Criminal Complaint vs. Ronaldo V . Ignacio pursuant to then Sec. 265 of the Tax Code, as amended (now Sec. 266 of the Tax Code of 1997) for failure to comply with a subpoena duces tecum

September 10, 1998 BIR RULING [DA-412-98] MEMORANDUM FOR The Commissioner RE : Criminal Complaint vs . Ronaldo V . Ignacio pursuant to then Sec . 265 of the Tax Code, as amended (now Sec . 266 of the Tax Code of 1997) for failure to comply with a subpoena duces tecum As represented by the subject taxpayer and duly taken in your memorandum dated August 18, 1998, he filed his VAT return for the quarter covered October to December 1994 and reported thereunder gross sales amounting to P1,617,150.10; that the said declaration was purportedly bloated in order that the taxpayer may justify his loan application; that the said return was, thereafter, audited by the BIR; that failing to present his accounting records, he was issued with a subpoena duces tecum to compel the production of his records; that for his failure to comply with the said subpoena, a criminal complaint against the subject taxpayer was lodged by the BIR before the Regional Trial Court; that since the declaration in his VAT return was purportedly untrue or fictitious, subject taxpayer is requesting for reconsideration of the complaint lodged against him by the BIR for violation of summons and the proposed deficiency tax assessment arrived at by the BIR based on best evidence rule. aisadc Based on the foregoing, you want us to determine the following, viz: 1. Whether, based on facts obtaining, the doctrine on admission against interest or estoppel may be resorted to by the BIR and thus pursue issuance of the proposed deficiency tax assessments; and 2. Whether, based on facts obtaining, an assessment based on best evidence rule may be warranted. In reply, please be informed as follows, viz; The above issues call for application both of substantive and procedural rule, thus Article 1431 of the Civil Code provides that through estoppel an admission or representation is rendered conclusive upon the person making it and cannot be denied or disprove as against the person relying thereon . Likewise, Section 3, Rule 131 of the Rules of Court states that " Conclusive presumptions . The following are instances of conclusive presumptions: "(a) Whenever a party has, by his own declaration, act, or omission, intentionally and deliberately led another to believe a particular thing true, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act, or omission, be permitted to falsify it; The filing of a tax return is a prima facie evidence that a taxpayer duly engaged in business is complying with the mandate of the law which requires him to file the return and pay the corresponding tax liability so computed based on the income or gross sales so declared. Furthermore, under the Tax Code of 1997, specifically Title IX, Chapter 1 thereof, a taxpayer is required to maintain books of accounts and records which should be presented to the BIR examiners during audit. The declaration made by the taxpayer in such return creates a conclusive presumption that he was knowledgeable of the facts stated therein and had made the same in accordance with the provisions of the Tax Code. His failure to present accounting records required to support said declaration will not prevent the BIR from filing a case against him merely on the excuse that he purportedly bloated his gross sales in order that he may justify his loan application. Consistent with the above-quoted provisions both of the Civil Code and the Rules of Court, the latter being suppletory to the remedies prescribed under the Tax Code, the BIR may, therefore, pursue the issuance of the proposed deficiency tax assessments based on the VAT return duly filed with the BIR. Furthermore, the BIR may likewise file a criminal action for Falsification under Art. 172 and for violation of certain provisions of the Tax Code. It must be noted that a tax return is a public document (private records, kept in the Philippines, of private writings), the falsification of which is punishable under Art. 172 of the Revised Penal Code. Likewise, the filing of a fraudulent tax return is punishable under Title X, Chapter II of the Tax Code of 1997. Finally, pursuant to Sec. 6(B) of the Tax Code of 1997, an assessment solely on the basis of the VAT return duly filed with the BIR is warranted under the foregoing circumstances. It should be noted that the provisions of the Tax Code require all persons engaged in business to keep accounting records which would duly support his tax declaration. His failure to substantiate his VAT declaration thereby rendering the same to be false, effectively authorizes the Commissioner to assess the proper tax on the best evidence obtainable by ordering inventory-taking of goods of any taxpayer as basis for determining his tax liabilities under said Secs. 6 (B) and (C) of the Tax Code of 1997. cdtech Respectfully submitted: (SGD.) JESUS C. SANDOVAL Chief, Law Division I concur: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal & Enforcement Group