JUSTICE MARIA LOURDES P. A. SERENO v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SPECIAL SECOND DIVISION JUSTICE MARIA LOURDES CTA CASE NO. 10792 P. A. SERENO, Petitioner, Members: -versus- BACORRO-VILLENA, Acting Chairperson, and CUI-DAVID, JJ. COMMISSIONER OF Promulgated: -------y INTERNAL REVENUE,MAY 14 ZOZ4 Respondent. ~ '-= ~-;: ~ - - -X X- - - - - - - - - - - - - - - - - - - - - DECISION CUI-DAVID, J.: Before this Court is a Petition for Review filed on February 28, 2022 by petitioner Justice Maria Lourdes P.A. Sereno 1 ("Petitioner") against respondent Commissioner of Internal Revenue ("CIR" or "Respondent"), under Section 3(a), Rule 8,2 in relation to Section 3(a)(l), Rule 43 of the Revised Rules of the Court of Tax Appeals4 (RRCTA). THE PARTIES Petitioner was an appointed Associate Justice of the Supreme Court. She was then subsequently appointed as Chief Justice.5 ~ 1 Docket- Vol. I, pp. 6-58. 2 Section 3. Who May Appeal; Period to File Petition. - (a) A party adversely affected by a decision, ruling or the inaction of the Commissioner of Internal Revenue on disputed assessments ... may appeal to the Court by petition for review tiled within thirty days after receipt of a copy of such decision or ruling, .... 3 Section 3. Cases Within the Jurisdiction ofthe Court in Divisions. - The Court in Divisions shall exercise: (a) Exclusive original or appellate jurisdiction to review by appeal the following : ( I) Decisions of the Comm issioner of Internal Revenue in cases involving disputed assessments, refunds of internal reven ue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other lilws ildministered hy the Bureiiu of Intern il l Revenu e. 4 A.M. No. 05-1 1-07-CTA. 5 Pars. 2 and 3, Stipulation of Facts, Joint Stipulation ofFacts and Issues (JSFI), Docket- Vol. I, pp. 43 I-432. Petitioner was later on declared to have not been validly appointed as Chief Justice in the case of Republic v. Sereno (G.R. No. 23 7428, May I I, 20 I8) as decided by the Supreme Court.

DECISION CTA Case No . 10792 Justice Maria Lourdes P. A. Sereno v. Commissioner of Internal Revenue Page 2 of45 x---- ------ -- --------- ---- ---- ----- ----- -------- ---- ----- -- --- --- --- --- --- ---- ----------- --x Respondent CIR is vested under the law with the authority to carry out the functions, duties, and responsibilities of said office, including the power to assess and collect all national internal revenue taxes .6 THE FACTS On February 7, 2018, respondent issued Revenue Special Order (RSO) No. 99-2018, whereby Revenue Officers (ROs) Maxima Mones, Nina Diana Federizo, and Ricardo Suba, Jr. under Group Supervisor (GS) Grace Marohomsalic were designated to compose a team tasked "to investigate the internal revenue tax liabilities and possible violations of the National Internal Revenue Code (NIRC)" by petitioner "as mandated by the House of Representatives Justice Committee in relation to the [then] ongoing impeachment hearings ."7 On February 9, 2018, petitioner received the Bureau of Internal Revenue's (BIR) evenly-dated Letter of Authority (LOA) No. LOA-T00-2018-00000002, authorizing ROs Mones, Federizo, and Suba under GS Marohomsalic pursuant to RSO No. 99-2018, to examine petitioner's books of accounts and other accounting records for all internal revenue taxes, including documentary stamp tax (DST) and other taxes , for the period from January 1, 2011 to December 31, 2016. 8 In a Letter dated February 20, 2018, petitioner, through counsel, wrote to GS Marohomsalic, imploring the BIR to observe the prescriptive period on assessment.9 A Second and Final Notice for Presentation ofRecords dated April 13, 2018 was sent to petitioner, lo to which she responded in a Letter addressed to GS Marohomsalic dated April 13, 2018. 11 In the course of the audit, the following certifications were obtained by respondent: y 6 Par. I, Stipul ation of Facts, JSFI , Docket - Vol. I, p. 431 . 7 Ex hibi t " P-28", Docket- Vo l. I, p. 275. 8 Ex hi bit " P-2". Docket - Vol. II. p. 52 1: and Exhib it " R-1 ", BIR Records, p. I. Refer also to par. 3, Stipu lation of Facts, JSFI, Docket - Vo l. I, p. 432 . 9 BIR Records, p. 5. 10 Exhibi t " R-3", BIR Record s, p. 18. 11 BIR Record s, p. 9.

DECISION CTA Ca s e No . 10792 Justice Maria Lourdes P .A. Sereno v. Commissioner of Intern al Revenue Page 3 of45 X--- ------- -- -- ------------ ------ -- -- ----- -- -- ----- ------ ----- --- --------------- ---- -- --- --X 1. Certification from the Commission on Human Rights (CHR) dated March 12, 2018 stating that "no amount of income payments/cash advances ... was paid, awarded, or released" to petitioner .12 2. Certification from the Supreme Court's Fiscal Management and Budget Office (FMBO) in relation to cash advances which petitioner has received from CY 2012 to 2016.13 3. Certification from the Supreme Court's FMBO in relation to petitioner's salaries, allowances, and other emoluments covering the period August 16, 2010 to December 31, 2016 ("SC FMBO Certification").14 4. Report on Salaries and Allowances (ROSA) Received by the Chief Justice for the year ending December 31 , 2016, from the Commission on Audit (COA)- Office of the Supervising Auditor of the Supreme Court of the Philippines ("COA ROSA") .1s On September 27, 2018, petitioner received a copy of the BIR's Preliminary Assessment Notice (PAN) dated August 8, 2018. 16 On October 12, 2018, petitioner, through counsel, filed her Reply to the PAN.1 7 On November 20, 2018, the BIR served upon petitioner, through counsel, a copy of the assailed Formal Letter of Demand (FLD) dated November 5, 2018, with the accompanying Audit Result I Assessment Notices (FANs).1s On December 20, 2018, petitioner filed a letter of even date, embodying her protest in the form of a Request for Reconsideration of the FLD. 19 ~ 12 BIR Records, p. 134. 13 /d. , pp. 11 5-11 7. 14 /d. , pp .111-11 4. 15 Ex hi bit " R-4". BIR Records. pp. 120- 128 . 16 Ex hi bit " P-4", Docket - Vol. II, pp. 525-52!;; Exhib its �'R-7" and �'R-7-a", B1R Records, pp. 263 -266. 17 Ex hi bi t "P-5", Docket - Vol. II, pp. 529-534. 18 Ex hi bit " P-6", Docket- Vol. II , pp. 57 1-580; Exhibits " R-9", " R-9- 1", " R-9-2", BIR Records, pp. 40 1-4 10. 19 Ex hibi t "P-7", Docket - Vo l. II , pp. 58 1-607 .

DECISION CTA Case No. 10792 Justice Maria Lourdes P .A. Sereno v. Commissioner of Internal Revenue Page 4 of45 x------------------------------------------------------------------------------------------x On January 28, 2022, petitioner received the assailed undated Final Decision on Disputed Assessment (FDDA) issued by the BIR, 20 attaching the corresponding Audit Results I Assessment Notices.21 PROCEEDINGS BEFORE THE COURT On February 28, 2022, petitioner filed the present Petition for Review. 22 while respondent filed his Answer on May 10, 2022. 23 On July 7, 2022, respondent's Pre-Trial Briefwas filed, 24 while petitioner's Pre-Trial Briefwas submitted on August 11, 2022. 25 The Pre-Trial Conference was held on August 15, 2022.26 On the same date, the Court referred the case to the Philippine Mediation Center- Court of Tax Appeals (PMC-CTA) for mediation. However, the parties decided not to have their case mediated by the PMC-CTA.27 On September 6, 2022, respondent transmitted the BIR Records of this case, consisting of one (1) folder, consecutively numbered from pages 1 to 4 70. 28 On September 23, 2022, the parties submitted their Joint Stipulation ofFacts and Issues, 29 which the Court admitted and approved in its Resolution dated September 30, 2022 ,30 thereby deeming the termination of the Pre-Trial. Subsequently, the Pre-Trial Order dated October 5, 2022, was issued.3 1 The trial then ensued, with the parties presenting and offering testimonials and documentary evidence. Petitioner offered her testimony in support of her case to prove that:32 ~ 20 Exhibit "P-1 ", Docket- Vol. II , pp. 510 to 514; Exhibit " R-10", BIR Records, pp. 463 -467. 21 Ex hibit "P-1-A" to "P-1-F", Docket- Vol. II, pp. 515 to 520 ; Exhibit " R-1 0- 1", BIR Records, pp. 457-462. 22 Docket- Vol. I, pp. 6-67 . 23 Docket- Vol. I, pp. 330-361. 24 Docket- Vol. I, pp. 367-372. 25 Docket- Vol. I, pp. 375-401. 26 Notice of Resetting dated July 5, 2022, Docket- Vol. I, p. 366; Minutes of the hearing held on, and Order dated August 15, 2022, Docket- Vol. I, pp. 402, and 405-407, respectively. 27 No Agreement to Mediate dated September 5, 2022 issued by th e PMC-CTA, Docket- Vol. I, p. 413. 28 Respondent's Compliance dated September 2, 2022, Docket- Vol. I, pp. 409-411 . 29 Docket- Vol. I. pp. 43 1-449. 30 Docket- Vol. I, p. 451 . 31 Docket- Vol. I, pp. 453-459. 32 Ex hibit " P-37", Docket- Vol. I, pp. 287 to 305 ; Minutes of the hearing held on, and Order dated, October 12, 2022, Docket- Vol. II, pp. 460-462.

DECISION CTA Case No . 10792 Justice Maria Lourdes P.A. Sereno v. Commissioner of Internal Revenue Page 5 of45 x------------------------------------------------------------------------------------------x 1. She was an Associate Justice of the Supreme Court during the TY 2011 up to August 2012 and then Chief Justice from August 2012 to 20 16; 2. For the taxable years 2011 to 2016, she was solely employed by the Supreme Court; 3. As an employee of the Supreme Court, she received her basic salary, expense allowances, de minimis benefits, monthly honoraria as a member of the Presidential Electoral Tribunal (PET), and other benefits/ non-expense allowances; 4. The Supreme Court, as Justice Sereno's employer and statutory withholding agent, through its FMBO, determined, prepared, withheld, and remitted her income taxes for the TYs 2011 to 2016; 5. In addition to the taxes withheld and paid by her employer, the Supreme Court, she separately paid additional income taxes for the taxable years 2012, 2014, and 20 15; 6. She has no intent to evade the payment of income taxes; 7. Before 2018, she did not receive any assessment from the BIR for deficiency income taxes; and 8. She is not liable for any alleged income tax deficiencies On October 20, 2022, petitioner filed her Formal Offer of Evidence, 33 to which respondent submitted his Comment/ Opposition (on Petitioner's Formal Offer of Evidence) on October 28, 2022. 34 Petitioner then filed her Motion to Admit Reply -with- Reply (To: Comment/Opposition dated 28 October 2022) on November 8, 2022.35 In the Resolution dated January 3, 2023,36 the Court granted petitioner's Motion to Admit and admitted petitioner's offered exhibits, except for Exhibit "P-8", for failure to present the original for comparison and identify the said exhibit. Respondent offered the testimony of GS Marohomsalic to prove (1) the factual basis of the issuance of the assessment; (2) that the assessments were issued in accordance with the provisions of law, rules, and regulations; (3) that petitioner is liable to pay the assessed deficiency income taxes; (4) that v 33 Docket- Vol. II, pp. 463-509. 34 Docket- Vol. II, pp. 726-729. 35 Docket - Vol. II, pp. 730-735 . 36 Docket- Vol. II , pp. 738-744.

DECISION CTA Case No . 10792 Justice Maria Lourdes P .A. Sereno v . Commis s ione r of In ter nal Revenue X------------------------ -- --- ------ ------ ---- ----------- --- --- ----- ---- ----- ---------- ----X respondent complied with the audit procedures required under the NIRC of 1997, as amended, among others. 37 On January 30, 2023, Respondent's Formal Offer of Evidence was filed. 38 Petitioner then filed her Comment/ Objection (On/To the Respondent 's Formal Offer of Evidence) on February 9, 2023. 39 In the Resolution dated February 28, 2023,40 the Court admitted respondent's offered Exhibits, except for pages 119 to 124 of the BIR Records, supposedly forming part of Exhibit "R-4", for failure to present the originals for comparison. On March 22 , 2023, respondent filed his Omnibus Motion (1) for reconsideration of the Honorable Court's Resolution dated 28 February 2023; (2) to set Commissioner's Hearing; and (3) to defer filing of Memorandum). 41 Thereafter, petitioner filed on April 3, 2023 her Comment/ Opposition (On/ To: Respondent's Omnibus Motion dated 21 March 2023). 42 On April 5, 2023 , petitioner filed a Motion for Extension of Time to File Memorandum. 43 Thereafter, she filed a Motion for Additional Time to File Memorandum on April 20, 2023.44 In the Resolution dated April 27, 2023 , 45 the Court denied respondent's Omnibus Motion; granted petitioner's Motion for Extension ofTime to File Memorandum and Motion for Additional Time to File Memorandum; and ordered respondent to file his memorandum within a non-extendible period of fifteen (15) days from receipt thereof, considering the denial of his Omnibus Motion. On May 4 , 2023, petitioner submitted her Memorandum,46 while respondent filed his Tender ofExcluded Evidence on May 11, 202347 and Memorandum on May 12, 2023.48 ~ 37 Ex hib it " R-1 2", Docket - Vol. I, pp. 320-329; Mi nutes of the hearing he ld on, and Order dated, January 18, 2023 , Docket - Vo l. II , pp. 747-749. 38 Docket - Vo l. II , pp. 750-756. 39 Docket - Vol. II, pp. 765-78 1. 40 Docket- Vo l. II, pp. 784-78 5. 4 1 Docket - Vo l. II, pp. 786-793. 42 Docket - Vo l. II, pp. 798-8 17. 43 Docket - Vo l. II, pp. 8 19-82 1. 44 Docket - Vo l. II. pp. 823 -825 . 45 Docket- Vo l. II , pp. 830-832. 46 Docket - Vol. II, pp. 833-900. 47 Docket - Vo l. II , pp . 902-906. 48 Docket - Vol. II, pp. 908-937.

