Unnumbered BIR Ruling

February 17, 1998 MEMORANDUM FOR: The Commissioner Submitted before us for resolution is the protested internal revenue tax case of BPI COMPUTER SYSTEMS, INC. involving the amount of P1,317,640.60 representing alleged deficiency income tax for taxable year 1986, inclusive of increments. aisadc It appears from the records that on March 19, 1990, a demand was made on BPI Computer Systems, Inc. for the payment of the following deficiency tax assessment, viz: 1986 Deficiency Income Tax Management Fee as Declared P4,351,000.00 Less: Management Fee Per Investigation Per Balance Sheet P4,250,050.00 Add: Accounts Receivable 200,950.00 4,451,000.00 Management Fee Undeclared P100,000.00 Add: Disallowances Staff Benefits (75% Exclusive) 1,792,541.25 Taxes and Licenses (Surcharges) 34,890.00 Taxable Income Per Investigation P1,927,431.25 ========== Tax Due Thereon P674,601.00 Add: Surcharge 168,650.25 Interest 472,389.35 Compromise (Non-presentation of books) 2,000.00 INCOME TAX STILL DUE & P1,317,640.60 COLLECTIBLE ========== By way of administrative protest, taxpayer, through its counsel, Atty. Sabino Padilla, Jr. raised squarely the following issues as its arguments against the validity of the instant assessment, to wit: 1. The right of the BIR to issue the assessment has already been barred by prescription; and 2. The assessment itself is patently erroneous. RESOLUTION: We resolve for the taxpayer as we find no compelling reason to sustain the assessment. From the evidence submitted, we are convinced that there is an adequate basis to hold the instant assessment devoid of merit. Aside from the fact that the assessment is erroneous, we are inclined to give credence to herein-taxpayer's allegation that the right of the government to assess has already prescribed. Taxpayer, through counsel, presented to the satisfaction of this Office the following testimonial and documentary evidence relevant and material to its argument that the right of the government to issue the deficiency tax assessment has already prescribed viz: Exhibit "A" letter of Mr. Severino Buot, then Chief of the Receivable Accounts and Billing Division, this Bureau, dated August 6, 1990. Submitted to show that the assessment against the taxpayer was sent by registered mail on March 19, 1990 through Makati Central Post Office. Exhibit "B" Certification of Mr. Projecto T. Tomagan, Chief, Postal Service Officer, Makati Central Post Office that the assessment was returned to sender (BIR). Submitted to show that the assessment was never received by the taxpayer. Exhibit "C" and C-1 Letter of Demand on the taxpayer Submitted to show that the Letter of Demand (containing the graphic details of the assessment) was sent to the taxpayer "c/o Ceferino D. Sta. Maria, 4th Floor, BPI Bldg., Ayala Avenue, Paseo de Roxas, Makati, Metro Manila." Exhibit "D" and D-1 1986 Annual Income Tax Return of BPI Computer Systems, Inc.. Submitted to show that the address of herein protestant-taxpayer as indicated in its 1986 Annual Income Tax Return was "12th Floor BPI Bldg., Ayala Ave., Makati, M.M." These documents were likewise submitted for the purpose of showing that the instant assessment and subsequent communications of the BIR issued in relation thereto were all sent to the wrong address because they were all sent to 4th Floor of the BPI Bldg., when they should have been sent to the 12th Floor of the said building. Exhibit "H" Certification dated February 10, 1993 of Modesto Torres, Senior Manager of the Facilities Management Division of BPI on who occupies the 4th Floor of the BPI Head Office building since 1990. Corroborating evidence submitted by the taxpayer to show that the taxpayer was not occupying the 4th Floor of the BPI Bldg. and therefore, the letter of demand and assessment against it, addressed to the "4th Floor" of the BPI Bldg. could not have reached it, since it was occupying the 12th Floor, as shown in its Annual Income Tax Return for 1986. In addition to the above enumerated documentary evidence, taxpayer, through counsel, likewise presented testimonial evidence clearly establishing the fact that the above-referred BPI Building has twenty (20) floors and not all were exclusively occupied by BPI Computer Systems, Inc. It is submitted that we can take judicial notice on this particular manifestation. In resolving issues similar to the one raised above, this Office always deems it imperative to first lay down the fundamental law/s applicable or germane to the controversy under review. Pertinent is the provision of then Section 318 of the National Internal Revenue Code of 1977, as amended which in substance states that: "Where the return was filed, which is not fraudulent, the tax may be assessed within three years from the date the return was due or was filed. A return filed before the last day fixed by law for the filing thereof shall be considered as filed on such last day." Apropos to the aforestated statutory provision is the decisional holding of the Supreme Court in the case of Basilan Estates vs. CIR. The Highest Tribunal said that for purposes of prescription, an assessment is deemed made when the notice is released, mailed or sent by the Commissioner to the taxpayer. Failure of the taxpayer to receive the assessment within the prescriptive period will not affect the validity of the assessment if it was duly mailed and released within the period. Correlative to these Supreme Court pronouncements is Section 5(v), Rule 131 of the Rules of Court which provides that a letter duly directed and mailed is presumed received by the addressee thereof in the regular course of the mail. It is, however, our humble submission that the aforecited juridical pronouncements are not applicable to the present case. It was equally provided by the Supreme Court in the case of Nava vs. CIR that the BIR could not legally enforce deficiency income tax assessments where it can be shown that it could not prove that said assessments were issued on the taxpayer within the period of prescription provided by law. It is believed that the presumption that a letter duly directed and mailed was received in the regular course of mail cannot likewise be applied to this instant case. The facts to be proved to raise this presumption are: a. That the letter was properly addressed with postage prepaid; and b. That the letter was duly mailed. If one of the said facts is absent, the presumption does not lie (IV, Moran, Comments on the Rules of Court). It is indisputable that the BIR, after thoroughly evaluating the evidence presented, failed to comply with the foregoing requirements. The deficiency tax assessment was sent to an address other than the correct address of herein protestant-taxpayer which is 12th Floor BPI Bldg., Ayala Avenue, Makati, Metro Manila. There is, therefore, no valid and effective issuance of the deficiency income tax assessment. BPI Computer Systems, Inc. filed its Annual Income Tax Return for taxable year 1986 on April 15, 1987 (p. 20; Docket). There being no valid and effective notice of assessment made against herein-taxpayer after the said date, we have no other recourse but to arrive at the inescapable conclusion that the Bureau's right to issue the instant assessment has already been barred by prescription. Having reached the aforesaid conclusion, it is our opinion that it is no longer necessary to discuss the other issues raised in the taxpayer's protest. In view thereof, the Legal Service, through its Appellate Division, respectfully recommends that the deficiency income tax assessment issued against BPI COMPUTER SYSTEMS, INC. for taxable year 1986 be withdrawn and cancelled for lack of merit, and this case be considered CLOSED and TERMINATED. LLphil Respectfully submitted: (SGD.) RODULFO L. SALAZAR Chief, Appellate Division I CONCUR: (SGD.) ESTHER R. IBAEZ OIC, Assistant Commissioner Legal Service Recommendation-APPROVED: (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue