COMMISSIONER OF INTERNAL REVENUE

vs. METRO STAR SUPERAMA, INC., G.R.

No. 185371. December 8, 2010.
Facts:
Metro Star Superama Inc. is a domestic
corporation which was assessed with deficiency
VAT and withholding taxes for taxable year
1999. On January 26, 2001 the Regional
Director issued a Letter of Authority to Revenue
Officer Daisy Justiniana to examine Metro Stars
book of accounts regarding internal revenue
taxes for taxable year 1999. Metro Star failed to
comply for the presentation and subpoena
duces tecum issued so the Revenue District
Office proceeded with the investigation based
on the best evidence obtainable.

On November 8, 2001, Revenue District
Officer Socorro O. Ramos-Lafuente issued a
Preliminary 15-day Letter, which petitioner
received on November 9, 2001. The said letter
stated that there was deficiency value-added
and withholding taxes due from petitioner in
the amount of P 292,874.16.

On April 11, 2002, petitioner received a
Formal Letter of Demand dated April 3, 2002
from Revenue District No. 67, Legazpi City,
assessing petitioner the amount of Two
Hundred Ninety Two Thousand Eight Hundred
Seventy Four Pesos and Sixteen Centavos
(P292,874.16.) for deficiency value-added and
withholding taxes for the taxable year 1999.

Revenue District Office No. 67 sent a
copy of the Final Notice of Seizure dated May
12, 2003, which petitioner received on May 15,
2003, giving the latter last opportunity to settle
its deficiency tax liabilities within ten (10) [days]
from receipt thereof, otherwise respondent BIR
shall be constrained to serve and execute the
Warrants of Distraint and/or Levy and
Garnishment to enforce collection.

On February 6, 2004, petitioner
received from Revenue District Office No. 67 a
Warrant of Distraint and/or Levy No. 67-0029-
23 dated May 12, 2003 demanding payment of
deficiency value-added tax and withholding tax
payment in the amount of P292,874.16.

Issue: Metro Star denies that it received the
PAN and alleges that it was denied due process
but the CIR insists that due process was served
because the FAN was received anyway. Can the
assessment be final and executory?

Held: No. Jurisprudence is replete with cases
holding that if the taxpayer denies ever having
received an assessment from the BIR, it is
incumbent upon the latter to prove by
competent evidence that such notice was
indeed received by the addressee. The onus
probandi (burden of poof) was shifted to
respondent to prove by contrary evidence that
the Petitioner received the assessment in the
due course of mail.

The facts to be proved to raise this
presumption are (a) that the letter was properly
addressed with postage prepaid, and (b) that it
was mailed. Once these facts are proved, the
presumption is that the letter was received by
the addressee as soon as it could have been
transmitted to him in the ordinary course of the
mail. But if one of the said facts fails to appear,
the presumption does not lie.

What is essential to prove the fact of
mailing is the registry receipt issued by the
Bureau of Posts or the Registry return card
which would have been signed by the Petitioner
or its authorized representative. And if said
documents cannot be located, Respondent at
the very least, should have submitted to the
Court a certification issued by the Bureau of
Posts and any other pertinent document which
is executed with the intervention of the Bureau
of Posts. This Court does not put much
credence to the self serving documentations
made by the BIR personnel especially if they are
unsupported by substantial evidence
establishing the fact of mailing.

The Court agrees with the CTA that the
CIR failed to discharge its duty and present any
evidence to show that Metro Star indeed
received the PAN dated January 16, 2002. It
could have simply presented the registry receipt
or the certification from the postmaster that it
mailed the PAN, but failed. Neither did it offer
any explanation on why it failed to comply with
the requirement of service of the PAN. It merely
accepted the letter of Metro Star's chairman
dated April 29, 2002, that stated that he had
received the FAN dated April 3, 2002, but not
the PAN; that he was willing to pay the tax as
computed by the CIR; and that he just wanted
to clarify some matters with the hope of
lessening its tax liability.

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: 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.

Indeed, Section 228 of the Tax Code
clearly requires that the taxpayer must first be
informed that he is liable for deficiency taxes
through the sending of a PAN. He must be
informed of the facts and the law upon which
the assessment is made. The law imposes a
substantive, not merely a formal, requirement.
To proceed heedlessly with tax collection
without first establishing a valid assessment is
evidently violative of the cardinal principle in
administrative investigations that taxpayers
should be able to present their case and adduce
supporting evidence.

The Court need not belabor to discuss
the matter of Metro Star's failure to file its
protest, for it is well-settled that a void
assessment bears no fruit.


COMMISSIONER OF INTERNAL REVENUE V.
PASCOR REALTY AND DEVELOPMENT
CORPORATION, ET AL., G.R. NO. 128315, JUNE
29, 1999

Facts:
By virtue of a Letter of authority given
to Revenue officers to examine the books of
accounts of Pascor Realty for taxable years
1986-88 which resulted in a recommendation
for the issuance of an assessment in the
amounts of P7,498,434.65 and P3,015,236.35
for the years 1986 and 1987, respectively.

On March 1, 1995,
the Commissioner of Internal Revenue filed a
criminal complaint before the Department of
Justice against the PRDC, its President Rogelio
A. Dio, and its Treasurer Virginia S. Dio, alleging
evasion of taxes in the total amount of
P10,513,671.00. Private respondents
PRDC, et al., filed an Urgent Request for
Reconsideration/Reinvestigation disputing the
tax assessment and tax liability.

In a letter dated May 17, 1995, the CIR denied
the urgent request for
reconsideration/reinvestigation of the private
respondents on the ground that no formal
assessment has as yet been issued by
the Commissioner.

The CTA denied the motion to dismiss
filed by Pascor Realty in a Resolution dated
January 25, 1996 and ordered the CIR to file an
answer within thirty (30) days from receipt of
said resolution. The CIR received the resolution
on January 31, 1996 but did not file an answer
nor did she move to reconsider the resolution.
'It is the Court's honest belief, that the criminal
case for tax evasion is already an assessment.
The complaint, more particularly, the Joint
Affidavit of Revenue Examiners Lagmay and
Savellano attached thereto, contains the details
of the assessment like the kind and amount of
tax due, and the period covered.

The Court of Appeals held that the tax
court committed no grave abuse of discretion in
ruling that the Criminal Complaint for tax
evasion filed by
the Commissioner ofInternal Revenue with the
Department of Justice constituted an
"assessment" of the tax due, and that the said
assessment could be the subject of a protest.

Issue 1: should a criminal complaint for tax
evasion be construed as an assessment?

Held: Petitioner argues that the filing of the
criminal complaint with the Department of
Justice cannot in any way be construed as a
formal assessment of private respondents' tax
liabilities. This position is based on Section 205
of the National Internal Revenue Code(NIRC),
which provides that remedies for the collection
of deficient taxes may be by either civil or
criminal action. Likewise, petitioner cites
Section 223(a) of the same Code, which states
that in case of failure to file a return, the tax
may be assessed or a proceeding in court may
be begun without assessment.

We agree with petitioner. Neither the
NIRC nor the revenue regulations governing the
protest of assessments provide a specific
definition or form of an assessment. However,
the NIRC defines the specific functions and
effects of an assessment. To consider the
affidavit attached to the Complaint as a proper
assessment is to subvert the nature of an
assessment and to set a bad precedent that will
prejudice innocent taxpayers.

True, as pointed out by the private
respondents, an assessment informs the
taxpayer that he or she has tax liabilities. But
not all documents coming from the BIR
containing a computation of the tax liability can
be deemed assessments.

In the present case,
the revenue officers' Affidavit merely contained
a computation of respondents' tax liability. It
did not state a demand or a period for payment.
Worse, it was addressed to the Justice
Secretary, not to the taxpayers. That the BIR
examiners' Joint Affidavit attached to the
Criminal Complaint contained some details of
the tax liabilities of private respondents does
not ipso facto make it an assessment. The
purpose of the Joint Affidavit was merely to
support and substantiate the Criminal
Complaint for tax evasion. Clearly, it was not
meant to be a notice of the tax due and a
demand to the private respondents for
payment thereof.

Issue 2: Will the filing of a protest suspend the
criminal action?

Held: Private respondents maintain that the
filing of a criminal complaint must be preceded
by an assessment. This is incorrect, because
Section 222 of the NIRC specifically states that
in cases where a false or fraudulent return is
submitted or in cases of failure to file a return
such as this case, proceedings in court may be
commenced without an assessment.
Furthermore, Section 205 of the same Code
clearly mandates that the civil and criminal
aspects of the case may be pursued
simultaneously. In Ungab v. Cusi, petitioner
therein sought the dismissal of the criminal
Complaints for being premature, since his
protest to the CTA had not yet been resolved.
The Court held that such protests could not
stop or suspend the criminal action which was
independent of the resolution of the protest in
the CTA. This was because
the commissioner of internal revenue had, in
such tax evasion cases, discretion on whether to
issue an assessment or to file a criminal case
against the taxpayer or to do both.

Tax assessment - Before an assessment is
issued, there is, by practice, a pre-assessment
notice sent to the taxpayer. The taxpayer is
then given a chance to submit position papers
and documents to prove that the assessment is
unwarranted. Etc.

Criminal complaint - The criminal charge is filed
directly with the DOJ. Thereafter, the taxpayer
is notified that a criminal case had been filed
against him, not that the commissioner has
issued an assessment. It must be stressed that a
criminal complaint is instituted not to demand
payment, but to penalize the taxpayer for
violation of the Tax Code.

COMMISSIONER OF INTERNAL REVENUE V.
HANTEX TRADING CO., INC., G.R. NO. 136975,
MARCH 31, 2005.

Facts:
Hantex is a domestic corporation engaged in
the selling of plastic products so it imports resin
and other chemicals.

Sometime in October 1989, Lt. Vicente
Amoto, Acting Chief of Counter-Intelligence
Division of the Economic Intelligence and
Investigation Bureau (EIIB), received
confidential information that the respondent
had imported synthetic resin amounting to
P115,599,018.00 but only declared
P45,538,694.57.

Jose T. Almonte, then Commissioner of
the EIIB, issued Mission Order No. 398-89 dated
November 14, 1989 for the audit and
investigation of the importations of Hantex for
1987. The IIPO issued subpoena duces
tecum and ad testificandum for the president
and general manager of the respondent to
appear in a hearing and bring records and books
of accounts for year 1987.

Due to the persistent denial to comply
with the subpoenas duces tecum by the
President of Hantex, Bienvenido G. Flores, Chief
of the Investigation Division, and Lt. Leo
Dionela, Lt. Vicente Amoto and Lt. Rolando
Gatmaitan conducted an investigation. They
relied on the certified copies of the
respondent's Profit and Loss Statement for
1987 and 1988 on file with the SEC, the
machine copies of the Consumption Entries,
Series of 1987, submitted by the informer, as
well as excerpts from the entries certified by
Tomas and Danganan.

Based on the documents/records on
hand, inclusive of the machine copies of the
Consumption Entries, the EIIB found that for
1987, the respondent had importations totaling
P105,716,527.00 (inclusive of advance sales
tax). Compared with the declared sales based
on the Profit and Loss Statements filed with the
SEC, the respondent had unreported sales in
the amount of P63,032,989.17, and its
corresponding income tax liability was
P41,916,937.78, inclusive of penalty charge and
interests. The revenue enforcement officers
reported that there was a prima facie case of
fraud in filing its 1987 consumption entry
reports.

Two invitations for an informal
conference were made but Hantex sent a letter
that there would be no end to investigations
and re-investigations for year 1987.

During the hearing of August 20, 1993
in the CTA the Internal Inquiry and Prosecution
Office (IIPO) representative presented the
photocopies of the Consumption and Import
Entries and the Certifications issued by Tomas
and Danganan of the Bureau of Customs. The
IIPO representative testified that the Bureau of
Customs failed to furnish the EIIB with certified
copies of the Consumption and Import Entries;
hence, the EIIB relied on the machine copies
from their informer.

Issue: Is the assessment based on Competent
Evidence? (best evidence obtainable)

Held: No. On the second issue, the petitioner
asserts that since the respondent refused to
cooperate and show its 1987 books of account
and other accounting records, it was proper for
her to resort to the best evidence obtainable
the photocopies of the import entries in the
Bureau of Customs and the respondent's
financial statement filed with the SEC. The
petitioner maintains that these import entries
were admissible as secondary evidence under
the best evidence obtainable rule, since they
were duly authenticated by the Bureau of
Customs officials who processed the documents
and released the cargoes after payment of the
duties and taxes due. Further, the petitioner
points out that under the best evidence
obtainable rule, the tax return is not important
in computing the tax deficiency.

The petitioner posits that the CTA is not
strictly bound by technical rules of evidence,
the reason being that the quantum of evidence
required in the said court is merely substantial
evidence.