DECISION CTA Case No . 10792 Justice Maria Lourdes P.A. Sereno v. Commissioner of Internal Revenue Page 7 of45 x---- --- ------ -- ---------- --- --------- ----- -- ------- ---- ---- ----- -- --- ----- --- ------- ----- -x On May 18, 2023, 49 the Court noted petitioner's Memorandum, respondent's Tender of Excluded Evidence and Memorandum, and submitted the case for decision. Hence, this Decision. THE ISSUE I The parties stipulated the following issue for this Court's resolution, viz.: "Whether Petitioner is liable to pay deficiency Income Tax ('IT'), surcharges , and interest, in the total amount of Php8,846,769.12, plus interest, for TY 2011 to TY 2016." [sic] 5o PETITIONER'S ARGUMENTS Petitioner argues that the LOA is invalid. According to petitioner, there was neither a prior determination by any authorized revenue officer of a prima facie violation of tax laws nor a preliminary investigation conducted by the National Investigation Division before the LOA was issued. 51 Further, RSO No. 99-2018 was allegedly silent on the taxable period covered by the audit.52 Petitioner further assails the validity of the LOA, considering that it covers the period "from 1 January 2011 to 31 December 20 16." In contrast, "regulation requires that one LOA shall be issued for each taxable year or period. "53 Petitioner further alleges that her constitutional right to equal protection of the laws was likewise violated as there is illegal discrimination. According to petitioner, the BIR itself admitted that the audit investigation was "politically motivated," as it was "mandated by the House of Representatives Justice Committee in relation to the ongoing impeachment hearings." 54 Petitioner states that "a targeted audit specifically intended to find 'tax liabilities and possible violations' on the part of a particular taxpayer constitutes grave abuse of discretion amounting to lack or excess ofjurisdiction. 55 49 Docket - Vol. II , p. 939. tv/ 50 JSF! , lssue/s Stipulated by the Parties, supra at note 29 . 51 Pars. 27-28. Petition for Review. 52 Par. 29, Petition fo r Review. 53 Par. 30, Petition for Review. 54 Pars. 33-34, Petition for Rev iew. 55 Par. 35, Petition for Review.

DECISION CTA Ca se No . 10792 Justice Maria Lourdes P.A. Sereno v. Commissioner of Internal Revenue Page 8 of45 X----- -------------------------------------------------------------------------------------X Petitioner also contends that her right to due process was violated when "the BIR issued its final assessment or FLD without any consideration of the factual and legal arguments and evidence contained in her Reply to the [PAN]."56 Further, petitioner states that the assessment is a "naked assessment," i.e., utterly without foundation . According to petitioner, respondent based its assessment on "whichever is higher" between a "COA's Report-Salaries," which petitioner emphasizes as mere unverified photocopies, and the FMBO's March 8, 2018 Certification.s7 Petitioner further contends that, pursuant to the Best Evidence Obtainable Rule, the Certification from the FMBO is the best evidence , as it is "the very office of the Supreme Court tasked to monitor all compensation received by or paid to, not just the [p]etitioner, but all Justices of the Supreme Court" and that "it has firsthand knowledge of a Justice's compensation."SB Petitioner further argues against the validity of the assessment by stating that respondent failed to state the factual and legal basis behind the deficiency tax assessments. According to petitioner, there was no description of particular items of taxable compensation income for which taxes were purportedly not paid. sg In addition, petitioner states that respondent's authority to assess petitioner forTY 2011 , 2012, and 2013 had already prescribed, considering that the assessment was issued beyond the three (3)-year prescriptive period. Petitioner argues against applying the ten (10)-year prescriptive period by stating that "absent proof of intent to evade tax," the 10-year prescriptive period is inapplicable. Petitioner alleges that respondent did not allege nor prove that there is any intent on her part to evade taxes. Petitioner likewise states that the figures were derived from the Supreme Court's payroll system and computed and encoded by offices of the Supreme Court's FMBO "whose actions v enjoy the presumption of regularity."60 56 Pars. 38-39. Petition fo r Rev iew. 57 Pars. 43-49, Petition fo r Review. 58 Par. 50, Petition for Review. 59 Par. 55, Petition fo r Review. 60 Pars. 56-64, Peti tion fo r Review, Docket - Vo l I, pp.3 2-35 ; Pars. 80-92, Docket - Vo l II, pp. 874-879.

DECISION CTA Case No . 10792 Justice Maria Lourdes P.A. Sereno v. Commissioner of Internal Revenue Page 9 of45 x---------- -- ---- -- --------- --- --- ----- ------------ --- ----------- -- ------- -- ------- -- ---- --x In relation to those taxable years where prescription has not set in, according to petitioner, i.e., TY 2014, 2015, and 2016, she argues that she paid the correct income taxes. According to her, the FMBO Certification should have been used ,61 the expense allowances should have been excluded,62 and her de minimis benefits, 13th-month pay, and other benefits should have been deducted. 63 Petitioner further contends that, if there is any violation, it is the failure of the Supreme Court, as the statutory withholding agent, to withhold and remit the correct amount of taxes due on her compensation income. 64 However, petitioner postulates that the Supreme Court should be afforded due process and be given the opportunity to defend itself. 65 RESPONDENT'S ARGUMENTS Anent the validity of the LOA, respondent maintains that the LOA issued in the instant case is valid. Respondent argues that petitioner's reliance on Revenue Memorandum Order (RMO) No. 5-2009 is misplaced, considering that RMOs are "mere issuances that provide directives or instructions" and "prescribe guidelines." 66 Further, according to respondent, RMOs are superseded by RSOs. Since an RSO was issued in this case, respondent suggests there is no need to apply RMO No. 5-2009 . 67 Finally, respondent contends there is no prohibition for a LOA to cover multiple taxable years. 68 Respondent also argues that the equal protection and due process clauses were observed. First, respondent says that it is within his mandate to ascertain any taxpayer's correct payment of taxes and that the taxpayer is not exempt from a tax audit. 69 Second , respondent states that the issuance of an LOA does not automatically mean the assessment of deficiency taxes. 7o Third, respondent maintains that he complied with procedural due process as petitioner was apprised of and was able to avail of the remedies provided by law to refute the tax assessment against her. Petitioner filed her Reply to the PAN and her protest 61 Par. 73, Petition fo r Review. ~ 62 Pars. 74-79, Petition for Review. 63 Pars. 80-87, Petition fo r Rev iew. 64 Pars. 88-9 1, Petition for Review. 65 Par. 92, Petition for Rev iew. 66 Pars. 9-1 0, Answer. 67 Pars. I0-1 2, Answer. 68 Pars. 13 -1 5, Answer. 69 Pars. 18-1 9, Answer. 70 Par. 20, Answer.

DECISION CTA Case No . 10792 Justice Maria Lour des P.A. Sereno v. Commissioner of Internal Revenue X-- ---- -- -- --- --- ------- ---- -- ----- ------ ----------- ---- ----- --- -- ------------ -- ------- ----X against the FLD/FANs. 71 According to respondent, petitioner was sufficiently informed of the factual and legal bases of the assessment. 72 Respondent also suggests that petitioner cannot hold it against respondent if schedules coming from the Commission on Audit are used to determine her taxable income. He posits that "there is no one way to compute taxable income." 73 Respondent also cites the presumption of correctness of tax assessments and the presumption of regularity in discharging one's official duties and functions.74 Anent the issue of prescription, respondent argues that his right to assess has not yet prescribed, applying the prescriptive period of 10 years under Section 222 of the NIRC of 1997, as amended. According to respondent, this is seen in the fact that the FLD /FANs and the FDDA impose a 50�/o surcharge against petitioner. 75 Respondent refutes petitioner's argument that she did not prepare her BIR Form No. 2316 by stating that "she held the highest judicial position in the country" and that she "was the chief of the very office which prepared and filed her income tax returns." Thus, she "had direct control and supervision of the employees within the Supreme Court. "76 Respondent insists that, upon comparing the amounts reflected in the COA Report and Supreme Court report to those reported in petitioner's BIR Form No. 2316 , petitioner is liable for deficiency income taxes.77 Finally, respondent argues that as an employee, petitioner must provide her employer with documents and information for the filing of correct income tax. 78 THE COURT'S RULING The instant Petition for Review is impressed with merit. y 71 Pars. 26-28, Answer. 72 Pars. 4 1-50, Answer. 73 Pars. 34-35, Answer. 74 Pars. 36-39, Answer. 75 Pars. 52-5 7, Answer. 76 Par. 58, Answer. 77 Pars. 6 1-67, Answer. 78 Pars. 7 1-72, Answer.

DECISION CTA Case No. 10 79 2 Justice Maria Lou rdes P.A. Sereno v. Commissioner of Internal Revenue x--- ------------ ----- ------ --- ----------------- ------- --------- --- -- ----- ---- --- ------ -- -- -x The Court has jurisdiction over the instant case. Before delving into the merits of the case, We shall first determine our jurisdiction over the instant Petition. Section 7(a)(1) and (2) of Republic Act (RA) No. 1125 ,79 as amended by RA No. 9282,80 confers jurisdiction t o this Court relative to decisions and inactions of respondent, to wit: "SEC. 7 . Jurisdiction. -The CTA shall exercise: (a) Exclusive appellate jurisdiction to review by appeal, as herein provided: (1) Decisions of the [CIR] in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue; (2) Inaction by the [CIR] in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue , ..., [Emphasis supplied.] Moreover, Section 11 of RA No. 1125, as amended by RA No. 9282 , provides the period for filing an appeal before the CTA, VlZ.: "SEC . 11 . Who May Appeal; Mode of Appeal; Effect of Appeal. - Any party adversely affected by a decision, ruling, or inaction of the [CIR]... may file an appeal with the CTA within thirty (30) days after the receipt of such decision or ruling or after the expiration of the period fiXed by law for action as referred to in Section 7(a)(2) herein. ... [Emphasis supplied} ~ 79 An Act Creating the Court of Tax Appeals. Jun e 16, 1954. 80 A n Act Expanding the Jurisdiction of the Co urt of Tax Appeals (CTA), Elevating Its Rank to the Level of a Collegiate Co urt with Special Jurisdiction and Enl arg ing Its Memb ershi p, Amendi ng for the Purpose Certain Sections of Republic Act No. 11 25, as Amended, Otherwise Known as the Law Creating the Court of Tax Appeals, and for Other Purposes, March 30, 2004.

DECISION CTA Case No. 10792 Justice Maria Lourdes P.A. Sereno v. Commissioner of Internal Revenue x------------------------------------------------------------------------------------------x The above provisions are likewise provided under Section 3(a)(1)(2), Rule 4,81 and Section 3(a), Rule 882 of the RRCTA. Based on the foregoing, this Court has exclusive jurisdiction to review by appeal a decision, ruling, or inaction of respondent. The appeal must be filed by the taxpayer affected within thirty (30) days from receipt of such decision or ruling or after the expiration of the period fixed by law for action. In the instant case, petitioner received the assailed undated FDDA on January 28, 2022. Counting 30 days from such date, petitioner had until February 27, 2022, to file a Petition for Review before this Court. Correspondingly, the filing of the instant Petition for Review on February 28, 2022, as the 30th day fell on a Sunday, was timely. Accordingly, this Court has validly obtained jurisdiction over the instant case. The assessment was conducted pursuant to a valid LOA. Petitioner argues that the LOA is invalid. According to her, there was neither a prior determination by any authorized revenue officer of a prima facie violation of tax laws nor a preliminary investigation conducted by the National Investigation Division before the LOA was issued. 83 Petitioner further assails the validity of the LOA because it covers six (6) taxable years, from 1 January 2011 to 31 December 2016, while regulation requires that one LOA be issued for each taxable year or period.84 RSO No. 99-2018 was allegedly silent on the taxable period covered by the audit. 85 81 Section 3. Cases Within the Jurisdiction ofthe Court in Divisions.- The Court in Divisions shall exercise: \l'l (a) Exclusive original or appe llate jurisdiction to review by appeal the fo llowing: (I) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees ... (2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees : .. . 82 Sec. 3. Who may appeal; period to ti le petition.- (a) A party adversely affected by a decision, ruling, or the inaction of the Commissioner of Internal Revenue on disputed assessments or claims for refund of internal revenue taxes, or by a decision or ruling of the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry, the Secretary of Agriculture, or a Regional Trial Court in the exercise of its original jurisdiction may appeal to the Court by petition for review tiled within thirty days after receipt of a copy of such decision or ruling, or expiration of the period fixed by law for the Commissioner of Internal Revenue to act on the disputed assessments. In case of inaction of the Com missioner of Internal Revenue on claims for refund of internal revenue taxes erroneously or illegally collected, the taxpayer must file il petition for review within the two-yea r period prescribed by law from payment or collection of the taxes. 83 Pars. 27-28, Petition for Review. 84 Par. 30, Petition for Review. 85 Par. 29, Petition for Review.

DECISION CTA Case No . 1079 2 J u stice Maria Lourdes P .A. Sereno v. Commissioner of Internal Revenue X----------------------------------------------- ----- -------------------------------------- X Anent the validity of the LOA, respondent maintains that the LOA issued in this case is valid. He argues that petitioner's reliance on RMO No. 5-2009 is misplaced, considering that RMOs are "mere issuances that provide directives or instructions" and "prescribe guidelines."86 Further, RMOs are superseded by RSOs. Since an RSO was issued in this case, respondent suggests there is no need to apply RMO No. 5- 2009 .87 Finally, respondent contends there is no prohibition for a LOA to cover multiple taxable- years .88 We find for respondent. The power to assess necessarily includes the authority to examine any taxpayer to determine the correct amount of tax due him or her. 89 Verily, the law vests the BIR with general powers in relation to the assessment and collection of all internal revenue taxes. 90 However, only the CIR or his duly authorized representative may authorize the examination of any taxpayer and issue an assessment against the latter. This power or authority is pursuant to Section 6(A) of the NIRC of 1997, as amended, which provides as follows: SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement. - (A) Examination of Returns and Determination of Tax Due. - After a return has been filed as required under the provisions of this Code, the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax: Provided, however, That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpay er. [Emphasis supplied] Relatedly, Section 7 of the NIRC of 1997, as amended, governs the delegation of any power granted by law to respondent. It reads: SEC. 7. Authority ofthe Commissioner to Delegate Power. - The Commissioner may delegate the powers vested in him under the pertinent provisions of this Code to any or such subordinate officials with the rank equivalent to a division chief or higher, subject to such limitations and 86 Pars. 9-1 0. Answer. t! 87 Pars. I0- 12, Answer. 88 Pars. 13 -1 5, Answer. 89 AFP General Insurance Corporation v. Commiss ioner ofInternal Revenue, G.R. No. 222 133 , November 4, 2020. 90 !d.

DECISION CTA Case No. 10792 Justice Maria Lourdes P.A. Sereno v. Commissioner of Internal Revenue x------------------------------------------------------------------------------------ ------x restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner: Provided, however, That the following powers of the Commissioner shall not be delegated: (a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance; (b) The power to issue rulings of first impression or to reverse, revoke, or modify any existing ruling of the Bureau; (c) The power to compromise or abate, under Sec. 204(A) and (B) of this Code, any tax liability: Provided, however, That assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand pesos (P500,000) or less, and minor criminal violations, as may be determined by rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner, discovered by regional and district officials, may be compromised by a regional evaluation board which shall be composed of the Regional Director as Chairman, the Assistant Regional Director, the heads of the Legal, Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer, as members; and (d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced and kept. [Emphasis supplied] Considering that the power to authorize the examination of any taxpayer and the assessment of the correct amount of tax is not among the non-delegable powers of respondent, as stated in the above provision, the said power may be delegated to any subordinate official with the rank equivalent to a division chief or higher. One such recognized subordinate official under the law is the Deputy Commissioner.91 In this case, the delegation of authority for the issuance of an LOA was made by then Commissioner Caesar R. Dulay through RSO No. 99-2018, dated February 7, 2018,92 which states in part: Pursuant to Section[s] 5, 6 and 7 of the National Internal Revenue Code (NIRC) of 1997, as amended, I hereby authorize the OIC-Deputy Commissioner for Operations Group to approve the issuance of the LetterIs of Authority 91 Refer to Section 3, NIRC of I997. \1 92 Exhibit "P-28", Docket- Vol. II , p. 716.

DECISION CTA Case No. 10792 Justice Maria Lourdes P.A. Sereno v. Commissioner of Internal Revenue X------------------------------------------------------------------------------------------X to pursue the investigation and assessment of deficiency taxes arising therefrom. Correspondingly, pursuant to the foregoing RSO, LOA No. LOA-T00-2018-00000002 dated February 9, 2018, was issued by then OIC- Deputy Commissioner for the Operations Group, Mr. Arnel SD. Guballa93 authorizing the same BIR personnel mentioned in the RSO to examine petitioner's books of accounts and other accounting records for all internal revenue taxes, including DST and other taxes, from January 1, 2011 to December 31, 2016. Notably, by virtue of the LOA, the assigned BIR personnel examined petitioner's records and recommended issuing a PAN and the FLD IFANs against her. 94 Petitioner invokes the provisions of RMO Nos. 5-2009,95 27-2010,96 19-2015,97 and 43-1990,98 to counter the validity of the subject LOA. We rule in favor of the validity of the LOA. First, there is no prohibition under the NIRC of 1997, as amended, as to the number of taxable periods to be covered by the LOA and the investigating office that would handle the audit examination covered by an RSO. Second, the fact that the RSO did not specify any taxable period does not render it invalid, as there is no such requirement. The requirement to indicate the taxable periods covered by the audit is on the LOA, and Third, the fact that the LOA covers more than one taxable year does not invalidate the LOA. Section C of RMO No. 43-199099 provides: ~ 93 Exhibit "P-2", Docket- Vol. II, p. 521 ; and Exh ibit "R-1 ", BIR Records, p. I. Refer also to par. 3, Stipulation of Facts, JSFI, Docket- Vol. I, p. 432. 94 Refer to Exhibits "R-6" and "R-8", BIR Records (Exhibit " R-11 "), pp. 244 to 258, and 328-342, respectively. 95 Prescribing the Policies and Guidelines in the Issuance of Letters of Authority by the Various Investigating Offices of the Bureau of Internal Revenue, January 22, 2009. 96 Re-invigorating the Run After Tax Evaders (RATE) Program, and Amending Certain Portions of RMO No. 24-2008, March 15, 20 I0. 97 SIR Audit Program. September 15. 2015. 98 Amendment of Revenue Memorandum Order No. 37-90 Prescribing Revised Policy Guidelines for Examination of Returns and Issuance of Letters of Authority to Audit, September 20, 1990. 99 Amendment of Revenue Memorandum Order No. 37-90 Prescribing Revised Policy Guidelines for Examination of Returns and Issuance of Letters of Authority to Audit , September 20, 1990.

DECISION CTA Case No. 10792 Justice Maria Lourdes P.A. Sereno v. Commissioner of Internal Revenue x------------------------------------------------ ---- ------- --- ---- ------------ ---- --- ---- -x A Letter of Authority should cover a taxable period not exceeding one taxable year. The practice of issuing L/ As covering audit of "unverified prior years" is hereby prohibited. If the audit of a taxpayer shall include more than one taxable period, the other periods or years shall be specifically indicated in the L/A. Although the first part of the provision states that an LOA shall cover a taxable period not exceeding one taxable year, it does not foreclose on the possibility of an LOA covering more than one taxable period as long as "the other periods or years shall be specifically indicated in the LOA." In Commissioner of Internal Revenue v. Sony Philippines, Inc. 100 where the subject LOA covered the year 1997 and unverified prior years, the Supreme Court ruled that if the CIR intended to include another taxable year - the year 1998, he should have done so by "including it in the LOA or issuing another LOA," viz.: As earlier stated, LOA 19734 covered "the period 1997 and unverified prior years ." For said reason, the CIR acting through its revenue officers went beyond the scope of their authority because the deficiency VAT assessment they arrived at was based on records from January to March 1998 or using the fiscal year which ended in March 31 , 1998. As pointed out by the CTA-First Division in its April 28, 2005 Resolution, the CIR knew which period should be covered by the investigation. Thus, if CIR wanted or intended the investigation to include the year 1998, it should have done so by including it in the LOA or issuing another LOA. [Emphasis and underscoring supplied.] This ruling was subsequently reiterated in a more recent case, Commissioner ofInternal Revenue v. Lancaster Philippines, Inc., 101 viz.: Nonetheless, a valid LOA does not necessarily clothe validity to an assessment issued on it, as when the revenue officers designated in the LOA act in excess or outside of the authority granted them under said LOA. Recently in CIR v. De La Salle University, Inc. we accorded validity to the LOA authorizing the examination of DLSU for "Fiscal Year Ending 2003 and Unverified Prior Years" and correspondingly held the assessment for taxable year 2003 as valid because this taxable period is specified in the LOA. However, we declared void the assessments for taxable y 100 G.R. No. 178697, November 17, 2010 . 101 G.R. No. 183408, Jul y 12, 20 17.

DECISION CTA Case No. 10792 Justice Maria Lourdes P.A. Sereno v. Commissioner of Internal Revenue x------- ----------------------- -- --------------------------- --- ---- ---- ----- -------------- -x years 2001 and 2002 for having been unspecified on separate LOAs as required under RMO No. 43-90. Likewise, in the earlier case of CIR v. Sony, Phils., Inc., we affirmed the cancellation of a deficiency VAT assessment because, while the LOA covered "the period 1997 and unverified prior years, " the said deficiency was arrived at based on the records of a later year, from January to March 1998, or using the fiscal year which ended on 31 March 1998. We explained that the CIR knew which period should be covered by the investigation and that if the CIR wanted or intended the investigation to include the year 1998, it would have done so by including it in the LOA or by issuing another LOA. [Emphasis supplied, citations omitted] Given the foregoing, the Court upholds the validity of the LOA, even if it covers more than one taxable year, and the RSO that gave rise to its issuance. Even if the LOA is valid, the FLD and FANs are still void because they were issued in violation of petitioner's right to due process. Petitioner also contends that her right to due process was violated when "the BIR issued its final assessment or FLD without any consideration of the factual and legal arguments and evidence contained in her Reply to the [PAN]."I02 On the other hand, respondent maintains that he complied with procedural due process as petitioner was apprised of and was able to avail of the remedies provided by law to refute the tax assessment against her. Petitioner was able to file her Reply to the PAN and her protest against the FLD /FANs;l03 thus, petitioner was sufficiently informed of the factual and legal bases of the assessment.l04 We agree with petitioner. Section 228 of the NIRC of 1997, as amended, mandates petitioner to inform the taxpayer in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. It states, in part: y 102 Pars. 38-39, Petiti on for Rev iew. 103 Pars. 26-28, Answer. 104 Pars. 41-50, id.

DECISION CTA Case No. 10792 Justice Maria Lourdes P.A. Sereno v. Commissioner of Internal Revenue X------------------------------------------------------------------ ------------------------X SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: Provided, however, That a pre- assessment notice shall not be required in the following cases: 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 supplied) Relative thereto, Section 3 of Revenue Regulations (RR) No. 12-99 , 10s as amended by RR No. 18-13,106 implements , and specifies the due process requirement in the issuance of a deficiency tax assessment, to wit: SEC. 3. Due Process Requirement in the Issuance of a Deficiency Tax Assessment. - 3.1 Mode of procedures in the issuance of a deficiency tax assessment: 3.1.1 Preliminary Assessment Notice (PAN). -If after review and evaluation by the Commissioner or his duly authorized representative, as the case may be, it is determined that there exists sufficient basis to assess the taxpayer for any deficiency tax or taxes, the said Office shall issue to the taxpayer a Preliminary Assessment Notice (PAN) for the proposed assessment. It shall show in detail the facts and the law, rules and regulations, or jurisprudence on which the proposed assessment is based .. . 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 ... (Emphasis supplied) ~ 105 Implementing the Prov isions of the National Internal Revenue Code of 1997 Governing the Rul es on Assessment of National Internal Revenue Taxes, Civi l Penalties and Interest and the Extra-Judicial Settlement of a Taxpayer's Cri minal Violation of the Code Through Payment of a Suggested Comprom ise Penalty. 106 Amending Certai n Sections of Revenue Regul ations No. 12-99 Relative to the Due Process Requi rement in the Issuance of a Deficiency Tax Assessment.

DECISION CTA Case No . 10792 Justice Maria Lourdes P .A. Sereno v. Commissioner of In ternal Revenue x--------------------------------------------------- ------------ ---------------------------x Based on the foregoing, it is expressly 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. 107 RR No. 12-99, as amended by RR No. 18-13, prescribes that the FLD /FAN must state, among others, the facts and the law on which the assessment is based as part of due process in the issuance of tax assessments; otherwise, the FLD /FAN shall be void. In the case of Commissioner of Internal Revenue v. Avon Products Manufacturing, Inc. (Avon) , 108 which cited the landmark case of Ang Tibay v. Court ofIndustrial Relations (Ang Tibay), 109 the Supreme Court emphasized that the taxpayer must not only be given an opportunity to present its defenses and evidence but also that the Commissioner and his/her subordinates must give due consideration to these. Failure to do so constitutes a violation of the taxpayer 's right to due process, VlZ.: Administrative due process is anchored on fairness and equity in procedure. It is satisfied if the party is properly notified of the charge against it and is given a fair and reasonable opportunity to explain or defend itself. Moreover, it demands that the party's defenses be considered by the administrative body in making its conclusions, and that the party be sufficiently informed of the reasons for its conclusions. 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 the 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. v 107 Comm issioner of Internal Revenue v. Avon Products Manuf acturing, Inc., G.R. No. 20 1398-99 and 20 14 18- 19, October 3, 20 18, citing Ang Tibay v. The Court ofIndustrial Relations, G.R. No. L-46496, February 27, 1940. 108 G.R. Nos. 20 1398-99 & 20 14 18-1 9, Octo ber 3, 20 18. 109 G.R. No. 46496, February 27, 1940.

