly, there must be a grant of authority before any revenue officer can conduct an
examination or assessment. Equally important is that the revenue officer so authorized must not
go beyond the authority given. In the absence of such an authority, the assessment or
examination is a nullity.  (Emphasis supplied)

In Medicard Philippines, Inc. v. CIR, the Court nullified the deficiency VAT assessment
against Medicard Philippines because there was no LOA issued by the CIR prior to the issuance
of PAN and FAN. The Letter of Notice earlier sent to Medi card Philippines was not validly
converted into a LOA. According to the Court in Medicard Philippines:

What is crucial is whether the proceedings that led to the issuance of VAT deficiency
assessment against MEDICARD had the prior approval and authorization from the CIR or her
duly authorized representatives. Not having authority to examine MEDICARD in the first
place, the assessment issued by the CIR is inescapably void.  (Emphasis supplied)

Here, as comprehensively discussed, there was no new LOA issued by the CIR or his
duly authorized representative giving revenue officer Bagauisan the power to conduct an audit
on petitioner's books of accounts for taxable year 2009. The importance of the lack of the
revenue officer's authority to conduct an audit cannot be overemphasized because it goes into the
validity of the assessment. The lack of authority of the revenue officers is tantamount to the
absence of a LOA itself which results to a void assessment. Being a void assessment, the same
bears no fruit.

Lastly, as stated in Presiding Justice Del Rosario's dissenting opinion on the CTA En
Banc's decision, the failure of petitioner to raise at the earliest opportunity, the lack of the
revenue officer's authority, does not precluded the Court from considering the same because the
said issue goes into the intrinsic validity of the assessment itself.

WHEREFORE, the Petition for Review on Certiorari is hereby GRANTED.

The Decision dated February 12, 2018 and the Resolution dated July 24, 2018 rendered by the
Court of Tax Appeals En Banc in EB Case No. 1513 are SET ASIDE. The Formal Letter of
Demand with Details of Discrepancies and Assessment Notices issued against petitioner
Himlayang Pilipino Plans, Inc. are hereby DECLARED UNAUTHORIZED for having been
issued without a Letter of Authority by the Commissioner of Internal Revenue or his duly
authorized representative.

CIR vs YUMEX

Facts: On March 4, 2010, a Notice of Informal Conference was issued by the Revenue District
Officer (RDO) to respondent informing the latter that the investigation of its accounting records
for the taxable year 2007 resulted in a preliminary assessment of income tax, value-added tax,
expanded withholding tax, fringe benefits tax, IAET, and compromise penalty. 
Replying to the preliminary audit findings, respondent wrote petitioner regarding its
status as a corporation registered under the Philippine Economic Zone Authority (PEZA) which
allows it to enjoy payment of a special rate on registered activities; hence, it is not subject to
IAET. 
Subsequently, petitioner sent the letter  dated August 12, 2010 and a Summary of
Deficiencies to respondent, which were received by the latter on August 20, 2010 and August 25,
2010, respectively. Respondent thereafter sent its reply letter dated August 25, 2010.
A Preliminary Assessment Notice (PAN) dated December 16, 2010, with attached Details
of Discrepancies, was issued by the Bureau of Internal Revenue (BIR) Regional Director (RD),
finding respondent liable to pay deficiency income tax, fringe benefits tax, IAET, and
compromise penalty. A Formal Letter of Demand (FLD) dated January 10, 2011, was likewise
issued by the RD, finding respondent liable to pay: deficiency income tax (P589,961.46), fringe
benefits tax (P1,097,855.50), IAET (P9,077,695.05), and compromise penalty (P25,000.00). 
On January 20, 2011, respondent filed a protest on the FLD asserting its status as a
PEZA-registered entity; and that since all of its activities are registered under PEZA, it is
therefore fully exempt from the IAET. 
On February 4, 2011, petitioner received a letter dated February 2, 2011 from respondent,
stating that the latter is paying a total amount of P981,461.83, consisting of the basic deficiency
income tax (P372,106.45), basic deficiency fringe benefits tax (P584,355.38), and compromise
penalty (P25,000.00). However, respondent contested the amounts of interest and penalty on its
deficiency income and fringe benefit taxes and expressed its hope that petitioner will waive the
same.  Respondent still did not pay its deficiency IAET. 
After a reinvestigation, the RDO issued a letter dated July 25, 2011, acknowledging
payment by respondent of the basic deficiency taxes on income and fringe benefits, plus
compromise penalty; and informing respondent that its request for cancellation of the civil
increments and penalties thereon is subject to the approval of petitioner or the Deputy
Commissioner/Assistant Commissioner/RD, pursuant to Section III (6) of Revenue
Memorandum Order (RMO) No. 19-2007. The RDO reiterated her position and stood by the
assessment of the IAET and its corresponding civil increments. She advised respondent that the
whole docket of the case will be forwarded to the Regional Office for pursuance of collection. 
Respondent considered the above-mentioned letter as petitioner's Final Decision on
Disputed Assessment, and appealed the same by filing a Petition for Review before the CTA
Division on September 7, 2011.

Issue/s:
1) whether or not the CTA Division can take cognizance of the issue of the invalidity of the
assessment against respondent for allegedly having been issued in violation of respondent's
due process
2) whether or not the PAN and FLD/FAN are invalid because they were issued by the BIR in
violation of respondent's right to due process; and
3) whether or not respondent can be assessed for deficiency IAET

Held:
The petition has no merit.
The Court recognizes that the findings of the CTA can only be disturbed on appeal if they
are not supported by substantial evidence or if there is a showing of gross error or abuse on the
part of the tax court,  but petitioner failed to establish that any of said compelling reasons exist in
this case.
As the CTA En Banc held, the CTA Division was justified in ruling on the issue that
respondent was denied due process even though it was not expressly raised by respondent in its
petition for review. Sec. 1, Rule 14 of the RRCTA provides that "[i]n deciding the case, the
Court may not limit itself to the issues stipulated by the parties but may also rule upon related
issues necessary to achieve an orderly disposition of the case." Herein, the issue of the validity of
the assessment against respondent also necessarily requires the determination of the matter of the
proper issuance of said assessment in accordance with the requirements of due process. In
addition, there were sufficient allegations in respondent's petition for review on the dates of
issuance by the BIR and receipt by respondent of the PAN and FLD/FAN, as well as
documentary and testimonial evidence to establish the essential facts for resolution of the issue
which were presented during the trial without any objection from petitioner. This could be
deemed as petitioner's implied consent to try the issue, recognized under Sec. 5, Rule 10  of
the Revised Rules of Court, which applies suppletorily to the RRCTA.

SECTION 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 findings: Provided, however, That a pre-assessment notice shall not be
required in the following cases:

xxx xxx xxx

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.

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.

To implement the procedural and substantive rules on assessment of national internal revenue
taxes, the BIR issued RR No. 12-99, Sec. 3 of which provides:

SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax Assessment.

—

3.1 Mode of procedures in the issuance of a deficiency tax assessment:

3.1.1 Notice for informal conference. — The Revenue Officer who audited the
taxpayer's records shall, among others, state in his report whether or not the taxpayer
agrees with his findings that the taxpayer is liable for deficiency tax or taxes. If the
taxpayer is not amenable, based on the said Officer's submitted report of investigation,
the taxpayer shall be informed, in writing, by the Revenue District Office or by the Special
Investigation Division, as the case may be (in the case of Revenue Regional Offices) or by
the Chief of Division concerned (in the case of the BIR National Office) of the discrepancy
or discrepancies in the taxpayer's payment of his internal revenue taxes, for the purpose
of "Informal Conference," in order to afford the taxpayer with an opportunity to present
his side of the case. If the taxpayer fails to respond within fifteen (15) days from date of
receipt of the notice for informal conference, he shall be considered in default, in which
case, the Revenue District Officer or the Chief of the Special Investigation Division of the
Revenue Regional Office, or the Chief of Division in the National Office, as the case may
be, shall endorse the case with the least possible delay to the Assessment Division of the
Revenue Regional Office or to the Commissioner or his duly authorized representative, as
the case may be, for appropriate review and issuance of a deficiency tax assessment, if
warranted.