We agree with the contention of the
CIR that the best evidence obtainable may
consist of hearsay evidence, such as the
testimony of third parties or accounts or other
records of other taxpayers similarly
circumstanced as the taxpayer subject of the
investigation, hence, inadmissible in a regular
proceeding in the regular courts. Moreover, the
general rule is that administrative agencies such
as the BIR are not bound by the technical rules
of evidence. It can accept documents which
cannot be admitted in a judicial proceeding
where the Rules of Court are strictly observed.
It can choose to give weight or disregard such
evidence, depending on its trustworthiness.

However, the best evidence obtainable
under Section 16 of the 1977 NIRC, as
amended, does not include mere photocopies
of records/documents. The petitioner, in
making a preliminary and final tax deficiency
assessment against a taxpayer, cannot anchor
the said assessment on mere machine copies of
records/documents. Mere photocopies of the
Consumption Entries have no probative weight
if offered as proof of the contents thereof. The
reason for this is that such copies are mere
scraps of paper and are of no probative value as
basis for any deficiency income or business
taxes against a taxpayer. Indeed, in United
States v. Davey, the U.S. Court of Appeals (2nd
Circuit) ruled that where the accuracy of a
taxpayer's return is being checked, the
government is entitled to use the original
records rather than be forced to accept
purported copies which present the risk of error
or tampering.

In Collector of Internal Revenue v.
Benipayo, the Court ruled that the assessment
must be based on actual facts. The rule assumes
more importance in this case since the xerox
copies of the Consumption Entries furnished by
the informer of the EIIB were furnished by yet
another informer. While the EIIB tried to secure
certified copies of the said entries from the
Bureau of Customs, it was unable to do so
because the said entries were allegedly eaten
by termites. The Court can only surmise why
the EIIB or the BIR, for that matter, failed to
secure certified copies of the said entries from
the Tariff and Customs Commission or from the
National Statistics Office which also had copies
thereof. It bears stressing that under Section
1306 of the Tariff and Customs Code, the
Consumption Entries shall be the required
number of copies as prescribed by regulations.
The Consumption Entry is accomplished in
sextuplicate copies and quadruplicate copies in
other places. In Manila, the six copies are
distributed to the Bureau of Customs, the Tariff
and Customs Commission, the Declarant
(Importer), the Terminal Operator, and the
Bureau of Internal Revenue. Inexplicably,
the Commissioner and the BIR personnel
ignored the copy of the Consumption Entries
filed with the BIR and relied on the photocopies
supplied by the informer of the EIIB who
secured the same from another informer. The
BIR, in preparing and issuing its preliminary and
final assessments against the respondent, even
ignored the records on the investigation made
by the District Revenue officers on the
respondent's importations for 1987.

The original copies of the Consumption
Entries were of prime importance to the BIR.
This is so because such entries are under oath
and are presumed to be true and correct under
penalty of falsification or perjury. Admissions in
the said entries of the importers' documents
are admissions against interest and
presumptively correct.

In fine, then, the petitioner acted
arbitrarily and capriciously in relying on and
giving weight to the machine copies of the
Consumption Entries in fixing the tax deficiency
assessments against the respondent.

The rule is that in the absence of the
accounting records of a taxpayer, his tax liability
may be determined by estimation. The
petitioner is not required to compute such tax
liabilities with mathematical exactness.
Approximation in the calculation of the taxes
due is justified. To hold otherwise would be
tantamount to holding that skillful concealment
is an invincible barrier to proof. However, the
rule does not apply where the estimation is
arrived at arbitrarily and capriciously.

However, the prima facie correctness of
a tax assessment does not apply upon proof
that an assessment is utterly without
foundation, meaning it is arbitrary and
capricious. Where the BIR has come out with a
"naked assessment," i.e., without any
foundation character, the determination of the
tax due is without rational basis. In such a
situation, the U.S. Court of Appeals ruled that
the determination of
the Commissioner contained in a deficiency
notice disappears. Hence, the determination by
the CTA must rest on all the evidence
introduced and its ultimate determination must
find support in credible evidence.

As the Court held in Collector
of Internal Revenue v. Benipayo, in order to
stand judicial scrutiny, the assessment must be
based on facts. The presumption of the
correctness of an assessment, being a mere
presumption, cannot be made to rest on
another presumption (that discharge of official
duty by public officer is correct).

The records are REMANDED to the
Court of Tax Appeals for further proceedings,
conformably with the decision of this Court. No
costs.