CTA Case No. 5024 (Decision)

REPUBLiC OF THE PHiliPPiNES \"."." U ,.. U ,,J,"_1.>,I. u "rr- -IrHnv A .1n'-\n II.-.. Cr-J1-\\tLtv"'" nllt:7nl\l f""ITV VL-�..'JJ"41 '-'1 1 1 v.""E''"uT1 nrv�1u \1.. r- ra:::: nr v"rr.:_,..,�. -1r v. CORPOR.t\ T!ON, Petitioner, -versus- LIWAYWAY VINZONS-CHATO, in her capacity as the Commissioner of lntPrnal RPuPniiP JUN 1 3 1997fQ/#::(:? . . �-. -� --� Respondent. . ��-� . ------------ ---------- --- ------------ X- - - - - x" DECiSiON Petitioner comes before Us praying for the deciamtion of nuliity of an assessment for aiieged deficiency income tax for 1889 issued by the respondent against the petitioner in the total arnount of P7,604, 149.47, inclusive of penalties and interests. The antecedent facts of the case are as foilovvs. Petitioner is a corporation duiy organized and existing under and by virtue of the iaws of the Republic of the Philippines. On October 16, i 889, petitioner filed its CJnnuCll income tax return for fiscal year ending June 30, 1989 (Exh. "T"). Thereafter, on August i 7, i 992, petitioner executed a ;;VVaiver of the Defense of Prescription under the Statute of Limitation:;; j

DECISION CTA CASE NO. 5024 2 of the National Internal Revenue Code" (Exhs. "X" and ''Y". pp. 99 and 100, biR Records). On June 30, 1993, petitioner received Assessment Notice No. FAS-2-89- 93-002482 (Exh. "A-1 ")from the respondent. for alleged deficiency mcome tax tor the fiscal year ending June 30. 1989 in the amount ot P7,o04,149.47 computed as follows: Net Loss Per Return (P C$,599,5!:52.00) l\dd: Disnllovvnnce Interest Expense on back to back lonns Jet Income Por lnvestigtition 01 ()()At::()()() 7Q Tax Due Thereon 1 1 v,v-,.v,vvv. t v Interest p 3,!:>16,1 00.2/ 879,025.07 3,184,024.13 25 000.(10 Totnll\mount Due On July 15, 1993, petitioner fi!cd protest lc++r.�� I 1.1. .\.o.l \rt':-v1\.h11. "P L.J"\I ,,i+h +h,-, vv II. I ' 1.11'-' nspondcnt seeking for the reconidortJtion, CJsscssment for fDck of lcgo! bsis. On ugust 6, 1993, petitioner rccci'v'Cd from the respondent a letter dc:ltcd Ju!y 23, 1993 (Exh. "C") denying pctit:oncr's protct against the disputed osscssmcnt. Honccl on ,ugust 31, 1993. the instant Petitio for Rcvic'vV v.,:os filr-rl lll\,.,;\..4.

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DEC!S!ON CTA CASE NO. 5024 4 assessments, that they are made m qood faith, and that the .taxpayer.has the - ... burden to prove otherwtse. On February 16, 1996, petitioner ttled a fv1ot1on to Allow Pettttoner to Adduce Addittonal Rebuttal Evidence (pp. 118-121, CTf\ recs.) to prove that the assessment notice dated June 15, 1993 (cxh. ''AH) has been tss.u ed beyond the three-year limitation provided in Section 203 of the Tax Code. It contends that the assessment was issued by t11e respondent based on U1e Annual Income Tax Return filed by the petitioner on October 16, 191:39 (Exll. "T") for tile f1scrJI year ending June 30, 1989, hence, respondent had only up to October 14, 1992 (1992 was a leap year), or three years from the date ot tllmg, to make a valid assessment. In its Comment, dated June 14, 1996 (pp. 2b0-261, Cl A recs.), respondent averred that the issue of prescnption was never raised by the petitioner in its letter-protest dated July 15, 199J, thereby precludmg the latter from invoking the same for the first time before tl11s Court. Respondent cited the cases of Commissioner of Internal Revenue vs. c. t. Braun & Co., et a/., CA- G.R. 24609, August 20, 1994, citing PNB vs. Parina, 22 SCRA 912 and Commissioner of internai Revenue vs. Viai and the Court of Appeais, 22 SCRA 3 to prove her point. \ive must first settie the preliminary and prejudicial issue of prescription raised by the petitioner, for if found to be meritorious, aii other issues invoived in this case wii l be moot and academic and necessa ri i y, the coroiia ry issue on the 5 J"' I '-_) ,-

