Trinity Franchising and Management Corp. v. Commissioner of Internal Revenue

THIRD DIVISION [C.T.A. CASE NO. 9398. February 11, 2021.] TRINITY FRANCHISING AND MANAGEMENT CORPORATION , petitioner , vs. THE COMMISSIONER OF INTERNAL REVENUE , respondent . DECISION UY , J p : Before this Court is a Petition for Review filed by petitioner, Trinity Franchising and Management Corporation, on July 27, 2016 against respondent, Commissioner of Internal Revenue (CIR), praying that the Court declare as invalid and cancel the deficiency income tax and value added tax (VAT) assessments for the taxable year (TY) 2009 in the aggregate amount of P83,570,970.02. THE FACTS Petitioner Trinity Franchising and Management Corporation is a corporation incorporated in the Republic of the Philippines with principal office at No. 7 Mercury Avenue corner E. Rodriguez, Jr., Bagumbayan, Quezon City. 1 On the other hand, respondent is the incumbent Commissioner of Internal Revenue who holds office at the Bureau of Internal Revenue (BIR), National Office Building, Diliman, Quezon City, where he may be served with summons. 2 On May 14, 2010, respondent issued Letter of Authority (LOA) No. LOA-116-2010-0000097 authorizing the examination of the books of accounts of petitioner for TY 2009 pursuant to the Conglomerate Audit Program under Revenue Memorandum Order (RMO) No. 36-2010. 3 During the course of the audit, three (3) Waivers of the Defense of Prescription were executed by petitioner, through its President, Arnulfo C. Romero, and accepted by respondent, through Alfredo V. Misajon, OIC Assistant Commissioner for Large Taxpayers Service, to wit: Date of Execution Stated period of Extension 1st Waiver 4 June 14, 2012 June 30, 2013 2nd Waiver 5 May 30, 2013 December 31, 2013 3rd Waiver 6 November 18, 2013 June 30, 2014 Thereafter on August 1, 2013, respondent issued a Notice of Informal Conference finding petitioner liable for deficiency income tax, VAT, expanded withholding tax (EWT) and withholding tax on compensation (WTC) in the aggregate amount of P80,367,012.27 for TY 2009. 7 CAIHTE On December 26, 2013, petitioner received from the BIR an undated Preliminary Assessment Notice (PAN), assessing petitioner of deficiency income tax, VAT, EWT and WTC, plus interest and compromise penalties for TY 2009 in the aggregate amount of P82,707,503.88. 8 In response, petitioner filed a Reply to the PAN on March 7, 2014 submitting its reconciliations, explanations and supporting documents and requesting for the cancellation of the assessment. 9 On April 21, 2014, petitioner received an undated Formal Letter of Demand (FLD), 10 with attached Audit Result/Assessment Notices 11 reiterating the assessments in the PAN assessing petitioner for deficiency income tax, VAT, EWT, and WTC, plus interest and compromise penalties for TY 2009 in the aggregate amount of P86,571,028.48. Subsequently, petitioner filed a Protest Letter to the FLD/FAN on May 21, 2014 with the BIR, 12 requesting for a reinvestigation of the findings in the FLD/FAN. On July 14, 2014, petitioner filed a Letter 13 with attached Payment Forms (BIR Form No. 0605) 14 to the BIR informing respondent of its partial payments of deficiency income tax, VAT and EWT assessments in the aggregate amount of P666,772.16. Thereafter, on June 30, 2016, petitioner received an undated Final Decision on Disputed Assessment (FDDA) with Details of Discrepancies and attached Assessment Notices 15 from respondent reiterating the deficiency income tax and VAT assessments, plus interest and compromise penalties for TY 2009 in the aggregate amount of P83,570,970.02, 16 broken down as follows, to wit: Tax Type Amount Income Tax P78,166,755.49 Value Added Tax P5,404,214.52 Total Amount Due P83,570,970.02 17 On July 27, 2016, petitioner filed the instant Petition for Review 18 assailing respondent's deficiency income tax and value added tax (VAT) assessments for the taxable year (TY) 2009 in the aggregate amount of P83,570,970.02 On September 22, 2016, respondent filed his Answer 19 interposing the following special and affirmative defenses: 1) the waivers executed by petitioner are valid and it effectively extended the period of assessment; 2) the requirement of due process was properly complied with in issuing the FLD/FAN and FDDA; and 3) petitioner is liable to pay its deficiency income tax in the amount of P78,166,755.49 and deficiency VAT in the amount of P5,404,214.52, both for TY 2009. After the Pre-Trial Conference held on July 11, 2017, 20 the parties filed their Joint Stipulation of Facts and Issues on July 31, 2017. 21 Pursuant thereto, the Court issued a Pre-Trial Order on August 15, 2017, 22 and Pre-Trial was deemed terminated. During trial, petitioner presented four (4) witnesses, namely: Adelia R. Sarmiento, 23 Maricel S. Ammogawen, 24 Mario L. Montellano, 25 and Cyre M. Clores. 26 DETACa Thereafter, petitioner filed its Formal Offer of Evidence on February 6, 2018. 27 The Court admitted mostly of petitioner's documentary evidence, except Exhibits "P-1-7-C", "P-1-7-D", "P-1-7-E", "P-1-7-F", "P-1-7-H", "P-1-13-B", "P-1-13-C", "P-1-13-D", "P-1-13-E", "P-1-13-F", "P-1-13-H", "P-1-13-I", "P-1-13-J", "P-1-13-K", and "P-1-15-A" for failure to present the originals for comparison. 28 On October 3, 2018, petitioner filed a Motion for Partial Reconsideration (of the Resolution dated 10 September 2018 on Petitioner's Formal Offer of Evidence) . 22 The Court granted petitioner's motion on February 20, 2019 and admitted "P-1-7-B", "P-1-7-G", "P1-13-G", "P-2-1" and "P-20-Q.1-ICPA to P-20-Q.42-ICPA". 30 For his part, respondent presented Revenue Officer Ruby Ann Oradia as witness. 31 Respondent then filed his Formal Offer Documentary of Evidence 32 on September 3, 2019. In the Resolution dated October 2, 2019, 33 this Court admitted all of respondent's documentary evidence. On December 9, 2019, petitioner filed its Memorandum , 34 while respondent filed his Memorandum on January 21, 2020. 35 In the Resolution dated February 27, 2020, 36 this case was submitted for Decision. Hence, this Decision. THE ISSUES The parties stipulated the following issues for this Court's resolution, to wit: " III. Stipulation of Issues 1. Petitioner respectfully submits the following issues for the resolution of the Honorable Court: a. Whether or not the deficiency income tax and VAT assessments are invalid on account of the Respondent's violation of petitioner's right to administrative due process in its tax investigation of petitioner and in the adjudication of petitioner's protest to the assessments. b. Whether or not the tax investigation and the resulting deficiency tax assessments are void on account of Respondent's failure to issue an electronic Letter of Authority in violation of Revenue Memorandum Order No. 69-2010 and Revenue Memorandum Circular No. 80-2010. c. Whether or not Petitioner is liable for the deficiency income tax assessment in the amount of Philippine Pesos: Seventy Eight Million One Hundred Sixty Six Thousand Seven Hundred Fifty Five Pesos and Forty Nine Centavos (Php78,166,755.48) for the taxable year 2009. d. Whether or not Petitioner is liable for the deficiency VAT assessment in the amount of Philippine Pesos: Five Million Four Hundred Four Thousand Two Hundred Fourteen Pesos and Fifty Two Centavos (Php5,404,214.52) for the taxable year 2009. e. Whether or not respondent's right to assess petitioner for deficiency income tax and VAT for taxable year 2009 and/or portions thereof has already prescribed. 2. Respondent respectfully submits the following issue for the resolution of the Honorable Court: a. Whether or not petitioner is estopped from questioning the validity of the waivers it voluntarily executed." 37 aDSIHc Petitioner's arguments: Petitioner argues that the subject assessment is void, erroneous and without legal and/or factual basis. Contrary to the findings stated in the FLD and FDDA that failure to present management contract caused the disallowance of certain Direct Costs, petitioner claims that it submitted the management contract as an attachment to the protest to the PAN and FLD. Petitioner argues that the reiteration of the Disallowed costs and verbatim carryover of the explanation of the nature of the disallowance in the description in the Details of Discrepancies of the PAN, FLD, and FDDA indubitably show that respondent disregarded the MDC Agreement submitted by petitioner in clear violation of petitioner's due process rights. Petitioner also asserts that the following items that resulted to deficiency income tax assessments are void for lack of legal and factual basis: (1) adjustments to income on the alleged undeclared sale from Mercury Drug, Inc., of P19,672,147.00; (2) adjustments to income on the alleged unaccounted purchases of P29,875.91; and (3) the Disallowed Cost of P174,033,820.72 Furthermore, petitioner argues that the alleged undeclared sales of P19,672,147.00 and Disallowed Input Tax of P1,556.63, that resulted to deficiency VAT assessments, are also erroneous and without legal and/or factual bases. Lastly, petitioner claims that respondent can no longer assess petitioner for deficiency income tax and VAT for 2009 because prescription had set in. Moreover, petitioner submits that the three Waivers are defective because it failed to specify the kind of taxes and their respective amounts of deficiency due, which consequently, did not extend the three (3)-year prescriptive period provided under Section 203 of the Tax Code. Respondent's counter-arguments: Respondent counter-argues that his right to assess petitioner has not prescribed as the waivers executed by and between petitioner and respondent are in the form prescribed by law, duly notarized and executed by petitioner's duly authorized representative and therefore, valid. Hence, it effectively extended the period of assessment. Moreover, respondent contends that both substantial and procedural requirements of due process were properly complied with in issuing the Formal Letter of Demand/Final Assessment Notice and Final Decision on Disputed Assessment in compliance with Section 228 of the NIRC. Allegedly, the same contained the facts and law on which the assessments were based. Finally, respondent maintains that the subject assessments were issued in accordance with law, rules, and regulations, having the presumption of correctness and regularity, which makes petitioner liable to pay its deficiency income tax in the amount of P78,166,755.49 and deficiency VAT in the amount of P5,404,214.52 for TY 2009. THE COURT'S RULING Petitioner alleges that the three (3) Waivers of Defense of Prescription are defective because it failed to specify the kind of taxes and their respective amounts of deficiency taxes that are due, which consequently, did not extend the three (3)-year prescriptive period provided under Section 203 of the Tax Code. ETHIDa We find merit in petitioner's argument. The subject Waivers are invalid for failure to indicate the kind and exact amount of the taxes to be assessed or collected. The period of limitation on the assessment of taxes is provided under Section 203 of the NIRC of 1997, which reads as follows: "SEC. 203. Period of Limitation Upon Assessment and Collection . Except as provided in Section 222 , internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return , and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period: Provided , That in a case where a return is filed beyond the period prescribed by law, the three (3)-year period shall be counted from the day the return was filed. For purposes of this Section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day." (Emphases and underscoring supplied) Based on the foregoing provision, internal revenue taxes shall be assessed by the BIR within three (3) years from the last day prescribed by law for the filing of the tax return or the actual date of filing of such return, whichever comes later. 38 An assessment notice issued after the three (3)-year prescriptive period is not valid and effective. 39 However, an exception thereto is provided under Section 222 of the NIRC of 1997, specifying the instances when the government may assess pertinent taxes against taxpayers even beyond the said three-year prescriptive period, to wit: "SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes . (a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed or a proceeding in court for the collection of such tax may be filed without assessment, at any time within ten (10) years after the discovery of the falsity, fraud or omission : Provided , That in a fraud assessment which has become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for the collection thereof. TIADCc (b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed within the period agreed upon . The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon. xxx xxx xxx" (Emphasis Supplied) Section 222 (a) pertains to the ten-year prescriptive of assessment of a false or fraudulent returns with intent to evade tax or of failure to file a return, after the discovery of the falsity, fraud or omission. While, under Section 222 (b), the three-year prescriptive period under Section 203 of the NIRC of 1997, may be extended, if before the expiration thereof, both respondent and the taxpayer have agreed in writing to its assessment, but only within the period agreed upon. Indeed, a Waiver of the Defense of Prescription is a bilateral agreement between a taxpayer and the BIR to extend the period of assessment and collection to a certain date. 40 However, it is likewise a derogation of the taxpayer's right to security against prolonged and unscrupulous investigations and thus, it must be carefully and strictly construed. 41 The Waiver must faithfully comply with the provisions of Revenue Memorandum Order (RMO) No. 20-90 and Revenue Delegation Authority Order (RDAO) No. 05-01 in order to be valid and binding. 42 In the case of Commissioner of Internal Revenue vs. La Flor Dela Isabela, Inc. ( La Flor case), 43 the Supreme Court explained the importance of indicating the nature and amount of the tax due in the Waiver, along with other information, to wit: "In Commissioner of Internal Revenue v. Systems Technology Institute, Inc. , 44 the Court had ruled that waivers extending the prescriptive period of tax assessments must be compliant with RMO No. 20-90 and must indicate the nature and amount of the tax due, to wit: These requirements are mandatory and must strictly be followed . To be sure, in a number of cases, this Court did not hesitate to strike down waivers which failed to strictly comply with the provisions of RMO 20-90 and RDAO 05-01. cSEDTC xxx xxx xxx The Court also invalidated the waivers executed by the taxpayer in the case of Commissioner of Internal Revenue v. Standard Chartered Bank , because: (1) they were signed by Assistant Commissioner Large Taxpayers Service and not by the CIR; (2) the date of acceptance was not shown, (3) they did not specify the kind and amount of the tax due ; and (4) the waivers speak of a request for extension of time within which to present additional documents and not for reinvestigation and/or reconsideration of the pending internal revenue case as required under RMO No. 20-90. Tested against the requirements of RMO 20-90 and relevant jurisprudence, the Court cannot but agree with the CTA's finding that the waivers subject of this case suffer from the following defects: xxx xxx xxx 3. Similar to Standard Chartered Bank , the waivers in this case did not specify the kind of tax and the amount of tax due. It is established that a waiver of the statute of limitations is a bilateral agreement between the taxpayer and the BIR to extend the period to assess or collect deficiency taxes on a certain date. Logically there can be no agreement if the kind and amount of the taxes to be assessed or collected were not indicated . Hence, specific information in the waiver is necessary for its validity. (Emphasis supplied) In the present case, the September 3, 2008, February 16, 2009 and December 2, 2009 Waivers failed to indicate the specific tax involved and the exact amount of the tax to be assessed or collected . As above-mentioned, these details are material as there can be no true and valid agreement between the taxpayer and the CIR absent these information. Clearly, the Waivers did not effectively extend the prescriptive period under Section 203 on account of their invalidity . The issue on whether the CTA was correct in not admitting them as evidence becomes immaterial since even if they were properly offered or considered by the CTA, the same conclusion would be reached the assessments had prescribed as there was no valid waiver ." (Emphases and underscoring supplied) Applying the foregoing pronouncement of the Supreme Court to the instant case, to validly extend the three-year prescriptive period for the BIR to issue a tax assessment, it is required, inter alia , that a Waiver must indicate the nature and the amount of the tax due . Said details are material as there can be no true and valid agreement between the tax and respondent absent this information. In this case, a perusal of the subject Waivers 45 reveals that the kind and exact amount of the taxes to be assessed or collected are not indicated therein. Hence, based on the pronouncement in the La Flor case, the said Waivers are invalid. Consequently, the same could not have extended the three-year prescriptive period under Section 203 of the NIRC of 1997. The subject Waivers are reproduced as follows: ILLEGIBLE PORTION Considering now that the subject Waivers are invalid, it becomes material to determine whether or not the assailed tax assessments were issued within the pertinent three-year prescriptive period to assess the subject deficiency taxes under Section 203 of the NIRC of 1997. As previously mentioned, Section 203 of the NIRC of 1997, as amended, states that the three-year prescriptive period commences from the last day prescribed by law for the filing of the tax return or the actual date of filing of such return, whichever comes later. SDAaTC In relation thereto, We refer to the specific provisions of the law prescribing the period within which to file the pertinent tax returns vis-a-vis the date of filing of the said tax returns by petitioner, to determine the commencement and end of the three-year prescriptive period under Section 203 of the NIRC of 1997 for the instant case. For the filing of corporate income tax returns, Section 77 (B) of the NIRC of 1997, as amended, provides as follows: "SEC. 77. Place and Time of Filing and Payment of Quarterly Corporate Income Tax . xxx xxx xxx (B) Time of Filing the Income Tax Return . The corporate quarterly declaration shall be filed within sixty (60) days following the close of each of the first three (3) quarters of the taxable year. The final adjustment return shall be filed on or before the fifteenth (15th) day of April , or on or before the fifteenth (15th) day of the fourth (4th) month following the close of the fiscal year, as the case may be." (Emphases added) Based on the foregoing, the Annual Income Tax Return for taxable year 2009 should be filed on or before April 15, 2010. With regard to the filing of quarterly VAT returns, Section 114 (A) of the NIRC of 1997, as amended, reads: "SEC. 114. Return and Payment of Value-Added Tax . (A) In General . Every person liable to pay the value-added tax imposed under this Title shall file a quarterly return of the amount of his gross sales or receipts within twenty-five (25) days following the close of each taxable quarter prescribed for each taxpayer . Provided, however , That VAT-registered persons shall pay the value-added tax on a monthly basis." (Emphasis added) Based on the foregoing provisions, the filing deadlines of petitioner's Quarterly VAT Returns for the four (4) quarters of taxable year 2009 should be on or before: (1) April 25, 2009, for the 1st quarter; (2) July 25, 2009, for the second quarter; (3) October 25, 2009, for the 3rd quarter; and (4) January 25, 2010, for the 4th quarter. In sum, for purposes of the subject tax assessments of deficiency income tax, and VAT against petitioner for TY 2009, the end of the three-year prescriptive period under Section 203 of the NIRC of 1997, is respectively summarized as follows: Type of Tax and Period Actual date of filing of the pertinent tax return Reckoning date of the three-year prescriptive period 46 Last day of the three-year period to assess Income Tax Return TY 2009 April 14, 2010 47 April 15, 2010 April 15, 2013 Quarterly VAT Return 1st Quarter 2009 April 21, 2009 48 April 25, 2009 April 25, 2012 Quarterly VAT Return 2nd Quarter 2009 July 24, 2009 49 July 25, 2009 July 25, 2012 Quarterly VAT Return 3rd Quarter 2009 October 27, 2009 50 October 25, 2009 October 25, 2012 Quarterly VAT Return 4th Quarter 2009 January 25, 2010 51 January 25, 2010 January 25, 2013 Considering that petitioner received the FLD with attached Audit Result/Assessment Notices only on April 21, 2014, 52 the same was received beyond the respective three-year prescriptive period under Section 203 of the NIRC of 1997. Therefore, the assessments for deficiency income tax and VAT are void. acEHCD The subject tax assessments are void for failure to state the facts and law upon which the same are based. Section 228 of the NIRC of 1997 provides, in part, as follows: "SEC. 228. Protesting of Assessment . x x x 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 ." (Emphasis added) It is clear from the foregoing provision that the BIR is mandated to inform taxpayers, in writing, of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. Relative thereto is Section 3.1.3 of Revenue Regulations (RR) No. 12-99, as amended by RR No. 18-2013, 53 which is quoted herein below: "SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax Assessment . 