Commissioner of Internal Revenue v. Fontanar

SEVENTH DIVISION [CA-G.R. SP No. 83420. July 22, 2005.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . CLEMENTE FONTANAR , respondent . D E C I S I O N ROXAS, V.Q. , J p : Legal Principle in this Case : The ultimate purpose of assessment is to ascertain the amount that each taxpayer is to pay. An assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period. Although internal revenue taxes are self-assessing and no further assessment by the government is required to create the tax liability, an assessment is not altogether insignificant because it is important in the proper pursuit of judicial and extra judicial remedies to enforce taxpayer liabilities and certain matters that relate to it, such as the imposition of surcharges and interest, and in the application of statute of limitations and in the establishment of tax liens. The Case In taxation, when is an assessment deemed final, so as to commence the running of the 30-day reglementary period within which to file an administrative protest thereto? Is the 30-day reglementary period to protest suspended upon the taxpayer's filing of a request for clarification or computation as to how the assailed assessment was arrived at? The Facts This is a Petition for Review filed with the Court of Appeals under Rule 43 of the Revised Rules of Court, assailing the November 4, 2003 Decision 1 of the Court of Tax Appeals (CTA) (before its decisions were made appealable directly to the Supreme Court) which cancelled the 1993, 1994, and 1995 deficiency income and percentage tax assessments against respondent Clemente Fontanar (FONTANAR). On March 16, 1998, petitioner Commissioner of Internal Revenue (CIR) issued a 10-day Preliminary Letter 2 to respondent FONTANAR informing him of his deficiency income and percentage taxes for the years 1993 to 1995 in the amount of Php238,716.01. In a letter 3 dated March 30, 1998, respondent FONTANAR requested for a review of the validity of the amount of deficiency taxes issued against him. IDCHTE On October 13, 1998, petitioner CIR issued a Pre-Assessment Notice 4 against respondent FONTANAR for deficiency income and percentage taxes, for taxable years 1993, 1994, and 1995, to wit : Assessment/ Date Kind Year Amount Demand No. Issued of Tax 80-IT-13-93-98-11-120 11/20/98 Deficiency Income Tax 1993 P546,351.40 80-PT-13-93-98-11-121 -do- Deficiency Percentage Tax 1993 64,731.97 80-PT-13-94-98-11-122 -do- Deficiency Percentage Tax 1994 62,726.22 80-IT-13-94-98-11-123 -do- Deficiency Income Tax 1994 541,238.73 80-IT-13-95-98-11-124 -do- Deficiency Income Tax 1995 720,427.61 80-PT-13-95-98-11-125 -do- Deficiency Percentage Tax 1995 82,769.49 TOTAL Php2,018,245.42 =========== Respondent FONTANAR filed his written protest 5 to the Pre-Assessment Notice on October 26, 1998, further requesting for a review of his alleged tax liability, asking for full information as to how petitioner CIR arrived at respondent's alleged undeclared income. Petitioner CIR responded to respondent FONTANAR's letter on November 17, 1998, in turn requesting respondent FONTANAR to furnish some needed information and comply with certain requirements; On December 15, 1998, respondent FONTANAR received assessment notices for deficiency income and percentage taxes in the total amount of Php2,018,245.42 for taxable years 1993, 1994, and 1995. In a letter 6 dated December 28, 1998, respondent FONTANAR repeated his request for the basis of petitioner CIR's computation of his alleged undeclared income. Petitioner CIR finally responded to such request in a letter 7 dated January 15, 1999, which was received by respondent FONTANAR on January 27, 1999. On February 26, 1999, respondent FONTANAR filed his administrative protest, 8 alleging that the income tax assessments for years 1993 and 1994 had already prescribed, the same having been issued only on November 20, 1998; that the percentage tax assessment for all quarters of 1993, 1994, and the first to third quarters of 1995 had also prescribed and therefore not valid nor legal; and that the income tax assessment for the year 1995, as well as the percentage tax assessment for the 4th quarter of 1995 are excessive and arbitrary. HDTcEI On December 13, 1999, petitioner CIR rendered its Decision 9 denying respondent FONTANAR's request for the cancellation of the deficiency income and percentage tax assessment notices against FONTANAR, the dispositive portion of which reads: "In view of the foregoing considerations, your protest with request for cancellation of Assessment Notices Nos. 80-IT-13-93-98-11-120, 80-PT-13-93-98-11-121, 80-PT-13-94-98-11-122, and 80-IT-13-94-98-11-123 for your 1993 and 1994 income and percentage tax deficiencies and the reinvestigation of Assessment Notice No. 80-IT-13-95-98-11-124 for income tax deficiency for the year 1995 and Assessment Notice No. 80-PT-13-95-98-11-125 for percentage tax liabilities for the fourth quarter of 1995 in the aggregate amount of Php2,018,245.42 is hereby DENIED. Consequently, you are hereby requested to pay the amount of Php2,018,245.42, plus interest that may have accrued thereon up to the date of actual payment, to the Revenue District Office No. 80, Mandaue City, within thirty (30) days from receipt hereof in order that this case may be closed and terminated. This constitutes the final