DECISION CTA CASE NO. 5024 5 / validity of tt1e Waiver of the Defense of Prescription (VVa1ver. for short) executed by the petitioner should also be resolved. Tile requirements for a valid waiver are expressly provided under ect1on 223(b) of the Tax Code, to Wit: "Sec. 223. Exceptions as to a period of limitation of assessment and collection of taxes. - (b) If bfore the expirGtion of the time prescribed in the preceding section for the assessment ot the tx, both the Commissioner of !ntcrntJI Revenue Gnd tho taxpayer have aqreed in writinq to its asssl}lent atter such time, the tx mny' be sscsscd nt nnJ' time prior to the cxpirtion of the Q_rjod aqed_ upon. The penod so agreed upon may be extended by' ubsequont \Vritten ()grecment modo before the expiration of thG period previously agreed upon." (underscoring suppl i ed) In the Instant case, the Waiver executed by Ule pet1t1oner, was signed by one Bernardo A Frianeza who is the Assistant Revenue Service Ch1ef ot pec1al Operations Service of the Bureau of Internal Revenue. Apparently. the subject Wa1ver lacks the requ1red consent of the Commissioner of internal Revenue. Moreover. under Revenue Memorandum Order No. 20-90, only the Commissioner of Internal Revenue is authorized to sign a waiver for tax cnses involving more than P1 ,000,000.00 and in the present case, tile petitioner 1s disputing an assessment amounting to P7,604,149.47. A port1on of RMO No. 20-90, issued on /-\pnl 4, 1990, is quoted hereunder for emphasis, to w1t : "3. The followrng revenue officials are <.luthorizod to sign tile wa1ver. A In the National Office --------------- 1. ACIRs for Collection, for tax cc:1ses tnvolving "-" YJ'-\'J\":';\IV"'Ii . <;....IIl f"-l' ff"J'f\";.\1t"U ""'+1.1iJV "'\It"I"'C.."J1 l""1\ "\"+ t"Y"'I"'\1."' +h"'"''tl I lVI. II lVI V Ll tf.A.II 5 ) (J

DECISION CTA CASE NO. 5024 6 National Assessment. P500,000.00. tax cases pending h,._f0 .."' +h"'i .. .I ."lr,..."..),;t'"J'"... c+Ui,V'V " l-J\,;1 IV \.1 I \,..oil oitices. In the absence of the /\CIR. the Hcnd Executive Assistant may sign the '"'.-.." '",. Y'IIVVI , .'.-,. . Deputy' Commisioncr For tax case inv'olving more than PSOO,OOO.UO but not more thnn P11\4. Commisioncr For tox cases invohiinq more than P1 M.'' Furthermore, a close scrutmy of t11e W a 1ver revealed that no penod was agreed upon Within which the respondent may val !dly assess tt1e petitioner atter the regular three-year period of prescription provided by law. This Court, therefore, holds that the said Wa1ver IS mvai ld and Without any bindmg ettect on the petitioner for the reason that there was no consent by the respondent (Comm1ss1oner of Internal Revenue) and no period was set or agreed upon for subsequent assessment (Carnation Phils., Inc. etc. vs. Commissioner of internal Revenue, Cta Case No. 4263, January 26, 1993). The contention of the respondent that faiiurc of tile petitioner to raise the issue of prescription in its ietter-protest, preciuded it from invoking the sc:me ior the first time before this Court is untenabie. in the first piace, the peti tioner cannot raise the issue of prescription in its ietter-protest fiied on Juiy �j 5, i 993 because of its prior execution of a supposediy

DECISION CTA CASE NO. 5024 7 valid "Waiver of the Defense of Prescription" on August 1l, 1 82. It was only after a careful perusal of the records of the Bu reau o1 Internal R evenue where the VVaiver (Exhs. "X" ar)d "Y", BIR records, pp. 99-1 00) was flied and during the pendency of the case before this Court, that the petitioner discovered the mvalid1ty of the Waiver signed by 1ts representative. Such knowledge prompted the petitioner to file a Motion to Allow Pet1t1oner to Adduce Additional Rebuttal Evidence where it invoked the defense of prescnpt1on. Secondly, the case of Commissioner of Internal Revenue vs. C. �1. oraun & Co., et al., CA-G.R. 24609, August 20, 1994, citmg PNB vs. Parina, 22 0CRA 912 and Commissioner of Internal Revenue vs. Villa nnd tt1e Court ot Appenls, 22 CRA 3 cited by the respondent IS not applicable in tl1e case at bar. The PNl:3 vs. Panna case mvolved the failure to plead the defense ot prescription 1n an �_f'J_?.eL to_a COITJ_plalnt which constitutes a waiver of tile defense . In the 1nstant case, the respondent 1s quest1onmg the ta1lure of the petitioner to Invoke the defense ot prescription 111 1ts letter-protest and not 111 an answer to a complaint . In the same vein. the case ot Comm1ss1oner ot Internal Revenu e vs. Villa and the Court of Appeals mvolved the t1ilng of a petition for rev1evv before th1s Court without contestmg the assessment before the Bureau of Interna l Revenue. It was ruled that the case was premature and the Court ot Tux Appeals 11ad no JUrisdiction to entertain sa!d appeal. For s stated, the JUnsd!ct!on of t!1e lax Court 1s to rev1ew by appeal decisions ot the Cornrn1ssioner of Internal Revenue on disputed assessments. The Tax Court is a court of special jurisdiction. As such, 5CfJ

DEC!S!ON CTA CASE NO. 5024 8 1t can take coqnizance only of such matters as are clearly withm 1ts IUrisdJctJon. - '-' . Note that the law uses the word ''decisions;, t11us , further indicating the legislative intention to subject to judicial review the decision of the Commissioner on the protest against an assessment but not the assessment itself. On account of the foregoing cases. the Court of Appeals 111 the case of Commissioner of Internal Revenue vs. C.T. Braun & Co., et al., inadvertently 11eld that failure to raise the defense of prescnpt1on 111 the protest aga1nst the assessment precludes the petitioner to m1se said defense before this Court, , unmindful ot the inapplicability of the rulings in said cases over .he case at hand due to difference in facts and issues involved. f\nd lastly, an appeal to this Cour1 has the eltect of reope nmg tlle assessment entirely, tackling all the issues raised before 1t for resolution. In tr1e case of J.G. McCrory Co. v. Commissioner of Corporations and Taxation, 182 N.E. 481, 483, 280 Mass. 273, this matter vvas explicitly eluctdated as tallows: "Board of Tax Appeals, on taxpCJyer's appeal tram commissioner's denio! of Llbctcmcnt of tc::xcs, held Quthcrizcd to retry every issue raised by petition and answer. Board of Tax /\ppe!s coutd retry every isuc ried by petition tind anvJcr as against contention that function of Board was 11n11ted to a review o�t commissioner's nction nd that it V\/G not cmpovv'crcd to try' the whole matter anew; the word "appear' under G.L. c. 63, 51,71, ,..,i,,inn +h"" h'"',_,,. Jiuri1 C"',\-.A4I i,V..+LIicII t"" "dl\";',\V,.I.ir'-'f4\",. t..A. tn..ltt-"J'\V"\".A.\'"1I.,.J. 1 " .h..,\A.r.iilnln t...<.,r..r.>.l\.lAIf'V"I\I1V"'\U,.., +I"'\ lVIII LII\J UVtAI\.A LV LV have been employed advisedly and required to be construed L:c: cording to the cOmmon nd Qpprovcd uagc of the longuoge, and the word "appear_meaning a whole ne_w__trial _gr atJ__�.!J_t!re re_h�!J.!I!D.9. � 'P""' .U..lIlI ++"r"' I1"1V1'' <....4.\.L V of ftf,..A,V,..+L "'Al"'l d "'U""'+;,..,.,"' oIf I1"U\'"'I I;l,.l, \,..I.,V.n. It�1�4,,..,c.AV-+L. "VV'J"l.lh th"' JIV U VII \.1 V..>.t.IVII'-' word ''review" which signifies a re-examination ot proceedings ..,., ..,.,.,ri., h,.,ri "(L�nri"r"'C"";n,., "''ppli,..ri\ c.I .A I\,;UYJ IIU.U. H \.A\,; V VII I ..JU I'CUj