3.1 Mode of procedure in the issuance of a deficiency tax assessment: xxx xxx xxx 3.1.3 Formal Letter of Demand and Final Assessment Notice (FLD/FAN) . The Formal Letter of Demand and Final Assessment Notice (FLD/FAN) shall be issued by the Commissioner or his duly authorized representative. The FLD/FAN 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 assessment shall be void (see illustration in ANNEX 'B' hereof). x x x." (Emphases and underscoring added) The foregoing provision prescribes that as part of due process in the issuance of tax assessments, the FLD/FAN must state, among others, the facts on which the assessment is based; otherwise, the FLD/FAN shall be void. In this case, as stated in the PAN, 54 the BIR ascertained that petitioner have deficiency taxes as follows, to wit: Basic Interest Compromise Penalty Total Income tax P39,914,151.12 P30,296,437.26 50,000.00 P70,260,588.38 VAT 5,739,545.93 4,608,166.64 50,000.00 10,397,712.57 EWT 989,406.41 802,497.65 12,000.00 1,803,904.06 WTC 128,816.83 104,482.04 12,000.00 245,298.87 Total P46,771,920.29 P35,811,583.59 P124,000.00 P82,707,503.88 As indicated in the same PAN, the following are the significant findings of the BIR, to wit: 1) For the deficiency income tax : a) Unaccounted income from unaccounted compensation declared 1601C P20,802,118.95; b) Undeclared sales gathered from TPI (per AITIED) P19,716,991.75; c) Unaccounted income from unaccounted purchases gathered from 1604E P2,250,925.91; d) Unaccounted income from unaccounted sources of input taxes P4,941,425.87; and e) Disallowed Costs P174,033,820.72 2) For the deficiency VAT : a) Unaccounted income from unaccounted compensation declared in 1601C P20,802,118.95; b) Undeclared receipts gathered from TPI (AITIED) P19,672,146.75; SDHTEC c) Unaccounted income from unaccounted purchases gathered from 1604E P2,250,925.91; d) Unaccounted income from unaccounted sources of input tax P4,941,425.87; and e) Input tax from non-vatable supplier P19,551.86 3) For the deficiency EWT a) Basic deficiency tax P989,406.41 4) For the deficiency WTC a) Unremitted withholding basic tax P128,816.83 In reply to the same PAN, petitioner filed the letter dated March 7, 2014 with the BIR, 55 refuting, or explaining against, the above-stated findings, and offering certain documents in support thereof. However, in the FLD, 56 and Assessment Notices , 57 petitioner was still assessed the following deficiency tax liabilities, to wit: Basic Tax Interest Compromise Penalty Total Income tax P39,914,151.12 P33,593,505.80 P50,000.00 P73,557,656.92 VAT 5,739,545.93 5,082,247.39 50,000.00 10,871,793.32 EWT 989,406.41 884,231.52 12,000.00 1,885,637.94 WTC 128,816.83 115,123.47 12,000.00 255,940.30 Total P46,771,920.29 P41,675,108.18 P124,000.00 P86,571,028.48 It is noteworthy that the foregoing assessments are exactly based on the above-stated significant findings as stated in the PAN. The only difference between the said PAN and the subject FLD/ Assessment Notices is that the amounts of interest were adjusted. The respective basic tax due substantially remained the same. In other words, the BIR merely reiterated the same findings as stated in the said PAN, without giving any reason for rejecting the refutations and explanations made by petitioner in its letter dated March 7, 2014. To stress, without addressing the said refutations and explanations, the BIR did not give the particular facts upon which the FLD/ Assessment Notices are based. Consequently, petitioner was left unaware on how respondent or the BIR appreciated the explanations or defenses he raised against the subject PAN, in clear violation of petitioner's right to administrative due process, thereby rendering the subject tax assessments void. In the case of Commissioner of Internal Revenue vs. Avon Products Manufacturing, Inc. , (" Avon case"), 58 the Supreme Court's disquisition is instructive, to wit: " Tax assessments issued in violation of the due process rights of a taxpayer are null and void . While the government has an interest in the swift collection of taxes, the Bureau of Internal Revenue and its officers and agents cannot be overreaching in their efforts, but must perform their duties in accordance with law, with their own rules of procedure, and always with regard to the basic tenets of due process . xxx xxx xxx The importance of providing the taxpayer with adequate written notice of his or her tax liability is undeniable . Under Section 228, it is explicitly required that the taxpayer be informed in writing of the law and of the facts on which the assessment is made; otherwise, the assessment shall be void . Section 3.1.2 of Revenue Regulations No. 12-99 requires the Preliminary Assessment Notice to show in detail the facts and law, rules and regulations, or jurisprudence on which the proposed assessment is based. Further, Section 3.1.4 59 requires that the Final Letter of Demand must state the facts and law on which it is based; otherwise, the Final Letter of Demand and Final Assessment Notices themselves shall be void . x x x. AScHCD ' The use of the word 'shall' in Section 228 of the [National Internal Revenue Code] and in [Revenue Regulations] No. 12-99 indicates that the requirement of informing the taxpayer of the legal and factual bases of the assessment and the decision made against him [or her] is mandatory.' This is an essential requirement of due process and applies to the Preliminary Assessment Notice, Final Letter of Demand with the Final Assessment Notices , and the Final Decision on Disputed Assessment. xxx xxx xxx The facts demonstrate that Avon was deprived of due process. It was not fully apprised of the legal and factual bases of the assessments issued against it . The Details of Discrepancy attached to the Preliminary Assessment Notice, as well as the Formal Letter of Demand with Final Assessment Notices, did not even comment or address the defenses and documents submitted by Avon. Thus, Avon was left unaware on how the Commissioner or her authorized representatives appreciated the explanations or defenses raised in connection with the assessments . There was clear inaction of the Commissioner at every stage of the proceedings. xxx xxx xxx In Commissioner of Internal Revenue v. Reyes , 60 this Court ruled as void an assessment for deficiency estate tax issued by the Commissioner for failure to inform the taxpayer of the law and the facts on which the assessment was made, in violation of Section 228 of the Tax Code . (Emphases and underscoring added) Based on the foregoing, in issuing tax assessments, respondent or his duly authorized representative is mandated to perform their duty in accordance with, and in strict adherence to the law, their own rules of procedure, and always with regard to the basic tenets of due process. In case respondent or his duly authorized representative fails to observe due process, it shall have the effect of rendering the deficiency tax assessment void and of no force and effect. Moreover, a significant part of the due process requirement in the issuance of tax assessments is that the concerned taxpayer must be informed, in writing, of the law and of the facts on which the assessment is made. Such requirement must be embodied in the FLD/FAN. Specifically, respondent must give the particular facts upon which his or her conclusions are based, and those facts must appear in the record. As a corollary, the concerned taxpayer must not be left unaware on how the respondent or his duly authorized representatives appreciated the explanations or defenses raised in connection with the assessment. It bears stressing that in case respondent or his duly authorized representative fails or effectively fails to observe the foregoing due process requirements, it shall have the effect of rendering the assessment and collection of the pertinent deficiency tax void. In view of the findings that the subject tax assessments are invalid for having been issued in violation of petitioner's right to due process, the same therefore bear no valid fruit. 61 Consequently, it becomes unnecessary to address the issues or matters raised by the parties. WHEREFORE , in light of the foregoing considerations, the Instant Petition for Review is GRANTED . Accordingly, the assailed FLD and Assessment Notices issued against petitioner for deficiency income tax, VAT, EWT and WTC for taxable year 2009, are CANCELLED and SET ASIDE . AcICHD SO ORDERED. (SGD.) ERLINDA P. UY Associate Justice Ma. Belen M. Ringpis-Liban, J. , concurs. Maria Rowena Modesto-San Pedro, J. , with concurring and dissenting opinion. Separate Opinions MODESTO-SAN PEDRO , J., concurring and dissenting opinion : I concur with the ponencia in granting the Petition for Review and finding the subject tax assessments void for violating petitioner's right to administrative due process. However, I respectfully disagree on the conclusion reached in the ponencia that the waivers are invalid for failure to indicate the kind and exact amount of taxes to be assessed or collected. The exceptions of the period of limitation to assess and collect taxes are provided in Section 222 of the National Internal Revenue Code, as amended , which pertinently provides: "Section 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. (a) . . . (b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed within the period agreed upon . The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon. (c) . . . (d) Any internal revenue tax, which has been assessed within the period agreed upon as provided in paragraph (b) hereinabove, may be collected by distraint or levy or by a proceeding in court within the period agreed upon in writing before the expiration of the five (5)-year period . The period so agreed upon may be extended by subsequent written agreements made before the expiration of the period previously agreed upon. xxx xxx xxx" 1 The Supreme Court first summarized the requisites of a valid waiver in Commissioner of Internal Revenue v. Kudos Metal Corporation , 2 as follows: "1. The waiver must be in the proper form prescribed by RMO 20-90. The phrase "but not after _____ 19 ___," which indicates the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of prescription, should be filled up. 2. The waiver must be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation, the waiver must be signed by any of its responsible officials. In case the authority is delegated by the taxpayer to a representative, such delegation should be in writing and duly notarized. 