decision of this Office on the matter." Respondent FONTANAR filed his Petition for Review 10 with the Court of Tax Appeals on January 29, 2000. The Assailed Decision of the Court of Tax Appeals On November 4, 2003, the Court of Tax Appeals (CTA), in CTA Case No. 6004, gave due course to respondent's petition for review and rendered a Decision, 11 the dispositive portion of which reads as follows: "WHEREFORE, Assessment Notice Nos. 80-IT-13-93-98-11-120, 80-IT-13-94-98-11-123 and 80-IT-13-95-98-11-124 for deficiency income taxes covering the years 1993, 1994, and 1995 in the aggregate amount of Php1,808,017.74 and Assessment Notice Nos. 80-PT-13-93-98-11-121, 80-PT-13-94-98-11-122, and 80-PT-13-95-98-11-125 for deficiency percentage tax covering the years 1993, 1994, and 1995 are hereby CANCELLED and SET ASIDE. TSIDEa SO ORDERED." Petitioner CIR's November 23, 2003 Motion for Reconsideration, 12 was denied by the CTA in a Resolution 13 dated March 26, 2004. This Petition for Review 14 under Rule 43 of the Revised Rules of Court was filed on April 30, 2004 with the Court of Appeals. Assignment of Errors Petitioner CIR raised the following issues, to wit : 1. WHETHER OR NOT THE ASSESSMENTS FOR INCOME AND PERCENTAGE TAXES ARE ALREADY FINAL AND UNAPPEALABLE. 2. WHETHER OR NOT THE PERIOD TO ASSESS AND COLLECT TAXES FOR 1993, 1994, AND 1995 HAS PRESCRIBED. The Ruling of This Court The petition is bereft of merit . The National Internal Revenue Code (NIRC) provides that the taxpayer shall be informed in writing of the law and the facts on which the assessment is made, otherwise, the assessment shall be void. 15 In this case at bench, the CTA found that the notices of assessment sent to respondent FONTANAR did not contain any information as to the law and the facts on how the assessments were arrived at, the court taking into consideration that in a letter 16 dated January 15, 1999 (received by FONTANAR on January 27, 1999), petitioner CIR had then explained how the examiners had come up with the assailed deficiency income and percentage taxes; that the same January 15, 1999 letter was held by the CTA to be part of the assessment made by petitioner CIR; that the running of the 30-day reglementary period within which to file an administrative protest started only on January 27, 1999, when said letter was received by respondent FONTANAR; and that the protest filed by FONTANAR on February 26, 1999 was very well within the 30-day reglementary period within which to file a protest, counting from January 27, 1999. CSHEAI The CTA correctly found that it was only on January 27, 1999 that respondent FONTANAR was informed by the CIR, through the letter 17 dated January 15, 1999, of the law and the facts which brought about the assailed assessment. Since it was only on January 27, 1999 that FONTANAR was deemed aptly assessed, the 30-day reglementary period within which to file an administrative protest shall be counted therefrom. Hence, FONTANAR's protest filed on February 26, 1999 was well within the prescriptive period. An assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period. The ultimate purpose of assessment is to ascertain the amount that each taxpayer is to pay. 18 Although internal revenue taxes are self-assessing and no further assessment by the government is required to create the tax liability, an assessment is not altogether insignificant, because all the more it becomes relevant in the proper pursuit of judicial and extra judicial remedies to enforce taxpayer liabilities and certain matters that relate to it, such as the imposition of surcharges and interest, and in the application of statute of limitations and in the establishment of tax liens. 19 Anent the second issue, petitioner CIR: 1) maintains that the period to assess and collect the alleged deficiency taxes of FONTANAR had not yet prescribed; 2) that FONTANAR had filed fraudulent income tax returns for the years 1993, 1994, and 1995, because of an alleged substantial under-declaration of income with intent to evade payment of correct taxes; and 3) that the applicable provision of law as regards the prescriptive period of assessment and collection of the tax deficiencies is Section 222 of the NIRC, which reads: "Sec. 222. Exceptions as to the period of limitation of assessment and collection of taxes . (a) In case of a false or fraudulent return with intent to evade tax or 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 the 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. . . . ," and not Section 203 20 of the same Code where assessments should be issued within three (3) years from the filing of the return. Petitioner CIR further alleges that FONTANAR, a businessman primarily engaged in the operation of passenger jeepneys in Cebu City, filed fraudulent returns by under-declaring his income in reporting only 92 units of public utility jeepneys (PUJs) contrary to a Confirmation Letter issued by the Land Transportation Franchising and Regulatory Board (LTFRB) which showed that FONTANAR was the registered owner of 270 units, instead of only 92 units of PUJs which was the basis of petitioner CIR in computing the deficiency income and percentage taxes. In cases of fraudulent returns, the CIR alleged that there was a 10-year prescriptive period to assess and collect the same. We agree with the CTA that FONTANAR did not file fraudulent returns nor did he under-declare his income. Fraud in its general sense, is deemed to compromise anything calculated to deceive, including all acts, omissions, and concealment involving breach of legal or equitable duty, trust or confidence justly reposed, resulting in the damage to another, or by which an undue and unconscionable advantage is taken of another. 