3.1.2 Preliminary Assessment Notice (PAN). — If after review and evaluation by the

Assessment Division or by the Commissioner or his duly authorized representative, as the
 case may be, it is determined that there exists sufficient basis to assess the taxpayer for
any deficiency tax or taxes, the said Office shall issue to the taxpayer, at least by
registered mail, a Preliminary Assessment Notice (PAN) for the proposed assessment,
showing in detail, the facts and the law, rules and regulations, or jurisprudence on which
the proposed assessment is based x x x. If the taxpayer fails to respond within fifteen
(15) days from date of receipt of the PAN, he shall be considered in default, in which
case, a formal letter of demand and assessment notice shall be caused to be issued
by the said Office, calling for payment of the taxpayer's deficiency tax liability,
inclusive of the applicable penalties.

xxx xxx xxx

3.1.4 Formal Letter of Demand and Assessment Notice. — The formal letter of

demand and assessment notice shall be issued by the Commissioner or his duly
authorized representative. The letter of demand calling for payment of the taxpayer's
deficiency tax or taxes shall state the facts, the law, rules and regulations, or
jurisprudence on which the assessment is based, otherwise, the formal letter of demand
and assessment notice shall be void x x x. The same shall be sent to the taxpayer only by
registered mail or by personal delivery. If sent by personal delivery, the taxpayer or his
duly authorized representative shall acknowledge receipt thereof in the duplicate copy of
the letter of demand, showing the following: (a) His name; (b) signature; (c) designation
and authority to act for and in behalf of the taxpayer, if acknowledged received by a
person other than the taxpayer himself; and (d) date of receipt thereof.

That respondent was able to file a protest to the FLD/FAN is of no moment. In Pilipinas Shell
Petroleum Corporation v. Commissioner of Internal Revenue,  the BIR ignored RR No. 12-99 and did not
issue to the taxpayer, Pilipinas Shell Petroleum Corporation (PSPC), a notice for informal conference and
a PAN as required; and as a result, deprived PSPC of due process in contesting the formal assessment
levied against it. The Court pronounced therein that "[w]hile PSPC indeed protested the formal
assessment, such does not denigrate the fact that it was deprived of statutory and procedural due process to
contest the assessment before it was issued." The Court once more reminded the BIR to be more
circumspect in the exercise of its functions as the power of taxation is also sometimes called the power to
destroy and, therefore, should be exercised with caution to minimize injury to the proprietary rights of the
taxpayer. 
Neither does the payment by respondent of the other items in the FLD/FAN, particularly, the
basic deficiency income and fringe benefits taxes and compromise penalty, preclude it from questioning
the validity of the issuance of the assessment notices. The manner by which the assessment is issued is a
distinct matter in itself from the contents of the assessment. Respondent's voluntary payment, while it may
be viewed as acknowledgement of its tax deficiencies for some of the assessed items, is not necessarily an
outright waiver of its right to question the impropriety of the issuance of the assessment notices, especially
in this case wherein respondent consistently protested the IAET assessment against it. The fact that
respondent's right to due process was violated because it was denied the opportunity to respond to the PAN
remains glaringly evident and cannot be deemed erased or cured by respondent's volitional payment of
other assessed items.
Sec. 3.1.2 of RR No. 12-99 explicitly grants the taxpayer fifteen (15) days from receipt of the PAN to file
a response. If the taxpayer fails to do so within the prescribed period, it will be considered in default and
only then shall petitioner or his duly authorized representative issue to the taxpayer an FLD/FAN
demanding payment of the assessed deficiency tax, surcharges, and penalties. In the instant case though,
the BIR did not ascertain respondent's date of receipt of the PAN before issuing the FLD/FAN, but merely
invoked Sec. 3.1.7 of RR No. 12-99 on constructive service, which states that "[i]f the notice to the
taxpayer herein required is served by registered mail, and no response is received from the taxpayer within
the prescribed period from date of posting thereof in the mail, the same shall be considered actually or
constructively received by the taxpayer."
However, considering that Sec. 3.1.2 of RR No. 12-99 specifically governs the PAN while Sec.
3.1.7 of the same regulations pertains generally to the constructive service of notices, the former takes
precedence in application to the instant case in determining the period allotted for the taxpayer to respond
to a PAN. It is a rule of statutory construction that a special and specific provision prevails over a general
provision irrespective of their relative position in the statute. Generalia specialibus non derogant. Where
there is in the same statute a particular enactment and also a general one which in its most comprehensive
sense would include what is embraced in the former, the particular enactment must be operative, and the
general enactment must be taken to affect only such cases within its general language as are not within the
provisions of the particular enactment. 
Moreover, the reliance by petitioner and the BIR on constructive service of notice is unavailing
and not justified by the circumstances. The PAN was posted through registered mail so there are easily
records available by which the BIR could have determined whether or not respondent actually received the
notice and the date of such receipt. The BIR did not offer any explanation as to why it did not verify first
these details with the post office, which would have been the more prudent thing to do instead of
immediately considering respondent to have already constructively received the PAN for purposes of
issuing the FLD/FAN. Petitioner's insistence on constructive notice is unwarranted and arbitrary when
there is uncontroverted evidence of respondent's date of actual receipt of the PAN on January 18, 2011,
simultaneously with the FLD/FAN.
Ultimately, the IAET assessment issued in this case by the BIR against respondent in violation of
the latter's right to due process is null and void.
In any event, the IAET assessment against respondent also lacked legal and factual bases as found
by both the CTA Division and En Banc.
The IAET is imposed under Sec. 29 of the NIRC, which reads:
SECTION 29. Imposition of Improperly Accumulated Earnings Tax. —
(A) In General. — In addition to other taxes imposed by this Title, there is hereby imposed for each
taxable year on the improperly accumulated taxable income of each corporation described in Subsection B
hereof, an improperly accumulated earnings tax equal to ten percent (10%) of the improperly accumulated
taxable income.
(B) Tax on Corporations Subject to Improperly Accumulated Earnings Tax. —
(1) In General. — The improperly accumulated earnings tax imposed in the preceding Section shall apply
to every corporation formed or availed for the purpose of avoiding the income tax with respect to its
shareholders or the shareholders of any other corporation, by permitting earnings and profits to accumulate
instead of being divided or distributed.
(2) Exceptions. — The improperly accumulated earnings tax as provided for under this Section shall not
apply to:
(a) Publicly-held corporations;
(b) Banks and other [non-bank] financial intermediaries; and
(c) Insurance companies.
(C) Evidence of Purpose to Avoid Income Tax. —
(1) Prima Facie Evidence. — The fact that any corporation is a mere holding company or investment
company shall be prima facie evidence of a purpose to avoid the tax on its shareholders or
members. ATICcS
(2) Evidence Determinative of Purpose. — The fact that the earnings or profits of a corporation are
permitted to accumulate beyond the reasonable needs of the business shall be determinative of the purpose
to avoid the tax upon its shareholders or members unless the corporation, by the clear preponderance of
evidence, shall prove to the contrary.
RR No. 2-2001  particularly identified additional corporations which are not subject to IAET, to wit:
SECTION 4. Coverage. — The 10% Improperly Accumulated Earnings Tax (IAET) is imposed on
improperly accumulated taxable income earned starting January 1, 1998 by domestic corporations as
defined under the Tax Code and which are classified as closely-held corporations. Provided, however, that
Improperly Accumulated Earnings Tax shall not apply to the following corporations:
a) Banks and other non-bank financial intermediaries;
b) Insurance companies;
c) Publicly-held corporations;
d) Taxable partnerships;
e) General professional partnerships;
f) Non-taxable joint ventures; and
g) Enterprises duly registered with the Philippine Economic Zone Authority (PEZA) under R.A.
7916, and enterprises registered pursuant to the Bases Conversion and Development Act of 1992 under
R.A. No. 7227, as well as other enterprises duly registered under special economic zones declared by law
which enjoy payment of special tax rate on their registered operations or activities in lieu of other taxes,
national or local. (emphasis supplied)
It is undisputed that respondent is registered with the PEZA as an Ecozone Export Enterprise and,
as such, it asserts exemption from IAET by virtue of Sec. 4 (g) of RR No. 2-2001.
The BIR, in its questioned assessment, distinguished between respondent's income from certain
registered activities which have been granted ITH extension  and its income from the rest of its registered
activities which are subject to the preferential five percent (5%) tax rate. It argues that only the latter is
exempt from IAET as the registered enterprises exempt under Sec. 4 (g) of RR No. 2-2001 should all be
enjoying the special tax rate.
The Court is not persuaded and finds the following interpretation of the CTA En Banc to be in
accord with the rules on statutory construction:
 As the Court En Banc sees it, the use of comma in Section 4(g) signifies independence of one
thing from the others included in the enumeration, such that, the particular portion contemplates three
different groups excluded from the coverage of the imposition of the improperly accumulated tax, to wit:
(1) enterprises duly registered with the Philippine Economic Zone Authority (PEZA) n under RA No.
7916; (2) enterprises registered pursuant to the Bases Conversion and Development Act of 1992 under RA
No. 7227 (BCDA); and (3) other enterprises duly registered under special economic zones declared by
law.
Moreover, qualifying words restrict or modify only the words or phrases to which they are
immediately associated, and not those distantly or remotely located. Thus, the phrase "which enjoy
payment of special tax rate on their registered operations or activities in lieu of other taxes, national or
local" applies only to corporations belonging to the third group — other enterprises duly registered under
special economic zones declared by law.
On the other hand, PEZA-registered enterprises and those registered pursuant to the BCDA, are
exempted from the imposition of the improperly accumulated earnings tax, without further qualification.
Section 4(g) made no distinction whether a corporation duly registered with the PEZA or registered
pursuant to the BCDA enjoys an ITH or the special tax regime at a rate of 5% on its registered activities. In
other words, the fact of registration with the PEZA under RA No. 7916 or pursuant to the BCDA under
RA No. 7227 alone excludes a corporation or enterprise from the coverage of corporations upon which
improperly accumulated earnings tax may be imposed. 
Furthermore, the IAET assessment against respondent is factually groundless.
According to Sec. 29 (C) (2) of the NIRC, "[t]he fact that the earnings or profits of a corporation
are permitted to accumulate beyond the reasonable needs of the business shall be determinative of the
purpose to avoid the tax upon its shareholders or members unless the corporation, by the clear
preponderance of evidence, shall prove to the contrary." RR No. 2-2001 expounded on this, as follows:
SECTION 7. Determination of Purpose to Avoid Income Tax. — The fact that a corporation is a
mere holding company or investment company shall be prima facie evidence of a purpose to avoid the tax
upon its shareholders or members. Likewise, the fact that the earnings or profits of a corporation are
permitted to accumulate beyond the reasonable needs of the business shall be determinative of the purpose
to avoid the tax upon its shareholders or members. In both instances, the corporation may, by clear
preponderance of evidence in its favor, prove the contrary. ETHIDa
For purposes of these Regulations, the term "holding or investment company" shall refer to a
corporation having practically no activities except holding property, and collecting the income therefrom
or investing the same.
The following are prima facie instances of accumulation of profits beyond the reasonable needs of a
business and indicative of purpose to avoid income tax upon shareholders:
a. Investment of substantial earnings and profits of the corporation in unrelated business or in stock
or securities of unrelated business;
b. Investment in bonds and other long-term securities;
c. Accumulation of earnings in excess of 100% of paid-up capital, not otherwise intended for the
reasonable needs of the business as defined in these Regulations.
 In order to determine whether profits are accumulated for the reasonable needs of the business as
to avoid the imposition of the improperly accumulated earnings tax, the controlling intention of the
taxpayer is that which is manifested at the time of accumulation, not subsequently declared intentions
which are merely the product of afterthought. A speculative and indefinite purpose will not suffice. The
mere recognition of a future problem or the discussion of possible and alternative solutions is not
sufficient. Definiteness of plan/s coupled with action/s taken towards its consummation are essential.
(emphasis supplied)
The BIR simply assessed respondent for IAET by imposing the ten percent (10%) IAET tax rate
on all of the latter's income from registered activities enjoying ITH without first establishing prima
facie why it deemed such income as improperly accumulated. Respondent is clearly not a holding or
investment company; and nowhere in the PAN, Details of Discrepancies, or the FLD/FAN did the BIR
expressly describe any of the prima facie instances of improperly accumulated earnings and profits.
For its part, respondent was able to prove that it had accumulated its earnings from previous years
for a reasonable business purpose. Respondent needed funds for a new project, i.e., the manufacture of
Heat Run Oven-Controlled Rack, which started commercial operations in June 2007 and was also duly
registered with the PEZA. Respondent had to acquire new machinery and equipment as well as a separate
exclusive building space for the project. Petitioner did not cross- examine respondent's witness on this
matter or present evidence to refute that respondent's accumulated income was actually for a reasonable
need in its business operations.