DECISION CTA Case No . 10792 Justice Maria Lourdes P.A. Sereno v. Commissioner of Internal Revenue Page 20 of45 x-- --------- ------------------------------------ -- ----- ----- ---- ---- -----------------------x Upon receipt of the Preliminary Assessment Notice, Avon submitted its protest letter and supporting documents, and even met with revenue examiners to explain. Nonetheless, the Bureau of Internal Revenue issued the Final Letter of Demand and Final Assessment Notices, merely reiterating the assessments in the Preliminary Assessment Notice. There was no comment whatsoever on the matters raised by Avon, or discussion of the Bureau of Internal Revenue's findings in a manner that Avon may know the various issues involved and the reasons for the assessments. It is true that the Commissioner is not obliged to accept the taxpayer's explanations, as explained by the Court of Tax Appeals. However, when he or she rejects these explanations, he or she must give some reason for doing so. He or she must give the particular facts upon which his or her conclusions are based, and those facts must appear in the record. Indeed, the Commissioner's inaction and omission to give due consideration to the arguments and evidence submitted before her by Avon are deplorable transgressions of Avon's right to due process. The right to be heard, which includes the right to present evidence, is meaningless if the Commissioner can simply ignore the evidence without reason. [Citations omitted; emphasis supplied] The foregoing doctrinal pronouncement affirms that the issuance of a PAN is a part of due process; that the issuance thereof gives both the taxpayer and the BIR the opportunity to settle the case at the earliest possible time without the need for issuance of a FAN or to reduce the assessment at the earliest opportunity; that this purpose is not served in case the BIR fails to consider the taxpayer's explanations or arguments before the FAN is issued; that the failure of the BIR to give due consideration to the said explanations or arguments is a deplorable transgression of the taxpayer's right to due process; and that the disregard by the BIR of the standards and rules renders the deficiency tax assessment null and void. A perusal of the records reveals that petitioner received a copy of the PAN with Details of Discrepancies on September 27, 2018, indicating that upon investigation, petitioner was found to have deficiency income taxes of P6,965,856.84, inclusive of increments forTY 2011 to 2016. ~

DECISION CTA Case No . 10792 Justice Maria Lourdes P.A. Sereno v. Commissioner of Internal Revenue X- ------- ------------------------------ ------- ----- ------ -------- ------ --------------------X On October 12 , 2018 , petitioner filed a Reply to the PAN and requested that the deficiency income tax assessments against her be withdrawn considering that her income payments from TY 2011 to 2016 were received solely from the government. Even assuming that there is a deficiency, any assessment notice must be issued to the officers responsible for withholding and remitting the correct amount of tax to the BIR. However, in the FLD/FANs dated November 5, 2018, petitioner was still assessed of the same basic deficiency income taxes, apart from the increments that were increased. Notably, the details of discrepancies were copied verbatim from the PAN, without considering, or referring, at the very least, any of petitioner's arguments in her Reply to the PAN. Juxtaposing the PAN and the FANs would indicate that no Reply was considered, convincing petitioner that her due process rights were violated in accordance with the pronouncement in Avon. 11 0 IIO DETA ILS OF DISCREPANCIES J USTICE MARIA LOURDES P.A. SERENO VS. COMMISSIONER OF INTERNAL REVENUE (CTA Case No. 10792) PAN FLO I. DEFICIE NCY INCO ME TAX I. DEEICIE ~CY I ~C O ME IAX 2011 2012 2013 2011 2012 2013 Per COA 's Report-Sa laries 2,923,767.33 3,119,607 .02 4,2 11 ,199.96 Per COA's Report-Salaries 2,923 ,767 .3 3 3, 11 9,607 .02 4,21 1, 199 .96 Per Supreme Court (SC) Report- 30,000.00 30,000 .00 30,000 .00 Per Supreme Court (SC) Report- 30,000 .00 30,000.00 - Salaries 52 ,000.00 52,000.00 52,000.00 Sa laries 52,000.00 52,000.00 30,000 .00 Less : 82 ,000.00 82 ,000.00 - Less: - 52,000 .00 13'h mo pay & other benefits 13'h mo pay & other benefits - 82 ,000.0 0 82,000 .00 82 ,000 .00 De Minimis Benefits De Minimis Benefits 82,000 .00 SSS, GSIS, PHIC & Pagibig SSS, GSIS, PHIC & Pagibig Contributions & Union dues Contributions & Union dues Total Non -Taxable Total Non-Taxable Comoe nsatio n Compensa ti on To tal Per COA/SC Report 2,841 ,767.33 3,037 ,607 .02 4,129, 199.96 Total Per COA/SC Report 2,841,767 .33 3,037,607 .0 2 4,129, 199.96 Less: Personal Exemption 50,000.00 50,000.00 50,000 .00 Less: Personal Exemption 50,000.00 50,000 .00 50,000.00 Taxable Compensation Income 2,79 1,767.33 2,987,607 .02 4,079, 199.96 Taxable Compensation Income 2, 79 1,767.33 2,987,607.02 4,079, 199.96 Tax due: Tax due: 125,000.00 125 ,000.00 125,000.00 125 ,000 .00 125,000.00 125,000 .00 P500,000 .00 733,365.55 796,034.25 P500,000 .00 733,365 .55 796,034.25 858,365 .55 921,034.25 1, 145 ,343.99 858,365 .55 921 ,034.25 1,145,343 .99 Excess-32% 556 , 509.46 1,270 ,343.99 Excess-32% 556 ,509.46 I,270,343 .99 Total Tax due 226,627.78 60,600.00 Total Tax due 226,627.78 60,600 .00 . Less: Tax due and Payable per ITR 631,737 .77 364,524.79 633, 198.40 Less : Tax due and Payable per ITR 631,737 .77 364 ,524 .79 633,198.40 3 15,868.88 182,262.39 576,54 5.59 3 15,868. 88 182 ,262.39 576,545 .59 Tax wlheld/credit per IS DOS 288 ,272.79 Tax wlheld/credit per ISDOS 288 ,272.79 Basic Deficiency Income Tax 722,084 .92 Basic Deficiency Income Tax Surcharge (50%) 56,492 .93 Surcharge (50%) 722 ,084 .92 Interest Interest 69, 162 .30 I 126 I84 50 20 11 -(4115 /20 12 -1 2/3 1/20 17) 343,751.87 20 11-(4/ 15/20 12-12/31 /20 17) 343 ,7 51.87 (1 / 1118-9/30/18) 32,597 .50 ( 1/ 1/ 18-9/30/ 18) 39,907.97 20 12-(4115/13- 12/31 /20 17) 223 13655 428,38 1.27 20 12-(4/ 15/ 13-12/31 /20 17) I 738 853 87 230 442 02 428 ,381.27 ( I/1118-9/30/ 18) 51,557 .39 ( 1/ 1/ 18-9/30/ 18) 63, 119.89 I 344 252 04 I1356 312.54 20 13-(4/ 15/20 14-12/31/20 17) 20 13-(4/15/20 14- 12/3 1120 17) (1 / 111 8-9/30118) (111 / 18-9/30/ 18) Defici ency Income Tax Deficiency Income Tax ttl

DECISION CTA Case No . 10792 Justice Maria Lourdes P.A. Sereno v. Commissioner of Internal Revenue Page 2 2 of45 X------------ ---------------------------------------------------------------------------- -- X On December 20 , 2 0 18 , petitioner filed a protest to the FLD, reiterating the explanations in her Reply to the PAN and 2014 2015 2016 2014 2015 2016 Per COA's Report- 4,622,249 .96 4,820,0 14.60 4,965 ,886 .20 Per COA's Report- 4,622,249 .96 4,820,0 14 .60 Salaries 82,000.00 Salaries 30,000.00 82 ,000.00 47,000.00 30,000 .00 Per Supreme Court (SC) 52,000.00 52 ,000.00 55,834 .00 Per Supreme Court (SC) 52,000 .00 4,965 ,886.20 43,405 .00 43 ,672 .00 43,405 .00 Report-Salaries 184,834 .00 Report-Salaries 125,405 .00 177 ,672.00 125,405 .00 Less: Less: 13'h mo pay & 13'h mo pay & 82,000.00 82,000 .00 other other benefits benefits De Minimis De Minimis 52 ,000 .00 47,000 .00 43 ,672.00 55 ,834 .00 Benefits Benefits SSS, GSIS , SSS, GSIS , PHIC & Pagibig PHIC & Pagibig Contributions & Contributions & Union dues Union dues Total Non-Taxable Total Non-Taxable I7 7,672.00 184,834 .00 C o mpensa1i Compensatio n on Total Per COA/SC 4,496,844 .96 4,642,342 .60 4,781,052 .20 Total Per COAISC 4,496,844.96 4,642,342.60 4,78I,052.20 Report 50 ,000 .00 50 ,000 .00 50,000 .00 Report 50,000 .00 Less: Personal Exemption 4,446,844 .96 4,592,342 .60 4,731 ,052 .20 Less: Personal Exemption 50,000 .00 50 ,000 .00 Taxable Compensation Income 125,000.00 125 ,000 .00 I25 ,000 .00 Taxabl e Compensation 4,446,844. 96 4,592,342.60 4, 73 I,052.20 Tax due : In come 125,000 .00 Tax due: 125,000 .00 125 ,000 .00 P500,000 .00 P500 ,000 .0 0 Excess-32% I ,262,990.39 I ,309,549 .63 I,353,936 .70 Excess -3 2 % I ,262,990.39 I,309,549 .63 1,353,936 .70 I,387,990 .39 I,434 ,549 .63 I,4 78,936 .70 1,387,990.39 I,434 ,549.63 I,478,936 .70 Total Tax due 803 ,750 .00 892,870 .00 I ,086 ,6 I 6 .00 Total Tax due 803 ,750 .00 892,870 .00 I,086,616 .00 Less: Tax due and Payable Less: Tax due and per ITR 584 ,240.39 54 1,679 .63 392,320 .70 Pa_yable per ITR 584.240 .39 541,679 .63 392,3 20 .70 292,120 .19 270,839 .82 196, 160 .35 292 ,120.19 270,839 .82 196 , 160.35 Tax w/held/credit 317,250.53 Tax w/held/credit 317,250.53 per ISDOS 52,245 .50 185,506.72 55,892 .26 6 265 856 84 per ISDOS 63 ,962 .32 185,506 .72 I 48,439.52 35 ,083 .14 59 ,302.79 Basic Deficiency Income I 2~5 856 61 672 456 45 Basic Deficiency Income 1.251513 43 1 027847 20 Tax I 0~6 ~65 62 Tax 55,892 .26 Surcharge (50%) Surcharge (50%) 42 ,951 .06 � Interest Interest I 057ll8.'lii 687324 37 2011-(4/ 15/2012- 2011- (4 / 15 /2012- 12/3 1/20 17) 12/31 /20 17) ( 111 11 8- 9/30/ 18) ( 1/ 1/ 18- 9/30/ 18) 20 12-(4/15/13- 20 12-(4/1 5/ 13- 12/3 1/20 17} 12/31 /20 17) ( 1/ 1/1 8- ( 1/ I/ 18- 9/30/1 8) 9/30/ I8) 20 13-(4/ 15/20 14- 20 13-(4/15/20 14- 12/31 /20 17) 12/3 I/20 17) ( 1/ 1/18- (l /1 / 18- 9/30/ 18) 9/30/ 18) Deficiency Income Tax Deficiency Income Tax Deficiency Income Tax -(Sec. 24 of the NIRC of 1997) Deficiency Income Tax -(Sec. 24 of the NIRC of 1997: RR 7-2018) Verification disclosed that there are discrepancies in the reported salaries Verification disclosed that there are discrepancies in the reported salaries per your Income Tax Return as against the salaries reported by the per your Income Tax Return as against the salaries reported by the Commission on Audit (COA), thereby resulting to a deficiency Income Tax Comm ission on Audit (COA), thereby resulting to a total deficiency Income in the amount of P6,965,856.84, inclusive of increments. Tax in the amount ofP7,027,847.20, inclusive of increments. Pursuant to Section 32 of the NIRC of 1997 and Revenue Regulations Pursuant to Section 32 of the NIRC of 1997 and Revenue Regu lations No. 2-98, the total exclusion from gross income representing 13'h month No. 2-98, the total exclusion from gross income representing J3'h month pay and other benefits received by officials and employees of public and pay and other benefits received by officials and employees of public and private entities should not exceed thirty thousand pesos (P30,000.00). private entiti es should not exceed thirty thousand pesos (P30,000.00). The gross amount of exclusion was increased to eighty-two thousand The gross amount of exclusion was increased to eighty-two thousand pesos (P82,000.00) upon implementation of Republic Act (RA) No. pesos (P82,000 .00) upon implementation of Republic Act (RA) No. I0653 and pursuant to Revenue Regulations No. 3-2015 dated March 9, 10653 and pursuant to Revenue Regu lations No. 3-2015 dated March 9, 2015. You should have included in your gross income the portion not 2015. You should have included in your gross income the portion not covered by the above mentioned exclusion. covered by the above mentioned exclusion . Under Section 248 of the NIRC of 1997, failure to report sales in amount Under Section 248 of the NI RC of 1997, failure to report sales in amount exceeding thirty percent (30%) shall render the taxpayer liable for exceed ing thirty percent (30%) shall render the taxpayer liable for substantial under-declaration of sales and shall constitute prima facie substantial under-declaration of sales and shall constitute prima facie evidence of a false and fraudulent return . Furthermore, under Section ev idence of a false and fraudulent return. Furthermore, under Section 222 of the Tax Code, that in case of false and fraudu lent return, the tax 222 of the Tax Code, that in case of false and fraudulent return, the tax may be assessed at anytime within ten ( I0) years after di scovery of may be assessed at anytime within ten (10) years after discovery of falsity, fraud or omission. falsity , fraud or omission. ~