21 In accordance with evidence presented before the CTA, the court found that FONTANAR had operated only 115 PUJ units in 1993 and not 265 units as petitioner CIR claimed; 116 units in 1994 and not 274; and only 123 units in 1995 and not 270. Doubtless, the declarations made by respondent FONTANAR in his tax returns were not to mislead the Bureau of Internal Revenue (BIR) with the end in view of defrauding nor reducing the consequent tax liability. TCIDSa The prescriptive period to assess respondent FONTANAR is three (3) years in accordance with Section 203 of the NIRC, to wit : "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 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 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." As stated above, the prescriptive period to assess and collect taxes is three years from the filing of the return. The income tax returns were filed on April 6, 1994 and April 17, 1995 for the years 1993 and 1994, respectively. Likewise the percentage tax returns were filed on, with their respective prescriptive periods for assessment: Taxable Year Date Filed Period of Prescription 1993 1st quarter April 14, 1993 April 20, 1996 2nd quarter July 19, 1993 July 20, 1996 3rd quarter Oct. 20, 1993 Oct. 20, 1996 4th quarter Jan. 20, 1994 Jan. 20, 1997 1994 1st quarter April 20, 1994 April 20, 1997 2nd quarter Sept. 8, 1994 Sept. 8, 1997 3rd quarter Oct. 18, 1994 Oct. 20, 1997 4th quarter Jan. 30, 1995 Jan. 30, 1998 1995 1st quarter April 7, 1995 April 20, 1998 2nd quarter July 17, 1995 July 20, 1998 3rd quarter Oct. 18, 1995 Oct. 20, 1998 The assessments for the 1993, 1994, and 1995 deficiency income and percentage taxes of respondent FONTANAR were issued only on November 20, 1998, which was received by FONTANAR on December 15, 1998. Clearly, the reglementary period for the issuance of the assessments for deficiency income and percentage taxes had already prescribed. For failure to make the assessments within the three-year period provided in Section 203 of the NIRC, the Commissioner of Internal Revenue's claim against respondent FONTANAR is barred. 22 The CTA found that respondent FONTANAR even declared as gross sales/receipts for the years 1993, 1994, and 1995 amounts more than what he was supposed to declare as gross sales/receipts, hence, no under-declaration by respondent FONTANAR, stressing that petitioner CIR had not proffered evidence to disprove the same. Verily, there being no under-declaration of income by respondent FONTANAR, Section 222 of the NIRC which provides that cases of (1) fraudulent returns, (2) false returns with intent to evade tax, and (3) failure to file a return, the period within which to assess tax is ten years from discovery of the fraud, falsification or omission, as the case may be, 23 does not apply. The Court of Tax Appeals is a highly specialized body specifically created for the purpose of reviewing tax cases. As a matter of principle, this Court will not set aside the conclusion reached by an agency such as the Court of Tax Appeals which is, by the very nature of its function, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority. 24 This point becomes more evident in this case at bench where the findings and conclusions of the Court of Tax Appeals appear untainted by any abuse of authority nor grave abuse of discretion. Indeed, we find the decision of the CTA free from any palpable error. 25 The Fallo WHEREFORE, premises considered, petition is hereby DISMISSED. TACEDI SO ORDERED. Alio-Hormachuelos and Enriquez, Jr., JJ., concur. Footnotes 1. Rollo . Page 27. 2. Rollo . Page 56. 3. Rollo . Page 60. 4. Rollo . Page 88. 5. Rollo . Page 95. 6. Rollo . Page 97. 7. Rollo . Page 98. 8. Rollo . Page 99. 9. Rollo . Page 106. 10. Rollo . Page 41. 11. Rollo . Page 27. 12. Rollo . Page 118. 13. Rollo . Page 40. 14. Rollo . Page 7. 15. Section 228, NIRC. 16. Rollo . Page 98. 17. Rollo . Page 98. 18. Tupaz vs Ulep , GR#127777, October 1, 1999, 316 SCRA 118; Commissioner of Internal Revenue v. Pascor Realty and Development Corporation , G.R. No. 128315, June 29, 1999, 309 SCRA 402. 19. Tupaz vs Ulep , GR#127777, October 1, 1999, 316 SCRA 118. 20. 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 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 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. 21. CIR vs Estate of Benigno P. Toda , GR#147188, September 14, 2004, 438 SCRA 290. 22. Estate of the Late Juliana Diez Vda. De Gabriel vs Commissioner of Internal Revenue , GR#155541, January 27, 2004, 421 SCRA 266; Tupaz vs Ulep , GR#127777, October 1, 1999, 316 SCRA 118. 23. CIR vs Estate of Benigno P. Toda , GR#147188, September 14, 2004, 438 SCRA 290. 24. Commissioner of Internal Revenue vs. Wander Philippines, Inc ., GR#L-68375, April 15, 1988, 160 SCRA 573. 25. CIR vs Court of Appeals , GR#115712, February 25, 1999, 303 SCRA 614; Commissioner of Internal Revenue vs. Court of Appeals , GR#115349, April 18, 1997, 271 SCRA 605.