Commissioner of Internal Revenue v. Barcelon, Roxas Securities, Inc.

SIXTH DIVISION [CA-G.R. SP No. 60209. July 11, 2002.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . BARCELON, ROXAS SECURITIES, INC. (Now Known as UBP SECURITIES, INC.) , respondent . D E C I S I O N VIDALLON-MAGTOLIS , J p : Assailed in this Petition for Review are the following: (a) Decision 1 dated May 17, 2000 of the Court of Tax Appeals in CTA Case No. 5662 entitled, " Barcelon, Roxas Securities, Inc. (now known as UBP Securities, Inc.) vs. Commissioner of Internal Revenue", cancelling the assessment issued against herein respondent for deficiency income tax in the amount of P826,698.31 for the year 1987; and (b) Resolution 2 dated July 25, 2000 denying herein petitioner's Motion for Reconsideration of the said decision. ANTECEDENT FACTS On February 1, 1991, petitioner Commissioner of Internal Revenue (CIR) issued an assessment 3 against respondent, Barcelon, Roxas Securities, Inc., in the amount of P826,698.31 as deficiency income tax for the year 1987. On February 6, 1991, the assessment was allegedly sent to the respondent by registered mail, and on March 17, 1992 a Warrant of Distraint and/or Levy was served on said respondent to enforce collection of the assessment. In a letter 4 dated March 20, 1992, the respondent requested that the execution of the aforesaid warrant be held in abeyance and that the records of the case be referred to the BIR's appellate division for administrative hearings on the merits of the assessment. The respondent further averred that the disallowed salaries, bonuses and allowances in the total amount of P1,219,093.93 which is the sole basis of the assessment pertain to fringe benefits given to its employees which are not subject to withholding tax as well as reimbursement of its share of overhead expenses based on its cost sharing agreement with Union Bank of the Philippines. Thus, respondent moved for an additional period of time within which to submit its supporting documents. The petitioner, however, denied the respondent's request through a letter 5 dated April 30, 1998, which the latter received on July 3, 1998. On July 31, 1998, the respondent filed with the Court of Tax Appeals (CTA) a Petition for Review 6 seeking the cancellation of the assessment. On even date, the petitioner filed its Answer and on September 23, 1998, its Amended Answer to the petition. On May 17, 2000, the CTA rendered its assailed decision, the dispositive portion of which reads as follows: "WHEREFORE, in view of the foregoing, the 1988 (sic) deficiency tax assessment against petitioner is hereby CANCELLED. Respondent is hereby ORDERED TO DESIST from collecting said deficiency tax. No pronouncement as to costs. "SO ORDERED." 7 On June 6, 2000, the petitioner filed a Motion for Reconsideration of said decision which was denied by the CTA in a Resolution dated July 25, 2000. Hence, the petitioner elevated the case to us through this petition, premised on the following: 1) THE TAX COURT ERRED IN HOLDING THAT PETITIONER FAILED TO PRESENT EVIDENCE TO PROVE THAT THE ASSESSMENT WAS IN FACT ISSUED OR SENT TO PETITIONER (sic). 2) THE TAX COURT ERRED IN HOLDING THAT THE GOVERNMENT'S RIGHT TO ASSESS HAS PRESCRIBED. 3) THE TAX COURT ERRED IN ALLOWING RESPONDENT TO RAISE FOR THE FIRST TIME ON APPEAL THE ISSUE THAT IT DID NOT RECEIVE THE ASSESSMENT DESPITE THE FACT THAT IT DID NOT RAISE SAID ISSUE IN THE ADMINISTRATIVE LEVEL. 4) THE TAX COURT ERRED IN HOLDING THAT RESPONDENT'S DENIAL OF RECEIPT OF THE ASSESSMENT HAS OVERCOME THE PRESUMPTION THAT IT WAS RECEIVED IN THE REGULAR COURSE OF MAIL. 5) THE TAX COURT ERRED IN NOT APPLYING THE PRESUMPTION OF VALIDITY OF THE ASSESSMENT. PETITIONER'S ARGUMENTS The petitioner submits that the respondent was duly informed of the tax assessment. The BIR record book shows that the 1987 deficiency income tax assessment notice was mailed by registered mail to the respondent on February 6, 1991. Unfortunately, the copy of the registry receipt no. 4-26-A corresponding to the said mail could not be retrieved anymore. At any rate, the petitioner argues that, the said BIR record book is an official record and the entries therein made by a public officer in the performance of his duty are prima facie evidence of the facts stated therein. And since no contrary evidence was presented by the respondent to rebut the fact of mailing, the presumption in Section 3 (V), Rule 131 of the Rules of Court that the assessment was received by the respondent in the regular course of mailing, applies. Besides, in its letter dated March 25, 1992, the respondent impliedly admitted having received the questioned assessment notice. In fact, the respondent even asked for time to submit the pertinent documents in support of its claim that portions of the amount assessed are not subject to withholding tax. aCHDST Moreover, contrary to the findings of the tax court, it is not the receipt of the assessment by the taxpayer which determines whether or not the assessment was issued within the prescriptive period, but the releasing, mailing and the fact of sending of the assessment, even if the same was received by the taxpayer after the expiration of the prescriptive period. Thus, the questioned assessment notice having been sent to the respondent on February 6, 1991, i.e., within 3 years from the filing of the respondent's 1987 annual income tax return on April 4, 1988, prescription has not set in. Furthermore, the issue of non-receipt of the notice of assessment by the respondent was not raised in the administrative forum; hence, the same cannot be raised for the first time on appeal. Finally, other than self-serving allegations, the respondent failed to substantiate with documentary evidence its claim that part of the amount disallowed as an expense pertains to non-taxable fringe benefits given to its employees which are not subject to withholding tax on compensation and that some pertain to the reimbursement of its share of overhead expenses based on its cost sharing arrangement with the Union Bank of the Philippines. RESPONDENT'S ARGUMENTS In refutation, the respondent argues that, considering that the receipt of the notice of assessment is at issue, it is incumbent upon the petitioner to prove by competent evidence that such notice was indeed received by the addressee. The onus probandi was shifted to the petitioner to prove by contrary evidence that the respondent received the assessment in due course of mail. As it is, the petitioner has utterly failed