DECISION CTA Case No. 10792 Justice Maria Lourdes P.A. Ser eno v. Commissioner of Internal Revenue Page 23 of45 x-------- -- ---- --- -- -- ---- ----- --------------- --- --- -- ----- ------ ------- --- ------- -- ---- -- -x arguing that the BIR's right to assess had already prescribed and the letter of authority is intrinsically void, among others. The BIR Records reveal that a review was supposedly conducted by ROs Mones, Federizo, and Suba, and GS Marohomsalic, where they maintained their finding in relation to petitioner's alleged deficiency income tax liability. The Revenue Officer's Audit Report on Income Tax was dated November 5, 2018, 111 twenty-four (24) days after petitioner's Reply was filed on October 12, 2018. On even date, a Memorandum addressed to Deputy Commissioner Guballa was issued, recommending the issuance of the FLD/FANs. 112 Notably, the Revenue Officer's Audit Report on Income Tax and the Memorandum addressed to Deputy Commissioner Guballa did not refer to petitioner's Reply to the PAN. There was no discussion of respondent's findings in a manner that petitioner may know the various issues involved and the reasons for rejecting her refutations and explanations in her Reply to the PAN. As pronounced in Avon, while respondent is not obliged to accept the taxpayer's explanations , like petitioner, when he rejects these explanations, he must give some reason for doing so. He must give the particular facts upon which his or her conclusions are based, and those facts must appear in the record. The right to be heard, which includes the right to present evidence, is meaningless if respondent can simply ignore the evidence without reason. His failure to give due consideration to respondent's defenses, explanations, and supporting documents when he made his conclusion as to respondent's tax liability, could hardly be considered substantial compliance with the due process requirement. In Ang Tibay, cited in Avon, the Supreme Court similarly ruled that "not only must the party be given an opportunity to present his case and to adduce evidence tending to establish the rights which he asserts but the tribunal must consider the evidence presented." y 11 1 BIR Records, p. 327. 112 Exh ibit "R-8", BIR Records, pp. 328-342.

DECISION CTA Case No . 1079 2 Justice Maria Lourdes P.A. Sereno v. Commissioner of Internal Revenue Page 24 of45 X--- ------ --------- ------ -------- ------- --------- -- -- ---- --- -- ---- --- ----- ------------ ---- -X The fact that the FDDA makes full reference to petitioner's Protest, citing the arguments in the Protest followed by respondent's position, is inconsequential. It is axiomatic that the due process requirement must be observed in every step of the administrative proceeding, in line with the edict of the Court in Mannasoft Technology Corp. v. Commissioner of Internal Revenuel l3 and Prime Steel Mill} Inc. v. Commissioner ofInternal Revenue. 114 Moreover, the Supreme Court ruled in Commissioner of Internal Revenue v. Next Mobile} Inc. 11 5 that the filing of a Protest against the FANs, does not denigrate the fact that it was deprived of statutory and procedural due process, viz.: ..., that Next Mobile was able to timely file a protest to the FAN is of no moment. 'Such does not denigrate the fact that it was deprived of statutory and procedural due process to contest the assessment before it was issued.' It is a settled rule that tax assessment issued in violation of the right of the taxpayer to due process are null and void and bears no fruit. [Emphasis supplied] Well-settled is the rule that an assessment that fails to strictly comply with the due process requirements set forth in Section 228 of the NIRC of 1997, as amended, and RR No. 12- 1999 is void and produces no effect.ll6 Indeed, while the government has an interest in the swift collection of taxes, the BIR and its officers and agents cannot be overreaching in their efforts but must perform their duties in accordance with the law, with their own rules of procedure, and always with regard to the basic tenets of due process. ll7 Nonetheless, as discussed below, even if the Court ignores the manner by which respondent violated petitioner's right to due process, still the grant of the Petition for Review is in order since the period to assess and collect petitioner's deficiency v taxes has already prescribed. 113 G.R. No. 244202, Ju ly I0, 2023. 114 G.R. No. 249 153. September 12. 2022. 115 G. R. No. 232055 (Notice), April 27, 2022 . 11 6 Prime Steel Mill, Inc. v. Commissioner of Internal Revenue, G.R. No. 249 153 , September 12, 2022 . 11 7 Commissioner of Internal Revenue v. Avon Products Manufacturing, Inc., G.R. Nos. 20 1398-99 & 20 14 18-1 9, October 3, 20 18.

DECISION CTA Case No . 10792 Justice Mar ia Lourdes P.A. Seren o v. Commissioner of Internal Revenue Page 25 of45 X---- ----- --- ---- --- -- -------- -------- ----- --- ---- -- -- ----- --- ----- -- -- -- -------- --- -------X The period to assess petitioner ofdeficiency income taxes for TY 2011 to 2014 has already prescribed. Petitioner contends that under Section 203 of the NIRC of 1997, as amended, the CIR or his duly authorized representative is authorized to examine a taxpayer to assess the correct amount of internal revenue taxes only within three (3) years after the last day prescribed by law for the filing of the return. She claims she received the FLD /FANs on November 20 , 2018. Applying Section 203, petitioner contended that the CIR no longer had any authority to assess her for deficiency IT for TY 2011 to 2014 as the CIR's power to do so had already prescribed. 118 Petitioner argues that the exceptions to the three years, i.e., in cases of fraudulent returns, false returns with intent to evade tax, and failure to file a return, where the period to assess is ten (10) years, are inapplicable. She adds that in the assailed undated FDDA, the CIR did not allege nor prove that she acted with intent to evade the payment of tax and that the CIR failed to present any evidence whatsoever about any "intent to evade taxes" or "fraud" on her part. She likewise states that the figures were derived from the Supreme Court's payroll system and computed and encoded by offices of the Supreme Court's FMBO, "whose actions enjoy the presumption of regularity."11 9 Respondent counters that his right to assess petitioner had not yet prescribed. While Section 203 provides for the 3- year limitation, Section 222(a) provides an exception to the rule. Petitioner's failure to supply correct and accurate information makes such return false; hence, the BIR has ten years from the discovery of such falsity to make such an assessment. 120 Respondent further counters that the FLD /FANs and the FDDA show that a 50�/o surcharge was imposed against petitioner's deficiency tax liabilities forTY 2011 to 2016. A surcharge of 50�/o of the basic tax is only imposed when a false or fraudulent return or no return was filed.l 21 We agree with petitioner. \{ 118 Pars. 80-84, Docket - Vo l II, pp. 874-876 . 11 9 Pars. 59-64, Petition for Review, Docket - Vo l I, pp.32-35; Pars. 85-92, Docket - Vo l II , pp. 876-879. 120 Ex hibi t " P-1 ", Docket- Vo l. II, pp. 5 I0-511 . 121 Pars. 52-57, Answer, Docket - Vol. I. pp. 348-35 1; Memorand um, Docket - Vol II , pp. 923-926.

DECISION CTA Case No . 10792 Justice Maria Lourdes P.A. Sereno v. Commissioner of Internal Revenue Page 26 of45 x-------------------------------------------------- ---- ---- ---- --- --- ----- ----- ------ ----- -x The BIR's power and duty to assess and collect taxes is provided under Section 2 of the NIRC of 1997, as amended, which reads: SEC. 2. Powers and Duties of the Bureau of Internal Revenue. -The Bureau of Internal Revenue shall be under the supervision and control of the Department of Finance, and its powers and duties shall comprehend the assessment and collection of all national internal revenue taxes, fees, and charges, and the enforcement of all forfeitures, penalties, and fines connected therewith, including the execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts.. .. [Emphasis supplied] Corollary, the CIR's authority to make tax assessments is provided under Section 6 of the NIRC of 1997, as amended. We quote Section 6 once again: SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement. - (A) Examination ofReturn and Determination of Tax Due. After a return has been filed as required under the provisions of this Code, the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax, notwithstanding any law requiring the prior authorization of any government agency or instrumentality: Provided, however, That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer. The tax or any deficiency tax so assessed shall be paid upon notice and demand from the Commissioner or from his duly authorized representative . ... [Emphasis supplied] However, the BIR's power to assess and collect taxes is limited by Section 203 of the NIRC of 1997, as amended, viz.: 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 v

DECISION CTA Case No. 10792 Justice Maria Lourdes P.A. Sereno v. Commissioner of Internal Revenue Page 27 of45 X------------------------------------------------------------------------------------------X prescribed by law for the filing thereof shall be considered as filed on such last day. [Emphasis and underscoring supplied] Given the foregoing, internal revenue taxes shall be assessed within three years, counting from the last day prescribed by law for filing the return or from the day the return was filed, whichever is later. By exception, under Section 222 of the NIRC of 1997, as amended, the assessment period may be extended beyond the original 3-year prescriptive period. Section 222(a) establishes the 10-year extraordinary period of assessment in the case of a false or fraudulent return with intent to evade tax or of failure to file a return, while Section 222(b) authorizes the extension of the three years upon the execution of a valid waiver) viz.: 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. (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.... [Emphasis supplied] In the instant case, the CIR states in the assailed FDDA that petitioner's "failure to supply correct and accurate information" in her tax returns made such returns false; hence, the BIR has ten years after discovering such falsity to make the assessment. 122 However, in his Answer 123 and Memorandum, 124 he invoked falsity and fraud, citing the cases of Commissioner of Internal Revenue v. Tulia (Tulia) 125 and 't/ Commissioner of Internal Revenue v. Asalus Corporation (Asalus).l26 122 Docket- Vol. II. pp. 510-511. 123 Docket- Vol. I, pp. 349-351. 124 Docket- Vol. II, pp. 924-926. 125 G.R. No. 139858, October 25 , 2005 . 126 G.R. No. 221590, February 22, 20 17.

DECISION CTA Case No . 10792 Justice Maria Lourdes P.A. Sereno v. Commissioner of Interna l Revenue Page 28 of45 X------------------------------------------------ ----------- ---- --------------- ------------X On the other hand, petitioner asserts that the 3-year, and not the 10-year period, applies in this case. She asserts that she did not file a false return with intent to evade tax, and the CIR failed to present any evidence about any "intent to evade taxes" or "fraud" on her part. In support of her claim, she cited in her Petition for Review and Memorandum the cases of Commissioner of Internal Revenue v. Philippine Daily Inquirer, Inc. (Inquirer}, 127 Commissioner of Internal Revenue v. Unioil Corporation (Unioil}, 128 Commissioner of Internal Revenue v. Fitness by Design, Inc. (Fitness by Design),129 Republic ofthe Philippines v. Ablaza (Ablaza), 130 and Commissioner ofInternal Revenue v. B. F. Goodrich Phils. , Inc. (B.F. Goodrich).1 31 Accordingly, the crux of the controversy here pertains to whether petitioner should be subject to the ordinary 3-year prescriptive period or the extraordinary 10-year prescriptive period for assessment. To resolve this issue, We find the case of McDonald 's Philippines Realty Corp. v. Commissioner of Internal Revenue (McDonald'sj1 32 highly instructive. In McDonald 's, the Supreme Court comprehensively discussed the relevant jurisprudence on the application of the extraordinary 10-year assessment period, viz.: C. Jurisprudence on the Application of the 10-Year Assessment Period Below is a summary of key Court rulings dealing with instances where the tax authorities relied on and invoked the extraordinary 10-year assessment period. Here, the Court have categorized the foregoing discussions according to the prevailing Tax Code version at the time of the tax assessment/ s issued in each case. i. 1939 Tax Code � Aznar Aznar dealt with ITRs for the taxable years 1946 to 1951 .. .. The CIR cited the incorrect declarations as basis for applying the 10-year assessment period. On appeal the CTA w 127 G.R. No. 2 13943 , March 22, 20 17. 128 G. R. No. 204405 . August 4. 202 1. 129 G.R. No. 2 15957, Novem ber 9, 20 16. 130 G.R. No. L- 145 19, July 26, 1960. 13 1 G. R. No. 104 17 1, February 24, 1999. 132 G.R. No. 247737, August 8, 2023.

DECISION CTA Ca se No. 10792 Justice Maria Lourde s P .A. Ser eno v . Commission er of Internal Revenue Page 29 of45 X---------------------------- ------ -- ---- ------ ----- --- --- --------------- ---------- ----- ---X ratiocinated that the "substantial [underdeclarations] of income for six consecutive years eloquently demonstrate[d] the falsity or fraudulence of the [ITRs] with an intent to evade the payment of tax. " On review, the Court agreed that the CIR's extension of the assessment period was justified because the subject tax returns were false. In its discussion, the Court differentiated among the three instances Section 332 (a) of the 1939 Tax Code [now Section 222 (a) of the 1997 Tax Code] warranting the application of the extended period, viz. : ... We believe that the proper and reasonable interpretation of said provision should be that in the three different cases of (1) false return, (2) fraudulent return with intent to evade tax, (3) failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within ten years after the discovery of the (1) falsi ty, (2) fraud , (3) omission . Our stand that the law should be interpreted to mean a separation of the three different situations of false return, fraudulent return with intent to evade tax, and failure to file a return is strengthened immeasurably by the last portion of the provision which aggregates the situations into three different classes, namely "falsity ," "fraud " and "omission ." That there is a difference between '1alse return" and 'Jraudulent return" cannot be denied. While the first merely implies deviation from the truth, whether intentional or not, the second implies intentional or deceitful entry with intent to evade the taxes due. (Italics supplied.) Verily, the Court referred to a false return as one which deviates from the truth, regardless if such deviation had been deliberate or inadvertent. .. .To both the CTA and the Court, such substantial underdeclaration was sufficient proof of falsity to justify the application of the extended assessment period. � BF Goodrich In BF Goodrich, the tax authorities' examination revealed that, during 1974, the taxpayer sold parcels of land. The CIR noted, however, that the consideration for the sale was insufficient - the actual sale price had been lower than the properties' fair market value. Thus, the CIR treated the difference as a taxable donation and, in 1980, assessed the v taxpayer for deficien cy don or's tax.

DECISION CTA Case No. 10792 Justice Maria Lourdes P.A. Sereno v. Commissioner of Internal Revenue Page 30 of45 X-------------------- ------ -- --- --- -- --- --- ------------------ ----- ---- ---- -----------------X On appeal, the taxpayer sought to invalidate the assessment, arguing that it was issued beyond the five-year statute of limitations. However, the CTA regarded the sale of the parcels of land at a price below the fair market value as a falsity, which justified an extension of the assessment period. The Court disagreed with the CTA. While the properties were sold for a price lesser than its declared fair market value, this fact "did not constitute a false return which contains wrong information due to mistake, carelessness, or ignorance. " The Court explained that "[i]t is possible that real property may be sold for less than adequate consideration for a bonafide business purpose; in such event, the sale remains an 'arm's length' transaction. " The Court noted that the taxpayer was compelled to sell the property at a lower price and that, while it did not declare any taxable donation, it nonetheless reported the sale in its ITR. Ultimately, the Court held that the tax authorities failed to show that the subject ITR was filed fraudulently with intent to evade the payment of the correct amount of tax. Thus, the CIR's invocation of the 10-year assessment period was not justified. ii. 1977 Tax Code � Commissioner ofInternal Revenue v. Fitness by Design, Inc. (Fitness by Design) The tax authorities in Fitness by Design assessed the taxpayer for alleged deficiency IT, VAT, and DST relative to taxable year 1995.... The CIR regarded the taxpayer's ITR as false and fraudulent on account of its failure to reflect its true sales therein. They used this reasoning to invoke the extraordinary 10-year assessment period. However, the assessment notice served upon the taxpayer did not impute fraud on the part of the petitioner, much less substantiate the CIR's allegations of fraud, which were raised only on appeal. Further, the BIR audit team group supervisor admitted that the information gathered during the investigation did not show that the taxpayer deliberately failed to reflect its true income. As a result, the Court disallowed the application of the extended period. The Court emphasized that in availing itself of the extraordinary 10-year period, the CIR bears the burden of proving the existence of facts upon which the fraud is based and is obligated to communicate to the taxpayer the basis for its allegations of fraud in the assessment notice, as part of due process. v

DECISION CTA Case No . 10792 Justice Maria Lourdes P.A. Sereno v. Commissioner of Internal Revenue x----------------------------------------------------------- ---- ---------------------------x iii. 1997 Tax Code � Samar-! Electric Cooperative v. Commissioner of Internal (Samar Electric) Here, the taxpayer was assessed for deficiency withholding tax on compensation (WTC) relative to taxable years 1997 and 1998. In its defense, the taxpayer argued that the assessment was issued in 2002 or beyond the basic three- year assessment period. However, the Court noted that the taxpayer failed to withhold taxes amounting to P2,690,850.91 from its employees' 13th month pay and other benefits. The Court regarded this as a substantial underdeclaration, which rendered the subject tax returns false within the meaning of Section 222 (a). That the taxpayer failed to refute the falsity, both in fact and in law, allowed the CIR the benefit of the 10- year assessment period. � Commissioner of Internal Revenue v. Asalus Corp. (Asalus) In Asalus, the CIR asserted that there was a substantial understatement in the taxpayer's income, which exceeded 30% of what was declared in its VAT returns as appearing in its quarterly VAT returns . The CIR used this substantial understatement to justify its application of the extraordinary assessment period. Similar to Samar Electric, the Court also upheld the application of the 10-year period on account of the substantial underdeclaration in the taxpayer's return. On this occasion, the Court explained the presumption of falsity and the consequences thereof, viz.: Under Section 248(B) of the NIRC, there is a prima facie evidence of a false return if there is a substantial underdeclaration of taxable sales, receipt or income. The failure to report sales, receipts or income in an amount exceeding 30% what is declared in the returns constitute substantial underdeclaration. A prima facie evidence is one which that will establish a fact or sustain a judgment unless contradictory evidence is produced. In other words, when there is a showing that a taxpayer has substantially underdeclared its sales, receipt or income, there is a presumption that it has filed a false return . As such, the CIR need not immediately present evidence to support y

DECISION CTA Case No. 10792 Justice Maria Lourdes P.A. Sereno v. Commissioner of Internal Revenue Page 32 of45 X------------------------------------------------------------------------------------------X the falsity of the return, unless the taxpayer fails to overcome the presumption against it. Applied in this case, the audit investigation revealed that there were undeclared VATable sales more than 30% of that declared in Asalus' VAT returns. Moreover, Asalus' lone witness testified that not all membership fees, particularly those pertaining to medical practitioners and hospitals, were reported in Asalus' VAT returns. The testimony of its witness, in trying to justify why not all of its sales were included in the gross receipts reflected in the VAT returns, supported the presumption that the return filed was indeed false precisely because not all the sales of Asalus were included in the VAT returns. Hence, the CIR need not present further evidence as the presumption of falsity of the returns was not overcome. Asalus was bound to refute the presumption of the falsity of the return and to prove that it had filed accurate returns. Its failure to overcome the same warranted the application of the ten (10)-year prescriptive period for assessment under Section 222 of the NIRC. To require the CIR to present additional evidence in spite of the presumption provided in Section 248(8) of the NIRC would render the said provision inutile. Considering the existing circumstances, the assessment was timely made because the applicable prescriptive period was the ten (10)-year prescriptive period under Section 222 of the NIRC. To reiterate, there was a prima facie showing that the returns filed by Asalus were false, which it failed to controvert. Also, it was adequately informed that it was being assessed within the extraordinary prescriptive period. (Italics in the original; underscoring supplied) Relying on Section 248 (B) of the 1997 Tax Code, the Court explained that a prima facie case of falsity arises where there is a substantial underdeclaration tax return subject of the assessment. Substantial underdeclaration within the meaning of the 1997 Tax Code refers to a misstatement, as ascertained by the CIR, which exceeds 30% of the amount reported in the tax return filed originally. ~

DECISION CTA Case No. 10792 Justice Maria Lourdes P.A. Sereno v. Commissioner of Internal Revenue Page 33 of45 X------ ------------------------------------------------------------------------------------X Applying the foregoing to the case, the Court explained that the audit results demonstrated that the income reported in the return was understated by more than 30%. This satisfied the definition of a substantial underdeclaration under the law, which, in turn, shall be regarded as prima facie evidence of falsity. For its part, the evidence presented by the taxpayer did not refute the presumption but even supported the conclusion that it failed to report taxable gross receipts in the VAT returns. On account of the taxpayer's failure to overturn the presumption, "the CIR need not present further evidence" as proof of a false return. Thus, the Court held that the application of the 10-year prescriptive period was warranted. � Inquirer The Inquirer case involved the taxpayer's IT and VAT relative to taxable year 2004. Given the basic assessment period, ordinarily, the tax authorities would have had three years from 2004 or until 2007 to issue an assessment, e.g., the right to assess deficiency VAT accruing to the first quarter of 2004 would have prescribed by April 2007. The CIR issued a formal assessment finding the taxpayer liable for deficiency IT and VAT, which the taxpayer received on April 17, 2008... . Subsequently, the taxpayer filed a judicial protest to the assessment before the CTA. In its Answer, while the CIR could have relied on the basic three-year prescriptive period on account of the Third Waiver, it applied the 10-year extended period, asserting that the taxpayer falsely filed its return for taxable year 2004. However, the Court rejected the CIR's theory and held that "the mere understatement of a tax is not itself proof of fraud for the purpose of tax evasion" and, as held in BF Goodrich, the entry of wrong information due to mistake, carelessness, or ignorance, without intent to evade tax, does not constitute a false return. Put in another way, despite the supposed misstatement of the taxpayer's purchases, the Court did not find this as sufficient evidence to prove intentional falsity on the part of the taxpayer. � Commissioner of Internal Revenue v. Spouses Magaan (Spouses Magaan) v

DECISION CTA Case No. 10792 Justice Maria Lourdes P.A. Ser eno v. Commissioner of Internal Revenue Page 34 of45 x-------- ----------------------------------------------------------------------------------x The tax assessment in Spouses Magaan stemmed from a complaint-affidavit filed by a confidential informant. It was alleged that the taxpayers earned P35,498,477.62 from April 1998 to January 2002, but this income was not declared in their ITR. The CTA found that the taxpayers received checks from a certain individual but did not report the amounts therefrom as income in their tax returns from 1998 to 2000. However, the tax court disallowed the application of the 10-year period, despite the unreported amounts , because the CIR failed to prove fraud on the part of the taxpayers. The Court agreed with the CTA and underscored the following: First, "(i]n the context of Section 222 (A), there is fraud in the filing of a false and deceitful entry with intent to evade the taxes due. The act of filing a fraudulent return must be intentional and not attributable to 'mistake, carelessness, or ignorance." Second, "to invoke the 10-year prescriptive period, [the CIR bears the burden of proving] the following with clear and convincing evidence: (1) respondents received taxable income; (2) they underdeclared or did not declare the taxable income in their tax returns; and (3) they intended to evade payment of correct taxes due." While the taxpayer did not report the amounts attributable to the checks as part of income, the CIR failed to establish that these amounts counted toward their taxable income . ... Third, if the tax authorities failed to state the factual basis of fraud in an assessment and/ or failed to establish that the taxpayer filed a false return with intent to evade the payment of correct taxes, they cannot rely on the extraordinary 10-year period. � Commissioner of Internal Revenue v. Unioil Corp. (Unioil) In Unioil, the CIR issued WTC and expanded withholding tax assessments relative to taxable year 2005. The taxpayer sought to invalidate the assessments for having been issued beyond the basic three-year period. However, the Court found nothing other than the CIR's bare allegation of falsity or fraud in the taxpayer's returns that may accord the CIR the benefit of the exceptional 10-year period. To be sure , the CIR only cited Section 72 of the 1997 Code which refers to a false or fraudulent return but did not particularize the circumstances giving rise to fraud committed by the taxpayer. "On the whole, there is no prima facie evidence , jrr

DECISION CTA Ca se No . 10792 Justice Maria Lourdes P.A. Sereno v. Commissioner of Internal Revenue Page 35 of45 X--------------------------------------- ----------------- ----------------------------------X much less any sort of evidence" that the returns in question had been false or fraudulent. The Court also observed that the CIR issued the formal assessment only a day before the impending lapse of the basic three-year period. To the Court this hasty issuance was inconsistent with the invocation of the 10-year extraordinary period. It only revealed the CIR's original intention to abide by the basic assessment period. [Emphasis supplied; citations omitted] To recapitulate, in 1974, the Supreme Court ruled in Aznarl33 that a false return merely implies deviation from the truth, whether intentional or not. In applying the 10-year prescriptive period, the Supreme Court did not inquire whether the misstatements in the tax returns had been deliberate. 134 As such, "it becomes easy for revenue officers to claim that there was falsity in the return filed by the taxpayer that would allow the assessment of tax within ten (10) years from the date of discovery." 135 Almost 25 years after Aznar, the Supreme Court promulgated the case of B.F. Goodrich1 36 in which it held that "mere falsity in the return is insufficient to take the questioned assessment out of the ambit of the ordinary prescriptive period to assess. The CIR must prove that the return was filed fraudulently or that the taxpayer intended to evade the payment of correct taxes to justify the application of the 10-year period." 137 After Aznar, the Court has been consistent in the interpretation of what constitutes a false return concerning the application of the ten years - not all types of error or falsehood in a return will allow the BIR to apply the 10-year prescriptive period under Section 222 (a) of the NIRC of 1997, as amended. The settled rule is that "the entry of wrong information due to mistake, carelessness, or ignorance, without intent to evade tax, does not constitute a false return." That there is an underI overstatement, by itself, does ~ 133 15 7 Phil. 510 ( 1974). 134 !d. 135 Associate Justice Alfredo Benjamin Caguioa, Concurring Opin ion, !d. 136 363 Phil. 169 ( 1999). 137 !d.