CIR vs BPI
Facts: Through a letter dated May 6, 1991, the CIR sent Assessment Notices  to Citytrust Banking
Corporation (Citytrust) in connection with its deficiency internal revenue taxes for the year 1986 in the
aggregate amount of P20,865,320.29.
The assessments came after Citytrust's execution of three Waivers of the Statute of Limitations
(Waivers) under the National Internal Revenue Code (NIRC) dated August 11, 1989, July 12, 1990, and
November 8, 1990 extending the prescriptive period for the CIR to issue an assessment. 
Citytrust protested the assessments on May 30, 1991 and, again, on February 17, 1992.  In the
interim, through the Bureau of Internal Revenue (BIR) Office of the Accounting Receivable/Billing
Section letter dated February 5, 1992, the CIR demanded the payment of the subject deficiency taxes
within 10 days from receipt thereof. 
At this juncture, two portions of the total assessment (P20,865,320.29) became the subject of
separate proceedings: first, the compromise and collection of the deficiency IT portion that led to another
Supreme Court case of the same title, docketed as G.R. No. 224327 — the case was decided on
November 16, 2018 (2018 Case); and second, the collection of deficiency EWT, WTD, DFT, and WTC
portion is the subject of the present petition.

Issues:

(1) Did the CTA have jurisdiction over BPI's Second CTA Petition?
(2) Did the CIR timely issue assessments against Citytrust for deficiency EWT, WTD, DFT, and WTC
pertaining to the taxable year 1986?
(3) May the CIR still collect the unpaid taxes?

Held:
 1. The law expressly vests the CTA the authority to take cognizance of "other matters"
arising from the 1977 Tax Code and other laws administered by the BIR  which necessarily
includes rules, regulations, and measures on the collection of tax. Tax collection is part and parcel
of the CIR's power to make assessments and prescribe additional requirements for tax
administration and enforcement. 
Thus, the CTA properly exercised jurisdiction over BPI's Second Petition.

2. Verily, the 1977 Tax Code, as amended, 43 allowed the parties to execute an agreement
waiving the three-year statute of limitation for tax assessment. 44 However, it is already
established that, to be valid, waivers of this nature must be in the form as prescribed by the
applicable tax regulations. 45 That both parties must signify their assent in extending the
assessment period is not merely a formal requisite under tax rules, but one that is essential to the
validity of a contract under the Civil Code.
Furthermore, the Court already ruled that BPI is not estopped from raising questions on
the waivers' validity. That the fundamental defect that invalidated the subject waivers were
caused by the CIR gives more reason to the taxpayer to seek redress for this inadvertence.
Be that as it may, even if the Court excuses these flaws, the CIR is still barred from
collecting the subject taxes from BPI.