3. The waiver should be duly notarized. 4. The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has accepted and agreed to the waiver. The date of such acceptance by the BIR should be indicated. However, before signing the waiver, the CIR or the revenue official authorized by him must make sure that the waiver is in the prescribed form, duly notarized, and executed by the taxpayer or his duly authorized representative. TAIaHE 5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed. 6. The waiver must be executed in three copies, the original copy to be attached to the docket of the case, the second copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the taxpayer of his/her file copy must be indicated in the original copy to show that the taxpayer was notified of the acceptance of the BIR and the perfection of the agreement." In relation to the first requirement, a new waiver form was introduced in Revenue Delegation Authority (RDAO) No. 05-01 which revised the form previously prescribed in Revenue Memorandum Order (RMO) No. 20-90 . Thereafter, Revenue Memorandum Circular (RMC) No. 29-12 clarified and reiterated that the form prescribed in RMO No. 20-90 should no longer be used as the same has been revised per RDAO No. 05-01 . The three (3) waivers in the instant case were executed on 14 June 2012, 30 May 2013, and 18 November 2013. Thus, the waiver form prescribed in RDAO No. 05-01 is applicable. A perusal of the waiver form in RDAO No. 05-01 shows that the exact amount of taxes is not required but the kind of tax liabilities should be indicated. The waiver form in RDAO No. 05-01 is reproduced below: WAIVER OF THE DEFENSE OF PRESCRIPTION UNDER THE STATUTE OF LIMITATIONS OF THE NATIONAL INTERNAL REVENUE CODE I, _______________ of __________________________ request for approval by the Commissioner of Internal Revenue for more time to submit the documents required in connection with the investigation/reinvestigation/re-evaluation/collection enforcement of my/its ______________________ tax liabilities for the year ________. I/We hereby waive the defense of prescription under the statute of limitations prescribed in Sections 203 and 222, and other related provisions of the National Internal Revenue Code, and consent to the assessment and/or collection of tax or taxes of said year which may be found due after investigation/reinvestigation/re-evaluation at any time before or after the lapse of the period of limitations fixed by said sections of the National Internal Revenue Code but not later than _______. The intent and purpose of this waiver is to afford the Commissioner of Internal Revenue ample time to carefully consider the legal and/or factual questions involved in the determination of the aforesaid tax liabilities. It is understood, however, that the undersigned taxpayer/taxpayer represented below, by the execution of this waiver, neither admits in advance the correctness of the assessment/assessments which may be made for the year above-mentioned nor waives the right to use any legal remedies accorded by law to secure a credit or refund of such tax that may have been paid for the same year pursuant to the provisions of Sections 204 and 229 of the National Internal Revenue Code. The period so stated herein may be extended by subsequent waiver in accordance with existing rules and regulations of the Bureau of Internal Revenue. cDHAES Executed this _____ day of ___________ in ____________ Philippines. _________________________________ TAXPAYER OR DULY AUTHORIZED SIGNATORY _____________________ POSITION ______________________ WITNESS ACCEPTED BY: Commissioner of Internal Revenue By: ______________________________ REVENUE OFFICIAL/POSITION _______ _________ OFFICE DATE Republic of the Philippines) S.S. ______________________) ACKNOWLEDGMENT In the City of __________, on this ____ day of __________, personally appeared before me ____________, with (government issued identification) No. ____ issued at ______ on __________, in his/her capacity as ____________ of __________, known to me and to me known to be the same person who executed the foregoing waiver for and in behalf of the said taxpayer, and he/she acknowledged to me that the same is the voluntary act and deed of _____________________, and that he/she is duly authorized to sign the same. WITNESS MY HAND AND SEAL at the place and on the date first above written. Notary Public Until ________ PTR No. _____ Issued at _____ On __________ Doc. No. _____ Page No. _____ Book No. ____ Series No. ____" In the present case, petitioner's President executed the three (3) waivers on 14 June 2012, 30 May 2013, and 18 November 2013 and stated therein: ". . . in connection with the investigation/reinvestigation/re-evaluation/collection enforcement of my/its all internal revenue tax liabilities for the year 2009. . . ." 