DECISION CTA Case No . 10792 Justice Maria Lourdes P.A. Sereno v. Commissioner of Internal Revenue Page 36 of45 X------------------------------------------------------------------------------ ------------X not amount to a falsehood for purposes of extending the assessment period.l 38 Moreover, the Supreme Court held in McDonald's that a valid extension of the basic assessment period to 10 years is conditioned upon concurrence of the requisites under Section 222 (a) of the NIRC of 1997, as amended, and compliance with due process requirements, viz.: F. Summary: Conditions for a Valid Extension ofAssessment Period in Case of a False Return r. Requisites under Section 222 (a) of the 1997 Tax Code � General Rule - Proof of False or Fraudulent Return Pursuant to Section 2 22 (a) of the 1997 Tax Code, the extraordinary 10-year assessment period may apply in case the taxpayer: (1) filed a false return, (2) filed a fraudulent return , or (3) failed to file a return. A fraudulent return "implies intentional or deceitful entry with intent to evade the taxes due," while a false return simply "implies deviation from the truth, whether intentional or not. " It must be stressed, however, that a false return within the meaning of Section 222 (a) does not refer to false returns in general. To be sure, the extraordinary 10-year assessment period applies to a false return when: (1) the return contains an error or misstatement, and (2) such error or misstatement was deliberate or willful. Consequently, the Court's ruling in Aznar which applied the extraordinary 10-year assessment period under Section 222 (a) to false returns in general, i.e. , regardless of whether the deviation is intentional or not, is abandoned. It shall be the CIR's burden to establish the existence of the above-enumerated statutory requisites with clear and convincing evidence. R"'""'� ' Commli of f"'unol G.R No . 24773 7, Aogo< 8, 2023, dtiog Commissioner of Internal Revenue v. B.F. Goodrich Phils., Inc.. G.R. No . I04 171. Febru ary 24. 1999: Commissioner of Internal Revenue v. Philippine Daily Inquirer, Inc., G.R. No. 2 13943, March 22, 20 17; Commissioner ofInternal Revenue v. Spouses Magaan , G.R. No. 232663, May 3, 2021 ; Commissioner of Internal Revenue v. Unioil Corporation (Unioil), G. R. No . 204405, August 4, 202 1.

DECISION CTA Case No. 10792 Justice Maria Lourdes P.A. Sereno v. Commissioner of Internal Revenue Page 37 of45 X----------------------------- --------------------------------------------------- ----------X � Exception - Prima Facie Evidence of a False or Fraudulent Return (30% Threshold) The CIR may be relieved from the above-mentioned burden of proof when there is prima facie evidence of falsity or fraud, as defined under Section 248 (B) of the 1997 Tax Code. (1) The CIR ascertains that there 1s a misstatement/misdeclaration m the return, m particular, (a) an understatement/underdeclaration of sales, receipts, or income or (b) an overstatement/ overdeclaration of expenses or other deductions, and (2) the misstatement is substantial, such that exceeds the corresponding amount declared in the return by 30%. 30% threshold satisfied. There is prima facie evidence of falsity or fraud and the burden of proof shifts to the taxpayer. If the taxpayer fails to overcome the presumption, the prima facie evidence shall be sufficient to justify the application of the 10-year period. Taxpayer refutes presumption. If the taxpayer is successful in overturning the presumption (e.g., demonstrating that the misstatement as ascertained by the CIR had been inadvertent or attributable to a mistake or was not deliberate or willful on the part of the taxpayer), the CIR cannot rely on the presumption in proving the taxpayer's intent to evade. ii. Due Process Requirements (1) First Due Process Requirement. The assessment notice issued to the taxpayer must clearly state the following: (a) that extraordinary prescriptive period (not the basic three-year period) is being applied, and (b) the bases of allegations of falsity or fraud, e.g., if the CIR seeks to rely on the presumption offalsity or fraud particularly, the formal notice to the taxpayer must set out the computation by which it ascertained that the misdeclaration in the return v surpassed the 30% threshold.

DECISION CTA Case No . 10792 Justice Maria Lourdes P.A. Sereno v. Commissioner of Internal Revenue Page 38 of45 X------------------------------------------------------------------------------------------X (2) Second Due Process Requirement. The tax authorities have not acted in a manner that is inconsistent with the invocation of the extraordinary prescriptive period or have otherwise misled the taxpayer that the basic period will be applied. Applying the above conditions, which set forth the requisites and the due process requirements for a valid extension of the assessment period in case of a false return, We find that the extraordinary 10-year period to assess does not apply in the present case. As to the requisites, the CIR cited in the assailed FDDA petitioner's failure to supply correct and accurate information in her tax returns as the basis for applying the 10-year assessment period. A perusal of the PAN, FLD/FANs, and FDDA likewise shows that a 50�/o surcharge was imposed under Section 248(B) of the NIRC of 1997, as amended. However, the CIR did not state in the notices the facts and circumstances that would establish petitioner's "intent to evade taxes." Further, the CIR failed to present clear and convincing evidence to prove that petitioner deliberately or willfully supplied incorrect information in her tax returns. It is undisputed that the figures reported in petitioner's Certificate of Compensation Payment/ Tax Withheld (BIR Form 2316) for TY 2011 to 2016,139 and Annual Income Tax Return (BIR Form 1700) forTY 2012, 2014, 2015, and 2016, 140 were computed and provided by the Supreme Court, through its FMBO-Cash Collection and Disbursement Division, as her employer. Petitioner was a pure compensation income earner from TY 2011 to 2016 and allegedly qualified for a substituted filing of her annual income tax return (AITR). As such, she claimed that instead of directly paying income tax to the BIR, the Supreme Court would withhold the appropriate income tax from her net taxable compensation income and would issue, every taxable year, her BIR Form 2316.141 Indubitably, any error committed in calculating, withholding, and remitting the correct amount of tax required to be deducted and withheld from income payments to ~ 86; Exh:bit "P-II ," OookOJ � VoL II, p. 687; Exh:bit "P-16,'' OookOJ � VoL II, p. 695; Exhibit " P-17," Docket - Vol. II , p. 696 ; Exhibit " P- 15," Docket- Vol. II, p. 694; Ex hibit " P-20," Docket- Vol. II, p. 702 : Ex hibit " P-23." Docket- Vo l. 11. p. 708: Exhib it " P-27." Docket - Vol. II , p. 715: Ex hibit " P-26." Docket- Vo l. 11 , p. 7 14. 140 Exh ibit " P-13 ," Docket- Vo l. II , pp. 690-692 ; Exhibit �' P-18," Docket- Vol. II, pp. 697-700; Exhibit " P-21 ," Docket - Vol. II, pp. 703 -706; Exhibit " P-25," Docket- Vol. 11, pp. 710-7 13. 14 1 Q/A N os. 9, 10 and 22, Judicial Affidavit, Exhibit " P-37," Docket- Vol. I, pp . 287-305.

DECISION CTA Case No . 1079 2 Justice Maria Lourdes P.A. Sereno v. Commis s ioner of Internal Revenue Page 39 of45 X--------------- ------------------------------ ---------------------------------------------X petitioner for the taxable years involved could not be attributed to petitioner, but necessarily-- to her employer. Revenue Memorandum Circular (RMC) No. 21-2010 142 emphasized the obligation of the employers to withhold, remit, and perform year-end adjustment on withholding taxes on compensation of their employees , viz.: This circular is issued to emphasize the obligation of the employers to withhold, remit, perform year-end adjustment on withholding taxes on compensation of their employees. In relation thereto, the applicable penalties for failure to comply with such tax obligations are also reiterated to ensure compliance with all the existing revenue laws and regulations relative to withholding tax on compensation. Section 80(A) of the National Internal Revenue Code (Tax Code) , as amended, provides that the employer shall be liable for the withholding and remittance of the correct amount of tax required to be deducted and withheld. Further, it is also required under Section 79(H) that "On or before the end of the calendar year but prior to the payment of the compensation for the last payroll period, the employer shall determine the tax due from each employee on taxable compensation income for the entire taxable year in accordance with Section 24(A). The difference between the tax due from the employee for the entire year and the sum of taxes withheld from January to November shall either be withheld from his salary in December of the current calendar year or refunded to the employee not later than January 25 of the succeeding year." Illustrative example on the year-end adjustment is shown under Section 2.79(B)(5)(b) of Revenue Regulations (RR) No. 2-98, as amended. [Emphasis supplied] As regards the year-end adjustment, Section 79(F) 143 of the NIRC of 1997, as amended , provides: (F) Year-end Adjustment. - On or before the end of the calendar year but prior to the payment of the compensation for the last payroll period, the employer shall determine the tax due from each employee on taxable compensation income for the entire taxable year in accordance with Section 24(A). The difference between the tax due from the employee for the entire year and the sum of taxes withheld from January to November shall either be withheld from his salary in December of the current calendar year or refunded to the employee not later than January 25 of the succeeding v year. [Emphasis supplied] 142 Penalties fo r Employers Who Fail to Withh old, Remit and Refund Employees of Excess Withho lding Taxes on Co m pe nsat ion. 143 Previously Section 79(H).

DECISION CTA Case No. 10792 Justice Maria Lourdes P.A. Sereno v. Commissioner of Internal Revenue Page 40 of45 X------------------------------------- --- --- ----------- ------------------------------------X Under the circumstances, We find that the error in petitioner's BIR Form 2316 and AITR, if there was any, was committed without any intent to evade the tax payment on the part of petitioner. If there were such an intent, petitioner would not have filed AITRs for TYs 2012, 2014, and 2015 and voluntarily paid income taxes in the amounts of P253,665.28, P50,800.00 and P1 ,600.00, respectively, in addition to the taxes withheld and paid by the Supreme Court. Moreover, as an employee, she reasonably relied on the BIR Form 2316 issued to her by her employer, which served as her AITR during the period, without separately paying additional taxes for TYs 2012, 2014, and 2015. As clarified in McDonald's, only intentional and deliberate errors may render the return false to invoke the extraordinary period under Section 222 (a). Indeed, a return may contain errors, as in this case. However, without clear and convincing evidence that the errors or misstatements in the tax returns had been deliberate or willful, the CIR could not invoke the 10-year prescriptive period. Nevertheless, the CIR may be relieved from the above- mentioned burden of proof when there is prima facie evidence of � falsity or fraud, as defined under Section 248(B) of the NIRC of 1997, as amended. There is prima facie evidence of a false return if there is a substantial under-declaration of taxable sales, receipts, or income. The failure to report sales, receipts, or income in an amount exceeding 30�/o of what is declared in the returns constitutes substantial under-declaration. 144 As explained in McDonald's, when there is prima facie evidence of falsity or fraud as the 30�/o threshold is satisfied, the burden of proof shifts to the taxpayer. If the taxpayer fails to overcome the presumption, the prima facie evidence shall be sufficient to justify the application of the 10-year prescriptive period. On the other hand, if the taxpayer is successful in overturning the presumption (i.e., demonstrating that the misstatement as ascertained by the CIR had been inadvertent or attributable to a mistake or was not deliberate or willful on the part of the taxpayer), the CIR cannot rely on the presumption in proving the taxpayer's intent to evade. W' 144 McDonald's Philippine Realty Corp. v. Commissioner ofInternal Revenue, supra at note 132, citing Samar-! �/eelric Cooperative. v. Commissioner ofInternal Revenue, G.R . No. 193100, December 10, 2014.

DECISION CTA Case No. 10792 Justice Maria Lourdes P.A. Sereno v. Commissioner of Internal Revenue Page 41 of45 X----------- -------------------------------------------------------------------------------X In the instant case, there is no prima facie evidence of a false return. While the PAN and FLD /FANs impose the 50�/o surcharge against petitioner and provide that "under Section 248 of the NIRC of 1997, failure to report sales in an amount exceeding 30�/o shall render the taxpayer liable for substantial under-declaration of sales and shall constitute prima facie evidence of a false and fraudulent return," the CIR did not present any computation to ascertain that the misdeclaration in the return surpassed the 30�/o threshold. Hence, the Court finds that the 10-year prescriptive period is inapplicable as the CIR failed to satisfy the conditions for applying the extraordinary 10-year period to assess as outlined in McDonald's. We shall now determine whether the assessment was issued within the 3-year ordinary prescriptive period under Section 203. First, we consider the deadline for individuals to file their annual income tax returns to be April15 ofthe followingyear.l45 Second, as previously quoted, the reckoning of the 3-year period is the date of actual filing or the deadline, whichever is later, 146 and the last day to assess is presented below: Year Deadline Last Day to Assess/ End 2011 April 15, 2012 of the 3-year Prescriptive 2012 April 15, 2013 2013 April 15, 2014 period 2014 April 15, 2015 April 15, 2015 2015 April 15, 2016 April 15, 2016 2016 April 15, 2017 April 15, 2017 April 15, 2018 April15, 2019 April 15, 2020 Third, an assessment is deemed made only on the date the assessment notice had been released, mailed or sent to the taxpayer. 147 Further, it is clear that the assessment contemplated in Sections 203 and 222 of the NIRC of 1997, as v amended, refers to the service of the FAN upon the taxpayer. 148 145 Section 5 1(C)( I), NIRC of 1997, as amended. 146 Section 203, NIRC of 1997, as amend ed. 147 CIR v. Pascor Realty & Development Corp. , G. R. No. 1283 15, Jun e 29, 1999, 368 PHI L 714-727 . 148 CIR v. Transitions Optical Philippines. Inc.. G.R. No. 227544, November 22, 20 17.

DECISION CTA Case No . 10792 Justice Maria Lourdes P.A. Sereno v. Commissioner of Internal Revenue Page 42 of45 x------ ----- -- ---- -------- --- -- ------ --------- ----------------------------- ------------ ----x As discussed, the BIR served the FLD /FANs dated November 5, 2018 covering the TY 2011 to 2016 upon petitioner, through counsel, on November 20 , 2018. 149 Clearly, the assessment forTY 2011 to 2014 had already prescribed on November 20, 2018; thus, the corresponding FLD/FANs are void as they were issued and served after the last day to assess or beyond the 3-year prescriptive period presented above. Having established that the period for assessing petitioner1s deficiency income taxes for TY 2011 to 2014 has prescribed, We shall now determine whether the assessment for TY 2015 to 2016 may be collected. The period to collect the assessed deficiency income taxes for TY 2015 to 2016 and prior years, i.e., TY 2011 to 2014, has also prescribed. The Supreme Court, in CIR v. Court of Tax Appeals Second Division, citing CIR v. United Salvage and Towage (Phils.}, Inc., 1so interpreted Section 203 of the NIRC of 1997, as amended, in this wise: The statute of limitations on assessment and collection of national internal revenue taxes was shortened from five (5) years to three (3) years by virtue of Batas Pambansa Blg. 700 . Thus, petitioner has three (3) years from the date of actual filing of the tax return to assess a national internal revenue tax or to commence court proceedings for the collection thereof without an assessment. However, when it validly issues an assessment within the three (3)-year period, it has another three (3) years within which to collect the tax due by distraint, levy, or court proceeding. The assessment of the tax is deemed made and the three (3)-year period for collection of the assessed tax begins to run on the date the assessment notice had been released, mailed or sent to the taxpayer. [Emphasis and underscoring supplied. ] Indeed, when the BIR validly issues the assessment within the prescribed 3-year period, it has another 3 years to collect the tax due by distraint, levy, or court proceeding. ~ 149 Supra at note 18. 150 G.R. No. 258947, March 29, 2022, citing CIR v. United Salvage and Towage (?hils.), Inc. , G.R. No. 197515 , Ju ly 2, 2014, 738 PH IL 33 5-357.