3. Verily, the lifeblood doctrine enables the BIR "to avail themselves of the most
expeditious way to collect the taxes, including summary processes, with as little interference as
possible.''  However, to temper the wide latitude of discretion accorded to the tax authorities,
"[t]he law provides for a statute of limitations on the assessment and collection of internal
revenue taxes in order to safeguard the interest of the taxpayer against unreasonable
investigation." 
Under the 1977 Tax Code, as amended, "[a]ny internal revenue tax which has been
assessed within the period of limitation above-prescribed may be collected by distraint or levy or by a
proceeding in court within three years following the assessment of the tax." Stated differently, the three-
year prescriptive period for the BIR to collect taxes via summary administrative processes shall be
reckoned from "the date the assessment notice had been released, mailed or sent by the BIR to the
taxpayer."
It is clear that the tax authorities had been remiss in the performance of their duties. The
Court must bar the CIR from collecting the taxes in the present case because, "[w]hile taxes are the
lifeblood of the nation, the Court cannot allow tax authorities indefinite periods to assess and/or collect
alleged unpaid taxes. Certainly, it is an injustice to leave any taxpayer in perpetual uncertainty whether he
will be made liable for deficiency or delinquent taxes."

Philippine Dream Company, Inc. vs CIR

Facts: On January 6, 2003, Bureau of Internal Revenue (BIR) Regional Director (RD) Jaime B. Santiago
(RD Santiago), Revenue Region No. 13, issued Letter of Authority (LOA) No. 00075569 to petitioner
Philippine Dream Co., Inc. (PDCI)

Under Memorandum dated May 30, 2003, Revenue Officer Ray O. Bercede reported that the
corresponding investigation was not completed for two (2) reasons: a) PDCI failed to submit the
requirements despite follow-ups; and b) PDCI's accounting manager made representations that its board
of directors reconsidered its decision on closure and opted for a mere temporary shutdown.
On December 19, 2005, RD Santiago issued a Preliminary Assessment Notice to PDCI for its supposed
VAT and EWT deficiencies for taxable year 2002. PDCI protested.
 By Letter dated March 24, 2006, RD Santiago denied the protest. On the VAT assessment, he
firmly ruled that PDCI had already ceased its operations as shown in its tax returns filed from 2002 to
2005. This finding was bolstered by the report of the Maritime Industry Authority (MARINA) that
PDCI's operations had already ceased as of August 30, 2003. In view thereof, PDCI's assets were deemed
sold and subjected to VAT. As for the EWT assessment, PDCI failed to prove that it remitted withholding
taxes on rental payments made.

PDCI received the notices on April 10, 2006. On May 10, 2006, PDCI interposed its protest against the
VAT assessment, claiming it was not dissolved, nor its properties disposed of, particularly its vessel M/V
Philippine Dream. There being no such disposition, it could not have incurred any VATable transaction as
a result. It, nonetheless, signified its willingness to pay its tax liabilities, and on this score, prayed that the
penalties be waived. On May 18, 2006, it paid the EWT assessment but only in the amount of
P301,823.34 including interest.

On November 22, 2006, Revenue District Officer (RDO) Maria Socorro Lozano (RDO Lozano)
of RDO No. 80 issued a Preliminary Collection Letter on PDCI's EWT and VAT liabilities.

On January 4, 2007, PDCI received a Final Notice Before Seizure giving it ten (10) days from
notice to settle its tax liabilities, otherwise, a warrant of distraint and/or levy and garnishment shall be
issued to enforce collection.

By Letter dated January 15, 2007, PDCI requested RDO Lozano to return the case to BIR
Revenue Region No. 13 so it can submit evidence to refute its VAT liability. In reply, RDO Lozano
explained that its tax liabilities were due for collection because its period to interpose a protest had
expired. RDO Lozano cited as reason therefore PDCI's failure to submit the relevant documents to the
investigating officer. She informed PDCI, however, that she will refer the request to the Regional
Director for proper action. 

On February 21, 2007, PDCI was served a Warrant of Distraint and/or Levy No. 80-015-07 for its
failure to pay its purported tax deficiencies. 

In response, PDCI sent a letter dated February 27, 2007 addressed to RD Santiago, reiterating its
request to refer back the case to the latter's office so it may be afforded the chance to adduce evidence to
dispute the VAT assessment. 

Treating the letter as PDCI's request for reconsideration, RD Santiago, under Letter dated April
15, 2007, emphasized that the period to present additional documents in support of its protest had already
expired; and that PDCI's existing inventories at the time of its cessation of business were subject to VAT.

In a separate letter, RDO Lozano informed PDCI that RD Santiago already denied its request for
reconsideration. Accordingly, under Memorandum dated May 25, 2007, RDO Lozano requested the
publication of the Notice of Sale of PDCI's MV Philippine Dream. 

On September 21, 2007, PDCI filed a notice of tax amnesty availment under Republic Act No.
9480, 16 informed RDO No. 80 of such availment, and requested the release of its vessel. 

Acting thereon, RDO No. 80 recommended the cancellation of the auction sale set on September
28, 2007 and referred back the case to the CIR in view of PDCI's tax amnesty application. 

Under BIR Ruling No. DA-514-2007 dated September 27, 2007 addressed to the RD of Revenue
Region No. 13, however, Assistant Commissioner James H. Roldan directed RDO No. 80 to proceed with
the auction sale scheduled on September 28, 2007 considering that PDCI's tax amnesty application was
defective for non-compliance with the requirements of Republic Act No. 9480 (RA 9480).

Consequently, RDO Emir Abutazil informed PDCI that the auction sale will proceed as
scheduled following the aforesaid CIR opinion. PDCI's vessel was eventually sold to Aston Pte. Ltd. 

On October 31, 2007, PDCI initiated a petition before the Court of Tax Appeals seeking to nullify
the Final Notice Before Seizure, Warrant of Distraint and Levy, and the auction sale, with prayer for
restraining order to prevent CIR from taking possession of MV Philippine Dream and turning it over to
the winning bidder. Its petition was raffled off to the Second Division of the CTA, entitled Philippine
Dream Company, Inc. v. Bureau of Internal Revenue, docketed CTA Case No. 7700. 

While the petition was pending, on August 20, 2009, PDCI claimed for refund of the auction sale
proceeds supposedly to satisfy what it claims were its illegally assessed tax deficiencies. 

Two (2) years later, on October 6, 2009, PDCI amended its petition to include its prayer to nullify
the Formal Letter of Demand and Assessment Notice, its claim for refund of illegally assessed tax, and to
return to the company its MV Philippine Dream.

Issue: WON PDCI timely file its appeal to the CTA

Ruling: NO.

Section 228 of the Tax Code provides the taxpayer's remedy to dispute a tax assessment, viz.:
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
findings: Provided, however, That a preassessment notice shall not be required in the following cases:
(a) When the finding for any deficiency tax is the result of mathematical
error in the computation of the tax as appearing on the face of the return; or
(b) When a discrepancy has been determined between the tax withheld and
the amount actually remitted by the withholding agent; or
(c) When a taxpayer who opted to claim a refund or tax credit of excess
creditable withholding tax for a taxable period was determined to have carried over
and automatically applied the same amount claimed against the estimated tax
liabilities for the taxable quarter or quarters of the succeeding taxable year; or
(d) When the excise tax due on excisable articles has not been paid; or
(e) When an article locally purchased or imported by an exempt person,
such as, but not limited to, vehicles, capital equipment, machineries and spare parts,
has been sold, traded or transferred to non-exempt persons.
The taxpayer shall be informed in writing of the law and the facts on which the assessment is
made; otherwise, the assessment shall be void.
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 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
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 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. (Boldfacing supplied)
In Lascona Land Co., Inc. v. CIR, 28 the Court declared that the law gives the taxpayer two (2) remedies or
modes for disputing a tax assessment, viz.:
x x x In arguing that the assessment became final and executory by the sole reason that
petitioner failed to appeal the inaction of the Commissioner within 30 days after the 180-day
reglementary period, respondent, in effect, limited the remedy of Lascona, as a taxpayer, under Section
228 of the NIRC to just one, that is — to appeal the inaction of the Commissioner on its protested
assessment after the lapse of the 180-day period. This is incorrect.
xxx xxx xxx
Therefore, as in Section 228, when the law provided for the remedy to appeal the inaction of
the CIR, it did not intend to limit it to a single remedy of filing of an appeal after the lapse of the
180-day prescribed period. Precisely, when a taxpayer protested an assessment, he naturally expects
the CIR to decide either positively or negatively. A taxpayer cannot be prejudiced if he chooses to wait
for the final decision of the CIR on the protested assessment. More so, because the law and
jurisprudence have always contemplated a scenario where the CIR will decide on the protested
assessment.
It must be emphasized, however, that in case of the inaction of the CIR on the protested
assessment, while we reiterate — the taxpayer has two options, either: (1) file a petition for review
with the CTA within 30 days after the expiration of the 180-day period; or (2) await the final
decision of the Commissioner on the disputed assessment and appeal such final decision to the
CTA within 30 days after the receipt of a copy of such decision, these options are mutually
exclusive and resort to one bars the application of the other. (Emphasis supplied)

Being a court of special jurisdiction, the Court of Tax Appeals can take cognizance only of such
matters as are clearly within its jurisdiction. While the right to appeal a decision of the CIR to the Court
of Tax Appeals is a statutory remedy, the requirement that appeal must be brought within the prescribed
thirty days period is jurisdictional.

CIR vs. T. Shuttle Services, Inc.

FACTS: On July 15, 2009, the CIR issued to respondent a Letter of Notice (LN) No. 057-RLF-
07-00-00047 informing it of the discrepancy found after comparing its tax returns for Calendar
Year (CY) 2007 with the Reconciliation of Listings for Enforcement and Third-Party Matching
under the Tax Reconciliation System. The LN was received and signed by a certain Malou Bohol
on July 24, 2009. 

Subsequently, the Bureau of Internal Revenue (BIR), through LN Task Force Head
Salina B. Marinduque, issued a follow-up letter dated August 24, 2009. The letter was received
and signed by a certain Amado Ramos. 

Due to the inaction of respondent, the CIR issued to it, on January 12, 2010, the
following: (1) Letter of Authority (LOA) No. 2008 00044533 for the examination of its book of
accounts; and other accounting records and (2) a Notice of Informal Conference (NIC). 
 On March 29, 2010, the CIR issued a Preliminary Assessment Notice (PAN) with
attached Details of Discrepancies that found respondent liable for deficiency income tax (IT) and
value-added tax (VAT) in the total amount of P6,485,579.49. 
On July 20, 2010, the CIR issued a Final Assessment Notice (FAN), assessing respondent
with deficiency VAT in the amount of P3,720,488.73 and deficiency IT in the amount of
P5,305,486.50. 

On November 28, 2012, the Revenue District Officer (RDO) issued a Preliminary
Collection Letter requesting respondent to pay the assessed tax liability within 10 days from
notice. 

On January 23, 2013, the RDO issued a Final Notice Before Seizure (FNBS) giving
respondent the last opportunity to settle its tax liability within 10 days from notice. 

On March 20, 2013, respondent sent a letter to the RDO and the collection officers
stating that: (1) it is not aware of any pending liability for CY 2007; (2) that Mr. B. Benitez, who
signed and received the preliminary notices, was a disgruntled rank-and-file employee not
authorized to receive the notices; and (3) Mr. B. Benitez did not forward the notices to it.
Respondent also requested a grace period of one month to review its documents. 

In a letter dated April 2, 2013, the RDO denied the requested one-month grace period. 

On April 19, 2013, respondent protested the FNBS. It claimed that it is not liable for any
deficiency IT for CY 2007; that being a common carrier, it is exempt from the payment of VAT;
that the service of the NIC was invalid; and that it did not receive the PAN and FAN prior to the
issuance of the FNBS. 

On April 23, 2013, respondent was constructively served with a Warrant of Distraint
and/or Levy (WDL) No. 057-03-13-074-R. 

Aggrieved, on May 2, 2013, respondent filed a Petition for Review (With Prayer for
Preliminary Injunction and Issuance of a Temporary Restraining Order) with the CTA in
Division. 

In the Answer dated August 22, 2013, the CIR prayed for the denial of the petition for
review arguing that: (1) no error or illegality can be ascribed to his assessment for deficiency tax
liability as due process was observed; (2) respondent failed to interpose a timely protest against
the FAN and to submit within the prescribed period of 60 days supporting documents to refute
the findings of the revenue examiners; (3) respondent is liable for deficiency IT and deficiency
VAT; and (4) the presumption of the propriety and exactness of tax assessments is in his favor.

Issue:
1. WHILE MAINTAINING THAT THE CTA HAS NO JURISDICTION OVER THE
ORIGINAL PETITION SINCE THE DEFICIENCY TAX ASSESSMENT HAS
ALREADY BECOME FINAL, EXECUTORY AND DEMANDABLE, THE CTA
ERRED IN DECLARING THE ASSESSMENTS VOID FOR THE ALLEGED
 FAILURE ON THE PART OF PETITIONER TO PROVE SERVICE THEREOF TO
RESPONDENT.

2. THE CTA EN BANC ERRED IN RULING THAT THE FINAL ASSESSMENT

NOTICE ISSUED AGAINST RESPONDENT IS VOID FOR ALLEGEDLY NOT
CONTAINING A DEFINITE DUE DATE FOR PAYMENT OF THE TAX
LIABILITIES.

Held: Lacks merit.

At the outset, it bears stressing that a review of appeals filed before

this Court is "not a matter of right, but of sound judicial
discretion."  Further, a petition under Rule 45 of the Rules of Court should
raise only questions of law which must be distinctly set forth.  A question
is one of law when the appellate court can determine the issue raised
without reviewing or evaluating the evidence; otherwise, it is a question of
fact. 
Factual questions are not the proper subject of an appeal
by certiorari. It is not for the Court to once again analyze or weigh
evidence that has already been considered in the lower courts. 
The question of whether the CIR was able to sufficiently prove that
the PAN and the FAN were properly and duly served upon and received by
respondent is, undeniably, a question of fact. In the case, the CTA En
Banc ruled in the negative; hence, it sustained the CTA Division's finding
that respondent was not accorded due process and declared void the
assessments made against respondent for deficiency IT and VAT for CY
2007.  aScITE

The Court recognizes that the CTA's findings can only be disturbed
on appeal if they are not supported by substantial evidence, or there is a
showing of gross error or abuse on the part of the tax court.  There is no
such gross error or abuse in this case.
Section 228 of the National Internal Revenue Code (NIRC) of 1997,
as amended, requires the assessment to inform the taxpayer in writing of
the law and the facts on which the assessment is made; otherwise, the
assessment shall be void. Section 228 pertinently provides:
 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 findings: Provided, however, That a pre-assessment notice
shall not be required in the following cases:
xxx xxx xxx
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.
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.
xxx xxx xxx (Emphasis supplied)

