Nullity of Assessment Notices for Non-Observance of Procedural Due Process

September 16, 1999 BIR RULING NO. 147-99 203, 223, 229-000-00-147-99 Balmeo Bautista & Peasales Law Offices Rm. 309 Margarita Building J.P. Rizal cor. Cardona Streets Makati City Attention: Atty . Lovell R . Bautista Gentlemen : This refers to your letter dated September 3, 1999 stating that in the year 1994 and onwards, the principal place of business of your client, Croley Foods Manufacturing Corporation was located in Bo. Caniogan, Pasig City; that on February 1998, it relocated its principal place of business because of high rentals to Malabon, Metro Manila; that application for cancellation of registration was duly filed and approved by the Revenue District Office (RDO) of Pasig City; that the transfer was likewise approved by the RDO of Malabon; that your client's tax liabilities for taxable year 1995 were examined by the examiner of BIR RDO No. 43 - Pasig City by virtue of an appropriate Letter of Authority; that the said investigation resulted to deficiency taxes which were promptly paid by your client; that the Assessment Division of Revenue Region No. 7, Quezon City issued Assessment Notices dated April 13, 1999 which were never received by your client for they were mailed to your client's old address in Pasig City; that your client, only knew of the existence of said assessment when the National Collection Task Force of Revenue Region 7, Quezon City served a warrant of distraint to your client on September 7, 1999; that your client was surprised that when it is time to serve warrant of distraint, your client can be effectively located by the BIR Regional Office while it cannot do so at the time it was serving the deficiency assessment; and that aside from the fact that your client's address is a matter of record in the Bureau of Internal Revenue, Croley Foods Manufacturing Corporation is listed with the Large Taxpayer Unit of the BIR because it is classified as one of the large taxpayers by the BIR National Office; Based on the foregoing, you now in effect request for a ruling that the assessment notices issued by the Assessment Division of Revenue Region No. 7, Quezon City are null and void for the same were not duly and timely served and received by your client. Moreover, since the said assessment notices were served and known only to the taxpayer after the lapse of the three (3) year period counted from the last day prescribed by law for the filing of the returns required under Section 203 of the Tax Code of 1997, the right of the BIR to assess already prescribed and your client has no validly existing tax liabilities for taxable year 1995. In reply, please be informed that the basic legal issue to be addressed in the instant case is whether or not herein assessment may fall within the ambit of a "validly issued assessment" so as to make your client liable to pay the same. An assessment is a written notice that the amount therein is due as a tax and containing a demand for payment thereof. In this regard, the law has provided the taxpayer with ample remedies to give him an opportunity to contest or dispute an assessment to which he is being made liable to pay. Section 229 of the Tax Code of 1997 provides: "SEC. 229. Protesting of Assessment . When the Commissioner of Internal Revenue or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings. Within a period to be prescribed by implementing regulations, the taxpayer shall be required to respond to said notice. If the Taxpayer fails to respond, the Commissioner shall issue an assessment based his findings. "Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation in such form and manner as may be prescribed by implementing regulations within thirty (30) days from receipt of the assessment; otherwise the assessment shall become final and unappealable. "If the protest is denied in whole or in part, the individual, association or corporation adversely affected by the decision on the protest may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision; otherwise the decision shall become final, executory and demandable." The implementing regulations (Revenue Regulations No. 12-85) provide for procedural steps that should govern administrative protests, the highlights of which are as follows: "1. Sending by the BIR to the taxpayer of a notice for an informal conference or post-reporting notice. This notice is issued after an investigation has been conducted with the corresponding report of the investigative findings. "2. Notice prior to an assessment or pre-assessment notice is issued after the informal conference in cases where it is believed that taxes should be assessed against the taxpayer. The taxpayer is given fifteen days (extendible for not more than ten days) within which to reply to the assessment notice; "3. In case where the taxpayer fails to respond to the pre-assessment notice within the reglementary period or in the event of a response the BIR believes that taxes should be assessed, the BIR issues the necessary assessment notice; "4. The taxpayer may then file an administrative protest against the assessment which must be filed within thirty days from receipt of the assessment; otherwise, the assessment shall become final and unappealable and the taxpayer is hereby precluded from disputing the assessments; "5. Decisions rendered by the Commissioner which are adverse to the taxpayer may be appealed by the taxpayer to the Court of Tax Appeals within thirty days from receipt thereof; otherwise the same becomes final and executory." Based on the foregoing, it is clear that the procedural due process as mandated by law, has not been properly observed in the issuance of the questioned assessment. llcd It is well settled in our jurisprudence in the case of Republic vs . De la Rama , L-21108 , November 29 , 1966 , that where a person liable for the payment of the tax did not receive the assessment, the assessment could not become final and executory. We find merit in your client's observation that when it is time to serve warrant of distraint, your client can be effectively located by the BIR Regional Office while it cannot do so at the time it was serving the deficiency assessment. Aside, Croley Foods, Manufacturing Corporation is listed with the Large Taxpayer Unit of the BIR because it is classified as one of the large taxpayers by the BIR National Office. It would appear that the Assessment Division of Revenue Region No. 7, Quezon City has not exhausted all remedies. On the other hand, since the said assessment notices were served and known only to the taxpayer after the lapse of the three (3) year period counted from the last day prescribed by law for filing of the returns required under Section 203 of the Tax Code of 1997, the right of the BIR to assess already prescribed and your client has no validly existing tax liabilities for taxable year 1995. In the case of Republic vs. Ricarte (L-46893, November 12, 1985), the Supreme Court said, "Although a subsequent notice of assessment was allegedly made and sent to appellee on January 19, 1961, it was the finding both of the former City Court of Cebu and the defunct Court of First Instance of Cebu that no evidence has been presented by the appellant that the appellee actually received a copy of the assessment notice regarding the alleged deficiency tax. Such findings, being one of fact, can no longer be reviewed by this Court. Even in the stipulation of facts entered into between the parties there is no stipulation showing that the appellant actually received the subsequent notice of assessment. Thus, the prescriptive period provided for . . . (then 5 years but now three years) should be counted from April 6, 1959, the date when the Bureau of Internal Revenue assessed the income tax return of the appellant. From the said date until the filing of the case on January 14, 1966, six years and nine months had lapsed. Verily, the action had already prescribed." Furthermore, Section 223 of the Tax Code of 1997 which provides that the running of the statute of limitation may be suspended when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed is not applicable in the instant case since the taxpayer had duly notified the BIR on its transfer of office address. Such being the case, this Office is of the opinion that the assessment notices issued by the Assessment Division of Revenue Region No. 7, Quezon City are null and void for the same were not duly and timely served and received by your client, and that since the said assessment notices were served and known only to your client after the lapse of the three (3) year period counted from the last day prescribed by law for filing of the returns required under Section 203 of the Tax Code of 1997, the right of the BIR to assess already prescribed and your client has no validly existing tax liabilities for taxable year 1995. cdll This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue