THE CITY GOVERNMENT OF VALENZUELA, HON. ADELIA SORIANO, in her capacity as CITY TREASURER, AND ATTY. ULYSEES L. GALLEGO, in his capacity as OFFICER IN-CHARGE OF THE BUSINESS PERMIT AND LICENSING OFFICE v. NLEX CORPORATION

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY THIRD DIVISION THE CITY GOVERNMENT OF CTA AC NO. 296 VALENZUELA, HON. ADELIA (RTC Civil Case No. C-25725) SORIANO, in her capacity as CITY TREASURER, AND Members: ATTY. ULYSSES L. GALLEGO, in his capacity as OFFICER- MANAHAN, Chairperson, IN-CHARGE OF THE REYES-FAJARDO, and BUSINESS PERMIT AND ANGELES, JJ. LICENSING OFFICE, Pe titione r, -versus- Promulgated: NLEX CORPORATION, _-__e -._M_-._.A'----'-V"~ ---2---9=J-~"2-:"0z"-2-."~5--P--�.--,.-.-�- ){- - - -- - - - - - - - - R e sp o n d e n t . - - - -){ ------ -- RESOLUTION MANAHAN, J.: B efore the Court is petitioner's Motion for R econside ration (to the CTA Decision dated 15 November 2024) posted on January 3, 2025 (" Motion for Reconsideration"), ! with respondent's comment filed on January 20, 2025 .2 Petitioner seeks that the Court set aside its Decision dated November 15, 2024 ("assailed Decision"),3 which affirmed the cancellation of the local bu sine ss t~ assessment issued by petitioner against r espondent for t~able years 2 005 to 2 014 . In the assailed Decision, this Court h eld that: 1.) the t~ assessment issued on November 11, 2 0 19 is a lready barred by prescription under Section 194 of the Local Gove rnment Code, which provides that local t~es shall be assessed and collected within five (5) years from the date they became due; and 2 .) 1 Docket, pp. 127- 138. 2 Comment (Re: Motion f or Recons ideration d ated 27 December 2024), Docket, pp. 152 - 163. 3 Docket, pp. 11 5 -1 25. ~

RESOLUTION CTA AC NO. 296 petitioner's invocation of the ten (10)-year prescriptive period under the same provision is without basis due to its failure to establish fraud. In the instant Motion for Reconsideration, petitioner once again insists that respondent's verbal proposal to treat its allegedly erroneous tax payments as donation indicates fraud. According to petitioner, the proposal is "inconsistent with lawful tax compliance and exemplifies deliberate circumvention." Petitioner asserts that fraud need not be proved by direct evidence, and that "no person in his right mind would put into writing or document its fraudulent proposal, thereby providing incriminating evidence." In its comment, respondent contends that: 1.) petitioner merely rehashed its arguments, all of which have already been addressed by the Court; 2.) petitioner did not make any finding of fraud in its tax assessment and only alleged it for the first time during trial; 3.) respondent's proposal lacks fraudulent intent; and 4.) an offer of compromise cannot be considered as an admission of liability and should not be taken against the offeror. Respondent also maintains that it demonstrated good faith by reporting its income to petitioner upon the issuance of Department ofFinance Local Finance Circular No. 1-2023, which classified toll booths as a branch office. Upon careful consideration of the arguments raised by both parties, the Court finds the Motion for Reconsideration to be without merit. First, as already settled in the assailed Decision, fraud cannot be presumed from respondent's proposal to treat its tax payments as a donation. Such proposal, on its own, hardly signifies any intent to evade the payment of taxes. On the contrary, despite its position that it is not liable for the subject taxes, respondent paid the same and has availed of the proper legal remedy to protest the assessment against it. While it is true that fraud is a state of mind that need not be proved by direct evidence but may be inferred from the attendant circumstances,4 it remains the burden of the party 4 Dumaran v. Llamedo, G.R. No. 217583, August 04,2021 [Per J. Hernando, Second Division].~

RESOLUTION CTA AC NO. 296 a lleging fraud to establish it by clear a n d convincing evidence .s Clear and convincing evidence is more than preponderance but less than the certain ty of beyon d reasonable doubt.6 Here, asid e fr om its m ere imputation th at respondent's prop osal was tainted with fraud, petitioner failed to present any evidence- let alon e clear and convincing evid ence-of the existence of such fraud. Second, respond ent a p t ly noted th at it was only wh en Atty. Ulysses L. Gallego testified in court that petitioner alleged , for th e first time, the existence of fraud. Unfortunately, this constitutes a violation of du e proces s . As a governmen t entity vested with th e p ower to assess a n d collect tax, respondent has th e cor relative du ty to respect the taxp ayers' right to du e process. Due process demands that a taxp ayer b e informed of th e ba sis of a n assessmen t against it, inclu ding the reason for exten ding the assessment period, if app licable. Th e Supreme Court's ruling in McDonald's Philippines Realty Corporation v. Commissioner of Internal Revenu e7 is in structive: ... while the law accords the tax authorities an extended period within which they may investigate t h e taxpayer and issue a corresponding tax assessmen t, the law does so by exception. Furthermore, it is r ecognized that the law on prescription should be liberally construed in favor of the taxpayer , to afford them protection against u nreasonable examination, investigation, or assessment. Thus, when invoking the benefit of the extra-ordinary 10-year assessment period, as well as the presumption offalsity or fraud, the tax authorities are duty-bound to respect a taxpayer's fundamental right to due process of the law. There is due process when the taxpayer is provided with information necessary to mount an intelligent and timely protest/defense to the assessment. s Spouses Velarde v. Heirs of Concepcion Candari, G.R. No. 190057, October 17, 2022 [Per J. Lopez, M., Second Division]. 6 Pangasinan v. Disonglo-Almazora, G.R. No. 200558, July 01, 2015 [Per J. Mendoza, Second Division). 7 G .R. No. 247737, August 08, 2023 [Per J. Inting, En Bane). Emphasis supplied, citations omitted. ~

RESOLUTION CTA AC NO. 296 Consequently, first, the tax aut horit ies are required to communicate t o the t axpayer, in a clear and adequate manner, t he basis for extending the assessment period. Guided by the pronouncements in Asalus, Fitness by Design, and Spouses Magaan, the tax authorities are obligated to indicate in the assessment notice that the extraordinary prescriptive period is being applied and the bases of allegations of falsity or fraud (First Due Process Requirement). Second, they are likewise proscribed from adopting a position inconsistent with the invocation of the extended period or that which will mislead the taxpayer and prejudice its defense (Second Due Process Requirement). Tax assessments issued in violation of due process rights are void,s and no right to collect can arise therefrom. Thus, even assuming that the assessment issued by petitioner has not prescribed, it is still void for violating respondent's righ t to due process. ACCORDINGLY, petitioner's Motion for Reconsideration (to the CTA Decision dated 15 November 2024) is DENIED for lack of merit. SO ORDERED. (~.J:~ CATHERINE T. MANAHAN Associate Justice WE CONCUR: ~ ~ [~,f~'~ck MARIAN I'VY~. REYiS~FAjARDO Associate Justice HENRY j~NGELES Associate Justice s Commissioner of Internal Revenue v. Pilipinas Shell Petroleum Corporatio n, G.R. No. 197945, July 09 , 2018 [Per J . Leona rdo-de Ca s t ro, First Division ].