To highlight the due process requirement in Section 228 of

the NIRC, Section 3 of Revenue Regulations (RR) 12-99 28 dated September
6, 1999 provides:
SECTION 3. Due Process Requirement in the Issuance of a
Deficiency Tax Assessment. —
3.1 Mode of procedures in the issuance of a deficiency tax
assessment:
3.1.1 Notice for informal conference. — The Revenue Officer
who audited the taxpayer's records shall, among others, state in his
report whether or not the taxpayer agrees with his findings that the
taxpayer is liable for deficiency tax or taxes. If the taxpayer is not
amenable, based on the said Officer's submitted report of
investigation, the taxpayer shall be informed, in writing, by the
Revenue District Office or by the Special Investigation Division, as
the case may be (in the case Revenue Regional Offices) or by the
Chief of Division concerned (in the case of the BIR National Office)
of the discrepancy or discrepancies in the taxpayer's payment of
his internal revenue taxes, for the purpose of "Informal
Conference," in order to afford the taxpayer with an opportunity to
present his side of the case. If the taxpayer fails to respond within
fifteen (15) days from date of receipt of the notice for informal
conference, he shall be considered in default, in which case, the
Revenue District Officer or the Chief of the Special Investigation
Division of the Revenue Regional Office, or the Chief of Division in
the National Office, as the case may be, shall endorse the case with
the least possible delay to the Assessment Division of the Revenue
Regional Office or to the Commissioner or his duly authorized
representative, as the case may be, for appropriate review and
issuance of a deficiency tax assessment, if warranted. DETACa

3.1.2 Preliminary Assessment Notice (PAN). — If after review

and evaluation by the Assessment Division or by the Commissioner
or his duly authorized representative, as the case may be, it is
determined that there exists sufficient basis to assess the taxpayer
for any deficiency is tax or taxes, the said Office shall issue to the
taxpayer, at least by registered mail, a Preliminary Assessment
Notice (PAN) for the proposed assessment, showing in detail, the
facts and the law, rules and regulations, or jurisprudence on which
the proposed assessment is based x x x. If the taxpayer fails to
respond within fifteen (15) days from date of receipt of the PAN, he
shall be considered in default, in which case, a formal letter of
demand and assessment notice shall be caused to be issued by the
said Office, calling for payment of the taxpayer's deficiency tax
liability, inclusive of the applicable penalties.
xxx xxx xxx
3.1.4 Formal Letter of Demand and Assessment Notice. — The
formal letter of demand and assessment notice shall be issued by
the Commissioner or his duly authorized representative. The letter
of demand calling or payment of the taxpayer's deficiency tax or
taxes shall state the facts, the law, rules and regulations, or
jurisprudence on which the assessment is based, otherwise, the
formal letter of demand and assessment notice shall be void x x x. The
same shall be sent to the taxpayer only by registered mail or by
personal delivery. If sent by personal delivery, the taxpayer or his
 duly authorized representative shall acknowledge receipt thereof in
the duplicate copy of the letter of demand, showing the following:
(a) His name; (b) signature; (c) designation and authority to act for
and in behalf of the taxpayer, if acknowledged received by a person
other than the taxpayer himself; and (d) date of receipt thereof.
xxx xxx xxx

As can be gleaned from the above provisions, service of the PAN or

the FAN to the taxpayer may be made by registered mail. Under Section 3
(v), Rule 131 of the Rules of Court, there is a disputable presumption that
"a letter duly directed and mailed was received in the regular course of
the mail." However, the presumption is subject to controversion and
direct denial, in which case the burden is shifted to the party favored by
the presumption to establish that the subject mailed letter was actually
received by the addressee. 29
In view of respondent's categorical denial of due receipt of the PAN
and the FAN, the burden was shifted to the CIR to prove that the mailed
assessment notices were indeed received by respondent or by its
authorized representative.
As ruled by the CTA En Banc, the CIR's mere presentation of Registry
Receipt Nos. 5187 and 2581 was insufficient to prove respondent's receipt
of the PAN and the FAN. It held that the witnesses for the CIR failed to
identify and authenticate the signatures appearing on the registry
receipts; thus, it cannot be ascertained whether the signatures appearing
in the documents were those of respondent's authorized representatives.
It further noted that Revenue Officer Joseph V. Galicia (Galicia), the CIR's
witness, had in fact admitted during cross-examination that he was
uncertain whether the PAN and FAN were actually received by
respondent. 30
In the present petition, the CIR contends that he had presented
competent proof of actual mailing and receipt of the assessment notices.
He, likewise, insists that Galicia was incompetent to testify as to the
authentication of the signatures of respondent appearing on the subject
registry return receipts. He avers that Galicia had neither control on the
acceptance of the receipts nor connection with the taxpayer to verify the
signatures appearing thereon. Thus, he maintains that Galicia's testimony,
although not objected to, had no probative value that can be used as
justification by the CTA En Banc in the assailed Decision.
Citing Section 36, Rule 130 of the Rules of Court which provides that
a witness can testify only to those facts which he knows of his personal
knowledge, the CIR argues that Galicia had no capacity to validate the
signatures appearing on the registry return receipts. The CIR also invokes
CTA Associate Justice Catherine T. Manahan's Dissenting Opinion, 31 which
referred to the testimony of Galicia from his Judicial Affidavit and
concluded that petitioner was able to establish actual mailing and receipt
of the assessment notices.
The Court sees no reason to set aside the findings of the CTA En
Banc. "It is doctrinal that the Court will not lightly set aside the conclusions
reached by the CTA which, by the very nature of its functions, has
accordingly developed an exclusive expertise on the resolution unless
there has been an abuse or improvident exercise of
authority." 32 Likewise, it has been the long-standing policy and practice of
the Court to respect the conclusions of quasi-judicial agencies such as the
CTA, a highly specialized body specifically created for the purpose of
reviewing tax cases. 33 In the absence of any clear and convincing proof
that the findings of the CTA are not supported by substantial evidence or
that there is a showing that it committed a gross error or abuse, the Court
must presume that the CTA rendered a decision which is valid in every
respect. 34
In any event, the Court finds significant the fairly recent issuance by
no less than the CIR himself of Revenue Memorandum Order No. (RMO)
40-2019 35 dated May 30, 2019, which prescribes the procedures for the
proper service of assessment notices in accordance with the provisions of
Section 3.1.6 of RR 18-2013. 36 RMO 40-2019 pertinently provides:  HEITAD
 12. The Chief of the Assessment Division or the Head of the
Reviewing Office shall maintain a record of all assessment notices
that were issued with the following details:
12.1 Type of Assessment Notice (PAN/FLD/FAN/FDDA);
12.2 Assessment Notice Number, if applicable;
12.3 Date of Assessment Notice;
12.4 Name of Taxpayer;
12.5 Registered Address;
12.6 Mode of Service;
12.7 Date of Service;
12.8 Name of Taxpayer/Person who received the assessment
notice;
12.9 Position/designation/relationship to the taxpayer, if not
personally served to the taxpayer named in the assessment notice;
12.10 Address/place where the assessment notice was
served/delivered in case the assessment notice was served in a
place other than his registered address; and
12.11 Status — Indicate whether the deficiency tax assessment is
a. Paid;
b. Unprotested; or
c. Disputed.

As can be gleaned above, a detailed record of all assessment notices

issued by the CIR is required. Notably, among the details to be recorded
by the Chief of the Assessment Division or the Head of the Reviewing
Office are the "[n]ame of [t]axpayer/[p]erson who received the assessment
notice" and, more importantly, the "[p]osition/designation/relationship to
the taxpayer, if not served to the taxpayer named in the assessment notice."
While RMO 40-2019 was not yet in force at the time the questioned
PAN and FAN in the case were issued, the fact of such subsequent
issuance of RMO 40-2019 by the CIR gives the Court all the more reason to
affirm, if only for consistency and uniformity, the CTA En Banc's finding
that the CIR failed to prove that the PAN and the FAN were properly and
duly served upon and received by respondent. Here, the CIR failed to
identify and authenticate the signatures appearing on Registry Receipt
Nos. 5187 and 2581 for the purpose of ascertaining whether such
signatures were those of respondent's authorized representative/s.
Hence, it is readily apparent that the CIR could not have complied with the
requirement of noting the position/designation/relationship of Mr. B.
Benitez, the recipient, to respondent, the taxpayer.
Additionally, the argument of the CIR that the deficiency tax
assessments have already become final, executor, and demandable
should be premised on the validity of the assessments themselves. As it
was established that the deficiency IT and VAT assessments for CY 2007
are void for failure to accord respondent due process in their issuance,
the CIR's argument necessarily fails.
Besides, even granting that the PAN and the FAN were properly and
duly served upon and received by respondent the Court affirms the
CTA En Banc's ruling that the FAN and the assessment notices attached to
it are still void for failure to demand payment of the taxes due within a
specific period.
As held in Commissioner of Internal Revenue v. Fitness by Design,
Inc.: 37
A final assessment is a notice "to the effect that the amount
therein stated is due as tax and a demand for payment thereof."
This demand for payment signals the time "when penalties and
interests begin to accrue against the taxpayer and enabling the
latter to determine his remedies[.]" Thus, it must be "sent to and
received by the taxpayer, and must demand payment of the taxes
described therein within a specific period." (Italics supplied.)

In this case, the CTA En Banc observed that the last paragraph of the
FAN indicates that the CIR would still issue a formal letter of demand and
assessment notice should respondent fail to respond to the FAN within
 the 15-day period given to it to present in writing its side of the case.
However, the CTA En Banc found nothing in the record that reveals that
the CIR had issued a final demand containing a specific or definite period
of payment following the expiration of the 15-day period given to
respondent to respond to the FAN. Further, the CTA En Banc observed that
the assessment notices attached to the FAN also did not prescribe a
definite period for respondent to pay the alleged deficiency taxes.
Again, the matter of whether the subject assessments contained a
definite period within which to pay the assessed taxes is a question of fact
which this Court will not entertain in the present appeal under Rule 45.
There being no showing of gross error or abuse on the part of the CTA En
Banc in its findings of fact, the Court accords respect to the latter's finding
that the FAN dated July 20, 2010 and the assessment notices attached to it
did not contain a definite period within which to pay the assessed taxes.
As such, even assuming that the assessments were duly served on and
received by respondent, they are still void and without any legal
consequence.

CIR vs. Lucio L. Co, et. al.,

Facts:
As of March 2012, the four respondents[, Lucio L. Co, Susan
P. Co, Ferdinand Vincent P. Co and Pamela Justine P. Co
(respondents),] collectively were the majority shareholders of
Kareila Management Corporation (Kareila), a domestic corporation
engaged as managers, managing agents, consignor, concessionaire,
or supplier of business engaged in the operation of hotels,
supermarkets, groceries and the like.
[Kareila had an authorized capital stock of P500,000,000.00,
wherein 1,703,125 shares were subscribed and fully paid.
Respondents owned 99.9999% of the total subscribed shares while
Anthony Sy (Sy) owned the remaining 0.0001%.]
[Respondents were also shareholders of Puregold Price Club,
Inc. (Puregold), a corporation organized under the Philippine laws
and primarily engaged in the wholesale and retail of general
merchandise. From Puregold's authorized capital stock of
P3,000,000,000.00, 2,000,000,000.00 shares were subscribed and
fully paid. Respondents owned 66.55% of Puregold's total
subscribed shares.]
xxx xxx xxx
On March 27, 2012, the Board of Directors of [Puregold] x x x
approved the issuance of 766,406,250 Puregold common shares to
[respondents] and [Sy] in exchange for the transfer to Puregold of
the 1,703,125 shares of Kareila.
On May 8, 2012, during the Puregold annual stockholders
meeting, this exchange was approved by the stockholders
representing two-thirds of Puregold's outstanding capital stock.
xxx xxx xxx
On May 11, 2012, [respondents] and [Sy] entered into a Deed
of Exchange with [Puregold] wherein they agreed to transfer all
their Kareila shares to Puregold in exchange for Puregold shares.
Under the Deed of Exchange, [respondents] and [Sy] each
would receive four hundred fifty (450) Puregold shares for every
one (1) Kareila share that they would transfer to Puregold.
Accordingly, Puregold issued to [respondents] and [Sy] a total of
766,406,250 Puregold shares from the unissued portion of its
authorized capital stock in exchange for the 1,703,125 Kareila
shares.

As a result of the share swap under the Deed of Exchange:

1. Puregold acquired majority ownership of Kareila; and,
2. [Respondents,] who, prior to the share swap, already
collectively owned 66.5720% of the outstanding capital
stock of Puregold consequently increased their
stockholdings to 75.8329% after the swap

On June 26 and 28, 2012, [respondents] collectively paid

capital gains tax (CGT) including interest and/or
compromise penalty on the said transfer pursuant
 to Section 24(C) of the National Internal Revenue
Code of 1997 (NIRC), as amended |||

Issue: Whether the CTA EB erred in finding that

respondents are entitled to the claim for refund for
erroneously paid CGT. |||

Held: Lacks Merit.

Respondents anchor their claim for refund on the tax-free exchange

provision under Section 40 (C) (2) of the NIRC of 1997, as amended. Said
provision reads:
"(C) Exchange of Property. —
xxx xxx xxx
"No gain or loss shall also be recognized if property is
transferred to a corporation by a person in exchange for stock or
unit of participation in such a corporation of which as a result of
such exchange said person, alone or together with others, not
exceeding four (4) persons, gains control of said
corporation: Provided, That stocks issued for services shall not be
considered as issued in return for property.["]

In relation thereto, Section 40 (C) (6) (c) of the same Code defines

the term "control" as "ownership of stocks in a corporation possessing at
least fifty-one percent (51%) of the total voting power of all classes of
stocks entitled to vote."
Based on the foregoing, the requisites for the non-recognition of
gain or loss are as follows: (a) the transferee is a corporation; (b) the
transferee exchanges its shares of stock for property/ies of the transferor;
(c) the transfer is made by a person, acting alone or together with others,
not exceeding four persons; and, (d) as a result of the exchange the
transferor, alone or together with others, not exceeding four, gains
control of the transferee. 18
 As regards the element of control, the Court, in Filinvest, clarified
that it is not necessary that, after the exchange, each of the transferors
individually gains control of the transferee corporation. It also does not
prohibit instances when the transferor gains further control of the
transferee corporation. The Court explained that the element of control is
satisfied even if one of the transferors is already owning at least 51% of
the shares of the transferee corporation, as long as after the exchange,
the transferors, not more than five, collectively increase their equity in
the transferee corporation by 51% or more.
In the said case, Filinvest Development Corporation (FDC) and
Filinvest Alabang, Incorporated (FAI), entered into a Deed of Exchange
with Filinvest Land Incorporated (FLI), whereby the former both
transferred in favor of the latter parcels of land in exchange for FLI
shares. 19 Prior to the exchange, FDC owned 80% of FAI and 67.42% of FLI.
After the exchange, FDC retained 80% ownership of FAI but decreased its
ownership of FLI to only 61.03%. As a result, FDC together with FAI owned
70.99% of FLI. 20
The Court held that neither FDC nor FAI is liable for income tax
because both collectively gained control of FLI, the transferee corporation,
as a result of the exchange:
Then as now, the CIR argues that taxable gain should be
recognized for the exchange considering that FDC's controlling
interest in FLI was actually decreased as a result thereof. For said
purpose, the CIR calls attention to the fact that, prior to the
exchange, FDC owned 2,537,358,000 or 67.42% of FLI's
3,763,535,000 outstanding capital stock. Upon the issuance of
443,094,000 additional FLI shares as a consequence of the
exchange and with only 42,217,000 thereof accruing in favor of FDC
for a total of 2,579,575,000 shares, said corporation's controlling
interest was supposedly reduced to [61.03%] when reckoned from
the transferee's aggregate 4,226,629,000 outstanding shares.
Without owning a share from FLI's initial 3,763,535,000 outstanding
shares, on the other hand, FAI's acquisition of 420,877,000 FLI
shares as a result of the exchange purportedly resulted in its
control of only 9.96% of said transferee corporation's 4,226,629,000
outstanding shares. On the principle that the transaction did not
qualify as a tax-free exchange under Section 34 (c) (2) of the 1993
NIRC, the CIR asseverates that taxable gain in the sum of
P263,386,921.00 should be recognized on the part of FDC and in
the sum of P3,088,711,367.00 on the part of FAI.
The paucity of merit in the CIR's position is, however, evident
from the categorical language of Section 34 (c) (2) of the 1993 NIRC
which provides that gain or loss will not be recognized in case the
exchange of property for stocks results in the control of the
transferee by the transferor, alone or with other transferors not
exceeding four persons. Rather than isolating the same as
proposed by the CIR, FDC's 2,579,575,000 shares or 61.03% control
of FLI's 4,226,629,000 outstanding shares should, therefore, be
appreciated in combination with the 420,877,000 new shares
issued to FAI which represents 9.96% control of said transferee
corporation. Together FDC's 2,579,575,000 shares (61.03%) and
FAI's 420,877,000 shares (9.96%) clearly add up to 3,000,452,000
shares or 70.99% of FLI's 4,226,629,000 shares. Since the term
"control" is clearly defined as "ownership of stocks in a
corporation possessing at least fifty-one percent of the total
voting power of classes of stocks entitled to one vote" under
Section 34 (c) (6) [c] of the 1993  NIRC, the exchange of property
for stocks between FDC, FAI and FLI clearly qualify as a tax-free
transaction under paragraph 34 (c) (2) of the same provision.
Against the clear tenor of Section 34(c) (2) of the 1993 NIRC,
the CIR cites then Supreme Court Justice Jose Vitug and CTA Justice
Ernesto D. Acosta who, in their book Tax Law and Jurisprudence,
opined that said provision could be inapplicable if control is already
vested in the exchangor prior to exchange. Aside from the fact that
that the 10 September 2002 Decision in CTA Case No. 6182
upholding the tax-exempt status of the exchange between FDC, FAI
and FLI was penned by no less than Justice Acosta himself, FDC and
FAI significantly point out that said authors have acknowledged that
the position taken by the BIR is to the effect that "the law would
apply even when the exchangor already has control of the
 corporation at the time of the exchange." This was confirmed
when, apprised in FLI's request for clarification about the change of
percentage of ownership of its outstanding capital stock, the BIR
opined as follows:
Please be informed that regardless of the foregoing, the
transferors, Filinvest Development Corp. and Filinvest Alabang, Inc.
still gained control of Filinvest Land, Inc. The term 'control' shall
mean ownership of stocks in a corporation by possessing at least
51% of the total voting power of all classes of stocks entitled to
vote. Control is determined by the amount of stocks received, i.e.,
total subscribed, whether for property or for services by the
transferor or transferors. In determining the 51% stock ownership,
only those persons who transferred property for stocks in the same
transaction may be counted up to the maximum of five (BIR Ruling
No. 547-93 dated December 29, 1993.)
At any rate, it also appears that the supposed reduction of
FDC's shares in FLI posited by the CIR is more apparent than real.
As the uncontested owner of 80% of the outstanding shares of FAI,
it cannot be gainsaid that FDC ideally controls the same percentage
of the 420,877,000 shares issued to its said co-transferor which, by
itself, represents 7.968% of the outstanding shares of FLI.
Considered alongside FDC's 61.03% control of FLI as a consequence
of the 29 November 1996 Deed of Transfer, said 7.968% add up to
an aggregate of 68.998% of said transferee corporation's
outstanding shares of stock which is evidently still greater than the
67.42% FDC initially held prior to the exchange. This much was
admitted by the parties in the 14 February 2001 Stipulation of
Facts, Documents and Issues they submitted to the CTA. Inasmuch
as the combined ownership of FDC and FAI of FLI's outstanding
capital stock adds up to a total of 70.99%, it stands to reason
that neither of said transferors can be held liable for
deficiency income taxes the CIR assessed on the supposed gain
which resulted from the subject transfer. 21

Thus, based on Filinvest, the CIR clearly has no basis to claim that the
share swap transaction between respondents and Puregold is not covered
by the tax-free exchange as provided in Section 40 (C) (2) in relation to
Section 40 (C) (6) (c) of the NIRC of 1997, as amended. It is undisputed that
after the exchange, respondents collectively increased their control over
Puregold from 66.57% to 75.83%. Accordingly, respondents cannot be
held liable for income taxes on the supposed gain which may have
resulted from such transfer. The CGT paid by respondents on the subject
transfer are considered erroneously paid taxes and must perforce be
refunded pursuant to Section 229 22 of the NIRC of 1997, as amended.
The filing of the administrative claim by respondents'
counsel of record on behalf of their client gave rise
to the presumption that they have the authority to
file the same. This is anchored on the rule that "[a]
lawyer is presumed to be properly authorized to
represent any cause in which he appears, and no
written power of attorney is required to authorize
him to appear in court for his client." 25
The presumption in favor of the counsel's authority to
appear in behalf of its client is a strong one, 26 as it
arises from the lawyer's pledge to act with honesty,
candor and fairness and not to do any falsehood or
misrepresentation. 27 If a lawyer corruptly or
willfully appears as an attorney for a party to a case
without authority, he may be disciplined or
punished for contempt as an officer of the court
who has misbehaved in his official transaction. 28
In addition, an attorney's appearance is also presumed to
be with the previous knowledge and consent of the
litigant until the contrary is shown. 29 In this case,
the presumption of authority of respondents'
counsel remains unrebutted because the CIR failed
to represent any proof to the contrary.
In any event, the supposed lack of authority of
respondents' counsel of record was thereafter
cured when respondents executed a Special Power
 of Attorney and submitted the same with the CIR
and before the court a quo. The CTA held that the
said instrument clearly spells out the extent of
authority granted to respondents' counsel and
ratifies all prior acts done in pursuit of said
authority, which includes the filing of respondents'
administrative claim for refund.
In Land Bank of the Philippines v. Pamintuan Dev't.
Co., 30 the Court held that "[r]atification retroacts to
the date of the lawyer's first appearance and
validates the action taken by him." The effect is as if
respondents themselves filed the administrative
claim for refund on May 21, 2014, within the two-
year prescriptive period provided under the NIRC of
1997, as amended. 31 Thus, the Court agrees with
the CTA that respondents' administrative claim was
valid and timely filed.

BIR rulings are the official position of the Bureau to queries raised
by taxpayers and other stakeholders relative to clarification and
interpretation of tax laws. 34 In this regard, the primary purpose of a BIR
Ruling is simply to determine whether a certain transaction, under the
law, is taxable or not based on the circumstances provided by the
taxpayer. As admitted by the CIR, rulings merely operate to "confirm" the
existence of the conditions for exemption provided under the law. If all
the requirements for exemption set forth under the law are complied
with, the transaction is considered exempt, whether or not a prior BIR
ruling was secured by the taxpayer.
In practice, a taxpayer often secures a BIR ruling, prior to entering
into a transaction, to prepare for any tax liability. However, in case a
taxpayer already paid the tax, believing to be liable therefor, and later on
files a claim for refund on the basis of an exemption provided under the
law, requiring a prior BIR ruling as a condition for the approval of the
refund claim is clearly illogical. In this light, the Court echoes its
pronouncement in Deutsche Bank AG Manila Branch v. Commissioner of
Internal Revenue

At this juncture, the Court emphasizes that while tax refunds are
strictly construed against the taxpayer, the Government should not resort
to technicalities and legalisms, much less frivolous appeals, to keep the
money it is not entitled to at the expense of the taxpayers. 39
Substantial justice, equity and fair play are on the side of
[respondents]. 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. If the State expects its taxpayers to observe
fairness and honesty in paying their taxes, so must it apply the
same standard against itself in refunding excess payments of such
taxes. Indeed, the State must lead by its own example of honor,
dignity and uprightness.

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