to discharge this duty. In fact, the BIR record book itself does not sufficiently establish receipt of the notice by the respondent. As correctly observed by the tax court, all the entries therein appear to be immaterial and impertinent in proving that the assessment notice was mailed and duly received by the respondent. And in order to duly prove the fact of mailing, the petitioner could have presented the registry receipt issued by the Bureau of Posts and/or the registry return card signed by the respondent or its authorized representative, or at the very least, a certification from the Bureau of Posts that the document was mailed and received by the respondent. Moreover, the presumption that a letter duly directed and mailed was received in the regular course of mail does not arise when there is no actual proof that the letter was placed in the mail or that the customary practice was followed. It must be shown too that the addressee's name and address where substantially correct on the envelope. In this case, no proof of receipt was presented in evidence. Thus, there being no notice of assessment and having been duly notified of the alleged deficiency tax only when served with the warrant of distraint and levy on March 17, 1992, the respondent reiterates that the three-year period for the government's right to assess, reckoned from the filing of the respondent's annual income tax return on April 14, 1988, has prescribed. The respondent further contends that the defense of prescription may be raised for the first time on appeal as long as the same is alleged on the face of the pleading and duly supported by evidence establishing the date when the period started to run and when it ended. Where the action is barred by time and it is clear from the pleading that this is so, like in this case, the action may be properly dismissed by the court. In addition, the respondent maintains that the validity of the assessment cannot be based on presumptions. The petitioner must prove the actual receipt by the respondent of the formal notice of assessment containing the amount due as a tax and the demand for payment thereof. Mere implied knowledge of the petitioner that an assessment has been issued does not constitute notice, and the warrant of distraint and levy does not and cannot be substitute for the tax assessment; otherwise, the right to due process may be violated. THE ISSUES The issues in this case may be capsulized as follows: a) the effectivity of the service of the assessment notice upon the respondent; and b) the propriety and validity of the deficiency income tax assessment. THE COURT'S RULING The petition is impressed with merit. In the recent case of Protector's Services, Inc. vs. Court of Appeals , 8 the Supreme Court upheld the findings of the tax court that when a mail matter is sent by registered mail, there exists a presumption that it was received in the regular course of the mail. And, the only facts to be proved to raise 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. The aforesaid ruling is in consonance with the ruling of the High Court in the old case of Basilan Estate Inc . vs . Commissioner of Internal Revenue , 9 that the assessment is deemed mailed when notice to this effect is released, mailed or sent by the Collector of Internal Revenue to the taxpayer, and it is not required that the notice be received by the taxpayer within the prescriptive period. In the case at bar, the respondent's denial of its receipt of the 1987 deficiency tax assessment notice was negated when the petitioner presented the BIR record book which shows that the aforesaid notice was mailed to the respondent by registered mail on February 6, 1987. It was further buttressed by the testimony of the petitioner's records custodian, Ingrid Versola, that the 1987 assessment was mailed to the respondent by registered mail, as in fact she entered the fact of mailing of the notice in the petitioner's record book, noting therein the registry receipt number and the date when the document was mailed to the respondent. Presumably, it was received in the regular course of the mail, and such legal presumption was not overturned by the respondent. On the matter of prescription, Section 203 (as amended by B.P. Blg. 700) of the Tax Code provides: "Except as provided in the succeeding section, internal revenue taxes shall be assessed within three 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-year period shall be counted from the day the return was filed. For the 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." Thus, since the questioned assessment notice was sent to the respondent on February 6, 1991, which is within 3 years from the filing of the respondent's 1987 annual income tax return on April 14, 1988, the assessment has not as yet prescribed. Anent the validity and propriety of the assessment, the record is bereft of any evidence showing that the respondent's claim that part of the amount disallowed as an expense pertains to non-taxable fringe benefits given to its employees which are not subject to withholding tax on compensation and others pertain to the reimbursement of its share of overhead expenses based on its cost sharing arrangement with the Union Bank of the Philippines. He who alleges a fact has the burden of proving it and a mere allegation is not evidence. 10 Indeed, it is a basic rule in taxation that the factual findings of the tax court, when supported by substantial evidence, will not be disturbed on appeal unless it is shown that the said court committed gross error in the appreciation of facts. In this case, we find the exception applicable. In light of the foregoing, we find cogent reason to reverse and set aside the finding of the tax court. WHEREFORE, the petition is hereby GRANTED. The decision dated May 17, 2000 as well as the Resolution dated July 20, 2000 are hereby REVERSED and SET ASIDE, and a new one entered ordering the respondent to pay the amount of P826,698.31 as deficiency income tax for the year 1987 plus 25% surcharge and 20% interest per annum from February 6, 1991 until fully paid pursuant to Sections 248 and 249 of the Tax Code. SO ORDERED. Rivera and Pestao, JJ . , concur. Footnotes 1. Rollo , p. 25 2. Id . at p. 36. 3. Id . at p. 40. 4. Id . at p. 45. 5. Id . at p. 46. 6. Id . at p. 47. 7. Id . at p. 34. 8. 330 SCRA 404, 414, 415 9. 21 SCRA 17, 20, cited in the National Internal Revenue Code Annotated, Hector de Leon, 1994 ed., p. 557. 10. Luxuria Homes, Inc. vs. Court of Appeals, 302 SCRA 315, 325.