DECISION CTA CASE NO. 5024 9 In fact, the issue ot prescnpt1on may still be invol<:ed by the petitioner 111 his appeal from the decision of this Court as held 111 tt1e case of Celestino C. Juan vs. Commissioner of Internal Revenue, Et Ai, G. R. No. L-18383, lViay 30, 1966, thus: "On the other hand, the 1ssue of prescription raised by for [n:'o-+"'Jti1- nn 11- or1in I'Cif'Qnsirlor�tif"'n befnro th"' Tv r'f"'ttr+ t'Yl\1 hie mntion I I 1-V t'W4- "-"'"''"''' -�- .,,,_ ltlr I llo.oi\F' .._.V . o.1 . 1 1.. Ill It "J I It I 1- and should properly be taken up in an appeai frorn the finai decision vvhich said Court ma,' render on the main petition." (underscoring supplied) Finding that the petitioner may stili vaiidiy raise the issue of prescription before this Court, vVe now come to the factual basis of petitioner in a!ieging the said defense. The applicable provision of law is Section 203 of the Tax Code, as quoted: "Sec. 203. Period of iimitation upon assessment and ,.. p rnllortinn l=v o _ t c nrf"'Hirlorl in tho c,,,..,..oorlinn - c::o-V ,.t. \.1ionI 1 intorn-:-:1 ""'""''"-""''-'- lo Lo-r\.-- f""'l-lll""'"'"" """V II l. 1- -"-"----'-'41111 111"'-111-1 revenue taxes shall be assessed within three years after the last day rescr!bed b'' lavJ for the fi!!n/"1 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: Prc,lided, 1-hat in a case where a return is filed beyond the period prescribed by law, the� For the purposes of this section a return filed before the iast day prescribed by !avv for the filing thereof sha!l be considered as fi!ed on such last day." (underscoring supplied) Evidence showed that petitioner's Annuai income Tax Return was filed on October �1 6, �j 989 (Exh. "T"), while the Notice of Assessment, dated June i 5, i 993, was received by the petitioner on June 30, i 993 (Exh. "A') or after three / years and eight months counted from the day the return was filed. Cieariy then, 5 (\_;. �-

DECISION CTA CASE NO. 5024 10 the nq..., ht of the resp. ondent to assess and collect trom the .pet1t1oner had already- prescribed. Inasmuch as the assessment for alleged def1c1ency income tax for 1989 was issued beyond the three-year period allowed by the Tax Code, the Court finds no need to delve into the other issues involved 1n this case. WHEREFORE, in view of all the foregoing, the assessment issued by the respondent agamst the petitioner for alleged deficiency income tax for 1989 1n the amount of P/,604,149.47 1s hereby declared as null and void, and set aside. No pronouncements as to costs. SO ORDERED. Q ERNESTO D. ACOSTt: Presiding Judge I CONCUR: \{('-"'1\"..1., 1,,'-.'U.,...,.,V,\,.._..j\ RAMON 0. DE VEY RA /\sscciotc Judge lr"IAA C / 1 ,,,, . ...,, ... "'-� ... Assoc1ate Judge

DEC!S!ON CTA CASE NO. 5024 11 CFRTIFIGATION I hereby certify that. this decision was reached after due consultation with the members of the Court of Tax Appeals in accordance with Section 13, Article VIii of the Constitution. Q.D ERNESTO D. ACOSTt-\ Court ofTax Appeals