DECISION CTA Case No . 10792 Justice Maria Lourdes P .A. Sereno v. Commissioner of Internal Revenue Page 43 of45 X--------------------------------------------------------- --------------------------- ------X The distraint and levy proceedings are validly begun or commenced by the issuance of a warrant of distraint and levy and service thereof on the taxpayer, while a judicial action for the collection of a tax is initiated: (a) by the filing of a complaint with the court of competent jurisdiction; or (b) where the assessment is appealed to the CTA, by filing an answer to the taxpayer's petition for review wherein payment of the tax is prayed for. In this case, no warrant of distraint and/ or levy was served on petitioner, and the CIR initiated no judicial proceedings within the prescriptive period to collect.1s1 Accordingly, since the FLD /FANs were issued on November 5, 2018, the CIR had another three years reckoned from said date, or until November 5, 2021 , to enforce collection of the assessed deficiency taxes by distraint, levy, or court proceeding. Verily, when the CIR initiated the collection enforcement effort in this case on May 10, 2022, when he filed an answer to petitioner's Petition for Review, respondent's right to collect the assessed deficiency taxes forTY 2011 to 2016 had already prescribed. Thus, even if the assessment forTY 2015 to 2016 has not yet prescribed, the CIR's can no longer collect from petitioner the assessed deficiency income taxes for the period as he was already barred by prescription. The Court ought to reiterate that while taxes are the lifeblood of the nation, the Court cannot allow tax authorities indefinite and infinite periods to assess and collect alleged unpaid taxes. Certainly, it is an injustice to leave taxpayers in perpetual uncertainty whether they will be made liable for deficiency or delinquent taxes. 1s2 With the foregoing ruling, the Court deems it unnecessary to discuss the other issues raised by the parties. WHEREFORE, in light of the foregoing considerations, the instant Petition for Review is GRANTED. Accordingly, the undated FDDA TFS-11-16-22-002 and the FLD/FANs dated November 5, 2018 issued by respondent CIR against petitioner Justice Maria Lourdes P.A. Sereno for deficiency income taxes, surcharges and interests covering taxable years 2011 to 2016, are CANCELLED and SET ASIDE. lS I f d. v 152 !d.

DECISION CTA Case No. 10792 Justice Maria Lourdes P.A. Ser eno v. Commissioner of In ternal Revenue Page 44 of45 x- -- --- ------ -- --- -- --- ---- --- --- --- ------- ---- ---- ------------ ----- -- ------ --- ---- --- -- ---x Further, respondent is ENJOINED and PROHIBITED from enforcing the collection of the subject deficiency taxes during the pendency of this case. SO ORDERED. Mtrn~L LANEE S. CUI-DAVID Associate Justice !CONCUR: ~ (With Sepa JEAN MARI~....rs. ATTESTATION I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. ~ JEAN MARIE Asslciafu Justice Special 2nd Div~ Acting Chairperson

DECISION CTA Case No. 10792 Justice Maria Lourdes P.A. Sereno v. Commissioner of Internal Revenue Page 45 of45 X------------------------------------------------------------------------------------------X CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, and the Special 2nd Division Acting Chairperson's Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. Presiding Justice IV

j ,7 REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SPECIAL SECOND DIVISION JUSTICE MARIA CTA Case No. 10792 LOURDES P. A. SERENO, Members: Petitioner, BACORRO-VILLENA, Acting Chairperson, - versus- and CUI-DAVID, Jl. COMMISSIONER OF Promulgated: INTERNAL REVENUE, Respondent. l: v,1.,.. )( - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - F'\- - -~ - - - - - - - - - )( SEPARATE CONCURRING OPINION BACORRO-VILLENA, L: I concur with the ponencia of my esteemed colleague Associate Justice Lanee S. Cui-David in ruling that the subject assessments for deficiency income taJCes, surcharges and interests covering the taJCable years (TYs) 2011 to 2016 should be cancelled and set aside on the grounds that: (1) Respondent Commissioner of Internal Revenue (respondent/CIR) violated petitioner Justice Maria Lourdes P. A. Sereno's (petitioner's!former Justice Sereno's) right to due process in issuing the Formal Letter of Demand and Final Assessment Notices (FLD/FANs) dated os November 2018; (2) Even assuming that there is no such due process violation, the period to assess petitioner of deficiency inc;ome taJCes for TYs 2011 to 2014 has already prescribed; andJ

,, SEPARATE CONCURRING OPINION CTA Case No. 10792 Justice Maria Lourdes P. A. Sereno v. Commissioner of Internal Revenue X-------------------------------- -- --------- - ----X (3) Even assuming that there is no such due process violation, the period to collect the assessed deficiency income taxes for TYs 2015 to 2016 has also prescribed. Below, I am forwarding the legal anchors for my concurrence with the first and second grounds mentioned above. Firstly, as regards the ponencia's finding that, applying the Supreme Court's pronouncement in Commissioner oflnternal Revenue v. Avon Products Manufacturing, Inc. 1 (Avon), petitioner's right to due process was violated prescinding from the fact that the Details of Discrepancies attached to the FLO/FANs were copied verbatim from the Preliminary Assessment Notice (PAN) and that the FLO/FANs did not mention or make any reference to petitioner's Reply to the PAN, I wish to emphasize that the application of Avon in this case (as an exception to the substantial compliance rule) to invalidate the subject assessments is not based solely on the finding that the FLO is a mere reiteration of the PAN. Besides the fact that, as aforesaid, the Details of Discrepancies attached to the FLO/FANs were copied verbatim from the PAN, and the FLO/FANs failed to acknowledge or reference petitioner's Reply to the PAN, throughout the case records, starting from the issuance of the Letter of Authority (LOA) up to the issuance of the FLO/FANs, there is no indication that respondent duly evaluated and considered petitioner's arguments. In this context, it is more appropriate for this Court to apply Avon's ruling (i.e., that respondent's omission to give due consideration to the arguments and evidence submitted before him or her by petitioner is a deplorable transgression of petitioner's right to due process), as an exception to the general rule of substantial compliance with the due process requirements under Section 2282 of the National Internal Revenue Code (NIRC) of 1997, as amended. As aptly pointed out in the ponencia, there is no discussion of respondent's findings (in the FLO/FANs or any prior issuance for that matter) in a manner that would allow petitioner to understand the reasons for rejecting the refutations and explanations in her Reply to the PAN. In fact, it is only in the Final Decision on Disputed Assessment (FDDA) that respondent finally provided responses to each of petitioner's assertions.tf G.R. Nos. 2013 98-99, 03 October 2018. S EC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings[.] 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 supplied)

SEPARATE CONCURRING OPINION CTA Case No. 10792 Justice Maria Lourdes P. A. Sereno v. Commissioner of Internal Revenue X------------------------------------------------X Notably, in petitioner's Reply to the PAN, she explained that: (1) as a purely compensation income earner for TYs 2011 to 2016, the burden to declare and collect the correct amount oftaxes on the salaries, allowances and other emoluments fell on her employer, the statutory withholding agent, citing Section 79(A)3, in relation to Section 8o(A)4, of the NIRC of 1997, as amended, which imposes on the employer the duty to withhold and remit the correct amount of taxes; (2) any deficiency tax assessment must be directed to and addressed by her employer; (3) the proper basis for determining gross compensation income would be the alphalists submitted by her employer; and, (4) her employer correctly withheld and remitted the income taxes due on the payments she received for TYs 2011 to 2016, as evidenced by the reconciliation she provided (using the BIR Forms No. 2316, Supreme Court Alphalist and Presidential Electoral Tribunal [PET] Alphalist). Clearly, by neglecting to address petitioner's explanations as stated above, respondent left petitioner unaware of how the former or his or her authorized representatives appreciated the latter's explanations or defenses when issuing the subject FLD/FANs. This constitutes a clear violation of the due process requirement that must be observed at every step of the administrative proceeding. Secondly, while I agree with the ponencia's finding that even assuming that respondent did not violate petitioner's right to due process, the instant Petition for Review must still be granted since the period to assess petitioner of deficiency income taxes for TYs 2011-2014 has already prescribed, I wish to point out nonetheless that prima facie evidence of falsity or fraud can be inferred from respondent's computation of the deficiency income tax for TYs 2011-2016. As held in the recent case of McDonald's Philippines Realty Corporation v. Commissioner of Internal Revenue' (McDonald's), there is prima faci~ SEC. 79. Income Tax Collected at Source.- (A) Requirement of Withholding. - Except in the case of a minimum wage earner as defined in Section 22(HH) of this Code, every employer making payment of wages shall deduct and withhold upon such wages a tax determined in accordance with the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner. (Emphasis supplied) SEC. 80. Liability for Tax. - (A) Employer. - The employer shall be liable for the withholding and remittance of the correct amount of tax required to be deducted and withheld under this Chapter. If the employer fails to withhold and remit the correct amount of tax as required to be withheld under the provision of this Chapter, such tax shall be collected from the employer together with the penalties or additions to the tax otherwise applicable in respect to such failure to withhold and remit. (Emphasis supplied) G.R. No. 247737, 08 August 2023.

SEPARATE CONCURRING OPINION CTA Case No. 10792 Justice Maria Lourdes P. A. Sereno v. Commissioner of Internal Revenue X------------------------------------------------X evidence of falsity or fraud, as defined under Section 248(B)6 of the NIRC of 1997, as amended, when the misstatement is substantial, such that it exceeds the corresponding amount declared in the return by 30%. In this case, the burden of proof shifts to the taxpayer. If the taxpayer fails to overcome the presumption, the prima facie evidence shall be sufficient to justify the application of the ten (10 )-year extraordinary prescriptive period. However, if the taxpayer is successful in overturning the presumption (e.g., demonstrating that the misstatement as ascertained by the CIR had been inadvertent or attributable to a mistake or was not deliberate or willful on the part of the taxpayer), the CIR cannot rely on the presumption in proving the taxpayer's intent to evade. To my mind, although respondent did not present a computation detailing the amount of misdeclaration in the returns that exceeded the 30% threshold for substantial underdeclaration of income, thereby constituting prima facie evidence of false or fraudulent returns, it is ascertainable from the computation of deficiency income taxes for TYs 2011 to 2016, embodied in the PAN, the FLD/FANs and the FDDA, that petitioner's underdeclaration of income exceeded 30% of that declared per returns. However, applying the ruling in McDonald's, petitioner successfully overturned such presumption of falsity or fraud in her Reply to the PAN, where she was able to demonstrate that the misstatement that respondent ascertained was not deliberate or willful on her part. Particularly, she explained that as a purely compensation income earner for TYs 2011 to 2016, she qualified for substituted filing (in which case, any deficiency tax assessment must be directed to and addressed by her employer, the statutory withholding agent). She also provided a reconciliation showing that her employer correctly withheld and remitted the income tax due on the payments she received for TYs 2011 to 2016. Again, since petitioner has overturned the said presumption, respondent cannot rely thereon in proving petitioner's intent to evadeJ 6 SEC. 248. Civil Penalties.- (B) In case of willful neglect to file the return within the period prescribed by this Code or by rules and regulations, or in case a false or fraudulent return is willfully made, the penalty to be imposed shall be fifty percent (50%) ofthe tax or of the deficiency tax, in case any payment has been made on the basis of such return before the discovery of the falsity or fraud : Provided, That a substantial underdeclaration of taxable sales, receipts or income, or a substantial overstatement of deductions, as determined by the Commissioner pursuant to the rules and regulations to be promulgated by the Secretary of Finance, shall constitute prima facie ev idence of a false or fraudulent return : Provided, further, That failure to report sales, receipts or income in an amount exceeding thirty percent (30%) of that declared per return , and a claim of deductions in an amount exceeding (30%) of actual deductions, shall render the taxpayer liable for substantial underdeclaration of sales, receipts or income or for overstatement of deductions, as mentioned herein. (Emphasis supplied)

�� SEPARATE CONCURRING OPINION CTA Case No. 10792 Justice Maria Lourd es P. A. Sereno v. Commissioner of Internal Revenue x--- - ---------------------------------- ~ -- - --- -- -x overturned the said presumption, respondent cannot rely thereon in proving petitioner's intent to evade. Having failed to clearly prove petitioner's intent to evade under the circumstances, respondent's invocation of the extraordinary 10-year � assessment period is not justified. All told, I vote to GRANT the instant Petition for Review and thereby, CANCEL and SET ASIDE the undated FDDA and FLD/FANs and ENJOIN and PROHIBIT respondent from enforcing the collection of the subject deficiency taxes. ( LLENA