3 In view of the foregoing, I respectfully disagree to the finding that the waivers in this case are void for failure to specify the kind of taxes to be assessed. I find the description "all internal revenue tax liabilities" to be sufficient. In fact, the Letter of Authority likewise indicates that the examination of books of accounts and other accounting records is for " all internal revenue taxes for the period from January 1, 2009 to December 31, 2009" and the same has been found to be sufficient. ASEcHI Thus, I find no reason to invalidate the waivers for failure to specify the kind of taxes to be assessed or collected. Footnotes 1. Note 1 Corporate Information, Notes to Financial Statements, Exhibit "P-1-27", Docket Vol. II, p. 979. 2. Par. 1, Summary of Admitted Facts, Joint Stipulation of Facts and Issues (JSFI), Docket Vol. II, p. 680. 3. Par. 2, Summary of Admitted Facts, JSFI, Docket Vol. II, p. 680; Exhibit "P-1-1", Docket Vol. II, p. 869; Exhibits "R-1", BIR Records, p. 3. 4. Exhibit "P-1-2", Docket Vol. II, p. 870; Exhibit "R-12", BIR Records, p. 320. 5. Exhibit "P-1-3", Docket Vol. II, p. 871; Exhibit "R-13", BIR Records, p. 321. 6. Exhibit "P-1-5", Docket Vol. II, p. 878; Exhibit "R-14", BIR Records, p. 322. 7. Par. 3, Summary of Admitted Facts, JSFI, Docket Vol. II, p. 680; Common Exhibits "P-1-4" and "R4", BIR Records, pp. 294 to 300. 8. Exhibit "P-1-6", Docket Vol. II, pp. 879 to 884; Exhibit "R-6", BIR Records, pp. 311 to 316. 9. Exhibits "P-1-7" to "P-1-7-H", Docket Vol. II, pp. 885 to 897. 10. Par. 4, Summary of Admitted Facts, JSFI, Docket Vol. II, pp. 680 to 681; Exhibit "P-1-8", Docket Vol. II, pp. 898 to 903; Exhibit "R-9", BIR Records, pp. 338 to 343. 11. Exhibit "P-1-9" to "P-1-12", Docket Vol. II, pp. 904 to 907; Exhibit "R-9", BIR Records, pp. 334 to 337. 12. Exhibit "P-1-13", Docket Vol. II, pp. 908 to 920. 13. Exhibit "P-1-14", Docket Vol. II, p. 933. 14. Exhibit "P-14-C" to "P-14-E", Docket Vol. II, pp. 935 to 937. 15. Exhibit "P-1-16", Docket Vol. II, pp. 949 to 954; Exhibit "R-11", BIR Records, pp. 750 to 755. 16. Par. 5, Summary of Admitted Facts, JSFI, Docket Vol. II, p. 681. 17. There is .01 discrepancy in the total amount. 18. Docket Vol. I, pp. 10 to 25. 19. Docket Vol. I, pp. 130 to 140. 20. Minutes of the hearing and Order dated July 11, 2017, Docket Vol. II, 672 to 674. 21. Docket Vol. II, pp. 680 to 688. 22. Docket Vol. II, pp. 690 to 701. 23. Exhibit "P-1", Docket Vol. II, pp. 835 to 868. 24. Exhibit "P-4", Docket Vol. II, pp. 795 to 805. 25. Exhibit "P-3", Docket Vol. III, pp. 1051 to 1064. 26. Exhibit "P-2", Docket Vol. III, pp. 1017 to 1033. 27. Docket Vol. II, pp. 810 to 834. 28. Resolution dated September 10, 2018, Docket Vol. III, pp. 1082 to 1084. 29. Docket Vol. III, pp. 1085 to 1099. 30. Docket Vol. III, pp. 1109 to 1116. 31. Exhibit "R-15", Docket Vol. I, pp. 660 to 666. 32. Docket Vol. III, pp. 1132 to 1139. 33. Docket Vol. III, pp. 1150 to 1151. 34. Docket Vol. III, pp. 1168 to 1223. 35. Docket Vol. III, pp. 1239 to 1252. 36. Docket Vol. III, p. 1260. 37. Stipulation of Issues, JSFI, Docket Vol. II, pp. 682 to 683. 38. Commissioner of Internal Revenue vs. Kudos Metal Corporation , G.R. No. 178087, May 5, 2010. 39. Commissioner of Internal Revenue vs. Next Mobile, Inc. , G.R. No. 212825, December 7, 2015. 40. Commissioner of Internal Revenue vs. Avon Products Manufacturing, Inc., et seq. , G.R. Nos. 201398-99 and 201418-19, October 3, 2018. 41. Id. , citing Commissioner of Internal Revenue vs. Kudos Metal Corporation, supra . 42. Commissioner of Internal Revenue vs. Next Mobile, Inc., supra . 43. G.R. No. 211289, January 14, 2019. 44. G.R. No. 220835, July 26, 2017. 45. Exhibits "P-1-2", "P-1-3", Exhibit "P-1-5", Docket Vol. II, pp. 870, 871, 878; Exhibits "R-12", "R-13" and "R-14", BIR Records, pp. 320 to 322. 46. The last day prescribed by law for the filing of the tax return or actual date of filing the same, whichever comes later. 47. Exhibit "P-1-17", Docket Vol. II, pp. 955 to 962. 48. Exhibit "P-1-19", Docket Vol. II, p. 964. 49. Exhibit "P-1-20", Docket Vol. II, p. 965. 50. Exhibit "P-1-21", Docket Vol. II, p. 966. 51. Exhibit "P-1-22", Docket Vol. II, p. 967. 52. Exhibit "P-1-8", Docket Vol. II, pp. 898 to 907; Exhibit "R-9", BIR Records, pp. 334 to 343. 53. RR No. 12-99: SUBJECT: Implementing the Provisions of the National Internal Revenue Code of 1997 Governing the Rules on Assessment of National Internal Revenue Taxes, Civil Penalties and Interest and the Extra-Judicial Settlement of a Taxpayers Criminal Violation of the Code Through Payment of a Suggested Compromise Penalty RR No. 18-2013: SUBJECT: Amending Certain Sections of Revenue Regulations No. 12-99 Relative to the Due Process Requirement in the Issuance of a Deficiency Tax Assessment. 54. Exhibit "P-1-6", Docket Vol. II, pp. 879 to 884; Exhibit "R-6", BIR Records, pp. 311 to 316. 55. Exhibits "P-1-7" to "P-1-7-H", Docket Vol. II, pp. 885 to 897. 56. Exhibit "P-1-8", Docket Vol. II, pp. 898 to 903; Exhibit "R-9", BIR Records, pp. 338 to 343. 57. Exhibit "P-1-9" to "P-1-12", Docket Vol. II, pp. 904 to 907; Exhibit "R-9", BIR Records, pp. 334 to 337. 58. G.R. Nos. 201398-99 and 201418-19, October 3, 2018. 59. Now Section 3.1.3 of RR No. 12-99, as amended by RR No. 18-2013. 60. 516 Phil. 176 (2006). 61. Commissioner of Internal Revenue vs. Pilipinas Shell Petroleum Corporation , G.R. Nos. 197945 and 204119-20, July 9, 2018, citing Commissioner of Internal Revenue vs. Reyes , G.R. Nos. 159694 and 163581, January 27, 2006. MODESTO-SAN PEDRO, J., concurring and dissenting opinion: 1. Emphasis and underscoring supplied. 2. G.R. No. 178087, 5 May 2010 citing Philippine Journalists, Inc. 3. Emphasis and underscoring supplied.