SOUTH COTABATO 1 ELECTRIC COOPERATIVE, INC. v. COMMISSIONER OF INTERNAL REVENUE

CTA Fonn No.8 1111111111111111111111 111111111111111 1111111111111111111111111 11111 1111111111111 22-000365-0043 REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY FIRST DIVISION CTA CASE NO. 10937 SOUTH COTABATO 1 ELECTRIC NOTICE OF DECISION COOPERATIVE, INC., Petitioner, - versus- COMMISSIONER OF INTERNAL REVENUE, Respondent. To: OFFICE OF THE SOLICITOR GENERAL 134 Amorsolo Street, Legazpi Vi llage Makati City ATTY. AYESHA HANIA B. GUILING-MATANOG ATTY. CHRISTINE C. CATIMBANG Bureau of Internal Revenue Room 703. Litigation Di vision BlR National Office Building Sen. Miriam Defe nsor-Santiago Avenue Diliman, Quezon City CABRERA & COMPANY 28th Floor, AlA Tower (Fonm:rly Philam life Tower) 8767 Paseo de Roxas, 1226 Makati City GREETINGS: You are hereby notified by these presents that on April 18, 2024, a Decision was rendered in the above-entitled case, copy of which is attached hereto. Quezon City, Philippines, April 22, 2024. Page J of 1

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY FIRST DIVISION SOUTH COTABATO 1 CTA CASE NO. 10937 ELECTRIC COOPERATIVE, INC., Members : Petitioner, -versus- DEL ROSARIO , P.J. , BACORRO-VILLENA, and CUI-DAVID, JJ. COMMISSIONER OF Promulgated: INTERNAL REVENUE, Respondent. ){- - - - - - - - - - - - - - - - - - - - - DECISIO CUI-DAVID, J.: Before this Court is a Petition for Reviewl posted on July 8 , 2022 by petitioner South Cotabato 1 Electric Cooperative, Inc. ("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 4 3 of the Revised Rules of the Court of Tax Appeals4 ("RRCTA"). i 1 Docket, pp. 7-21. 2 Section 3. Who May Appeal; Period to File Petition. - (a) A party adversely affected by a decision, rul ing 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 ofTrade 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 filed within thirty days after receipt ofa 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 Commissioner of Internal Revenue on claims for refund of internal revenue taxes erroneously or illegally collected, the taxpayer must file a petition for review within the two-year period prescribed by law from payment or collection of the taxes. 3 Section 3. Cases Within the Jurisdiction ofthe Court in Divisions. - The Court in Divisions shall exercise: (a) Excl usive original or appel late jurisdiction to review by appea l the following: ( I) Decisions of the Commissioner of Internal Revenue 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 4 A.M. No. 05- 11-07-CTA.

DECISION CTA Case No. 10937 South Cotabato 1 Electric Cooperative, Inc. v. Commissioner of Internal Revenue x------------------------------------------------------------------------------------------x THE PARTIES Petitioner South Cotabato 1 Electric Cooperative, Inc. was incorporated as a non-stock non-profit membership electric cooperative on August 31, 1971 under the provisions of Republic Act ("RA") No. 6038, otherwise known as the National Electrification Administration ("NEA") Act. s Petitioner is registered with the Bureau of Internal Revenue ("BIR") with Tax Identification Number 000-940-174.6 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.7 THE FACTS On December 27, 2007, the Regional Director of Revenue Region No. 18 released two Formal Letters of Demand ("FLD") dated December 10, 2007, and signed by Regional Director Esmeralda M. Tabule , against petitioner. The first FLD demanded the payment of P19,120,471.85 representing deficiency income tax ("IT"), percentage tax ("PT"), value-added tax ("VAT") expanded withholding tax ("EWT"), and final withholding tax ("FWT") for calendar year ("CY") 2004, while the second FLD demanded the payment of P83,400.00 1n compromise penalties.8 On March 5, 2008, petitioner allegedly applied and paid for the tax amnesty for its 2004 tax liabilities pursuant to RA No. 9480 .9 On March 30, 2009, respondent issued a Preliminary Collection Letter ("PCL"), which petitioner received on March 31, 2009. The PCL, signed by Revenue District Officer Muslimen L. Maca-Agir Al-Hadj, 10 prompted petitioner to file a Reply Letter v on April 3, 2009. 11 5 Petition for Review, par. I. 6 /d. , par. I0; adm itted by respondent in his Answer, par. 2, p. 264. 7 !d., par. 3; admitted by respondent in his Answer, par. I, p. 264. 8 !d.. par. II: admitted by respondent in his Answer. par. 2. formally offered by petitioner as Exhibit " P-5'', but den ied admission by the Court for failure of petitioner to present the originals for comparison; 81 R Reco rds, pp. 251 -252. 9 Tax Amnesty Act of2007, May 24,2007. 10 Petition for Review, par. 13; BIR Records. p. 254. 11 !d., par. 13.

DECISION CTA Case No. 10937 South Cotabato 1 Electric Cooperative, Inc. v. Commissioner of Internal Revenue x------------------------------------------------------------------------------------------x On August 29 , 2009 , respondent issued a Final Notice Before Seizure ("FNBS") 1n the total amount of P19, 120,471.85. 12 On October 22, 2009, petitioner allegedly received a Letter from respondent dated September 24, 2009, informing petitioner that it considered petitioner's application for tax amnesty. However, the Letter also informed petitioner that the Revenue District Office would still be enforcing the collection of the alleged deficiency EWT and FWT. 13 On October 28, 2009, petitioner filed a Request for Reprieve on Surcharges, Penalties, and Compromise Penalties. 14 On October 31 , 2009, petitioner paid basic deficiency withholding taxes. Is On January 13, 2011, petitioner received another FNBS for P19,203,871.85 .I6 On June 8 , 2022, petitioner, through Francis Ian A. Fedoc (Mr. Fedoc), received a Warrant of Distraint and/ or Levy ("WDL") .17 PROCEEDINGS BEFORE THE COURT On July 8, 2022, petitioner posted a Petition for Review with an Urgent Motion to Suspend Tax Collection and Prayer for the Issuance of a Temporary Restraining Order ("TRO").1s The Court received the Petition on July 25, 2022 . On August 15, 2022, the Court issued a Resolution finding the Petition for Review deficient and directing p etitioner to submit the Judicial Affidavit of its witnesses and the original copies of (i) Verification and Certification ofNon-Forum Shopping; (ii) Secretary 's Certificate; and (iii) Special Power ofAttomey.19 ~ 12 !d., par. 14. 13 /d., par. 16. 14 /d. , par. 17; BIR Records, p. 272. IS /d.. par. 18. 16 /d., par. 19; admitted by respondent in his Answer, par. 2; BIR Records, p. 277. 17 !d., par. 20; admitted by respondent in his Answer. par. 2; Exhibit �'P-7", Docket, p. 183. 18 Supra at note I. 19 Docket, pp. 60-61.

DECISION CTA Case No. 10937 South Cotabato 1 Electric Cooperative, Inc. v. Commissioner of Internal Revenue x--- ------------------------------------------------------ ------------- -------- ------------x On September 20, 2022, petitioner filed a Motion to Admit Verification and Certification ofNon-Forum Shopping, Secretary's Certificate, and Special Power of Attorney and to Extend the Deadline of the Judicial Affidavit of Petitioner's Witness. 20 On September 23, 2022, it filed a Motion to Admit the Judicial Affidavit of Francis Ian A. Fedoc. 2 1 Both motions were granted in an Order dated September 29, 2022.22 On September 29, 2022, petitioner presented its witness, Mr. Fedoc, who testified on direct examination by way of a Judicial Affidavit. On October 4 , 2022, respondent received a summons. 23 On October 7, 2022 , petitioner filed a Formal Offer of Evidence (for Petitioner's Urgent Motion to Suspend Tax Collection with Prayer for the Issuance ofTR0),24 to which respondent filed his Comment (Re: Petitioner's FOE in relation to Urgent Motion to Suspend Tax Collection with Prayer for the Issuance of TRO) on October 11, 2022.25 The Court resolved the said FOE on October 20, 2022.26 After being ordered by the Court, petitioner filed its Compliance (Submission of Petitioner's Memorandum) on November 2, 2022,27 and respondent filed his Memorandum (on Petitioner's Urgent Motion to Suspend Tax Collection and Prayer for the Issuance of a Temporary Restraining Order) on November 10, 2022.28 On November 3, 2022, r espondent posted his Motion for Extension of Time to File Answer.29 On November 22, 2022, the Court submitted petitioner's Urgent Motion to Suspend Tax Collection, and Prayer for the Issuance of a Temporary Restraining Order incorporated in the Petition for Review for resolution. In the same Resolution, respondent's Motion for Extension of Time to File Answer was 20 /d. ' pp. 68-72. 21 /d. , pp. 79-82. 22 /d., pp. 169-1 7 1. 23 /d.' p. 1730 24 !d. ' pp. 180- 182. 25 /d.. pp. 2 12-2 15. 26 /d. , pp. 222-223. 27 /d. , pp. 224-24 1. 28 /d., pp. 242-25 1. 29 /d., pp. 253-256.

DECISION CTA Case No . 10937 South Cotabato 1 Electric Cooperative, Inc. v. Commissioner of Internal Revenue x--- ---- ---- ------- -- ---------- --- --------------- -------- -------- -------- --------- ---------x granted, and respondent was ordered to certify and elevate the entire BIR records of the instant case to the Court. 30 On December 5, 2022, respondent filed his Answer (Re: Petition for Review with Urgent Motion to Suspend Tax Collection, and Prayer for the Issuance of a Temporary Restraining Order dated July 7, 2022).31 On January 6, 2023, the Court granted petitioner's Urgent Motion to Suspend Tax Collection and Prayer for the Issuance of TRO without the necessity of depositing or posting a bond.32 On January 11 , 2023, respondent filed his Compliance, elevating the BIR Records, which consisted of one folder with 417 pages.33 On January 18, 2023, the Court issued a Resolution referring this case for mediation. 34 However, the Philippine Mediation Center Office filed a No Agreement to Mediate on March 13, 2023 .35 The case was not mediated, so it was set for a pre-trial conference. 36 Respondent filed his Pre-Trial Brief on April 26, 2023. 37 On July 17, 2023, petitioner filed a Motion for Summary Judgment3 8 to which respondent belatedly filed his Comment and Opposition (Re: Motion for Summary Judgment dated 17 July 2023) on August 14, 2023.39 On August 24, 2023 , petitioner filed a Compliance with Submission, together with a Pre-Trial Brief After being submitted for resolution on August 17, 2023, the Court partially granted petitioner's Motion for Summary Judgment in a Resolution dated September 4, 2023. 40 Accordingly, the case was submitted for decision. 30 /d. ' pp. 262-263. 3I /d., pp. 264-274. 32 /d. , pp. 279-288. 33 /d. . pp. 289-291. 34 !d.' p. 299. 35 !d.� p. 30 I. 36 !d . p . :ws . 37 /d. , pp. 310-312. 38 !d., pp. 32 1-331. 39 /d.. pp. 494-497. 40 /d. , pp. 519-522.

DECISION CTA Case No. 10937 South Cotabato 1 Electric Cooperative, Inc. v. Commissioner of Internal Revenue X------------------------------------------------------------------------------------------X Hence, this Decision. THE ISSUES The parties raised the following issues in their respective Pre-trial Briefs: Petitioner: 1. Whether the Respondent's right to collect has prescribed ; and 2. Whether there are factu al and legal bases to hold Petitioner liable for the deficiency tax for the calendar year 2004 in the aggregate amount of Pesos: Fifty-Six Million Seven Hundred Eleven Thousand Five Hundred Fifty-Eight & 26/ 100 (P56,711,558.26) inclusive of surcharges , interest, and penalties. Respondent: 1. Whether or not petitioner is liable to pay for deficiency Income Tax, Value-Added Tax, Percentage Tax, Expanded Withholding Tax, Final Withholding Tax, and Compromise Penalty amounting to Php56 ,7 11,558.26 for taxable year 2004;and 2. Whether or not a ll necessary requirements and compliance have been complied with the requirements for Tax Amnesty under Republic Act No . 9480. PETITIONER'S ARGUMENTS Petitioner argues that respondent's right to collect has prescribed. According to petitioner, respondent only has three (3) years from the taxpayer's receipt of the assessment to collect taxes. 41 Petitioner contends that it was able to receive the FLD on December 27, 2007.42 However, petitioner only received the WDL on June 8, 2022.43 Petitioner further argues that it timely availed of the tax amnesty which afforded it immunity from deficiency tax assessments for the subject taxable year. 44 According to petitioner, respondent even acknowledged petitioner's 4 1 Petition fo r Review, par. 24. 42 /d. , par. 30. 43 /d., par. 3 1. 44 !d. , par. 39.

DECISION CTA Case No. 10937 South Cotabato 1 Electric Cooperative, Inc. v. Commissioner of Interna l Revenue X- ----- ---------------------- -------------- ------ ------------------------------------------X application for and payment of the tax amnesty.45 Petitioner adds that it had already paid basic deficiency EWT and FWT as these taxes were not covered by the tax amnesty law. 46 RESPONDENT'S ARGUMENTS Respondent contends that petitioner's application for tax amnesty is not automatically approved upon submission. The Tax Amnesty Task Force has not yet confirmed and validated this, as no certification was issued in favor of petitioner.47 Respondent maintains that petitioner is liable for deficiency income tax on disallowed birthday gifts for the employees 48 and unsubstantiated income tax credits; 49 deficiency percentage tax on sales of energy not subject to franchise tax;so deficiency VAT on non-operating revenues; 51 and deficiency withholding taxes on director 's fees, s2 outside services, security services, and "ads and publication expense."s3 RULING OF THE COURT The Petition is impressed with merit. The Court has jurisdiction over the instant Petition for Review. Before delving into the merits of the case, We shall first address our jurisdiction over the instant Petition. Section 7(a)(1) and (2) of Republic Act ("RA") No. 1125,54 as amended by RA No. 9282,55 confers jurisdiction to this Court relative to decisions and inactions of respondent, to wit: SEC. 7. Jurisdiction.- The CTA shall exercise: 45 /d., par. 40. 46 !d., par. 43 . 47 Answer, par. I I, pp. 264-274. 48 /d. , par. 16 . 49 !d. , par. 17. 50 !d. , par. 19. 51 !d. , par. 22. 52 /d. , par. 25. 53 /d., par. 26. 54 An Act Creating the Court of Tax Appeals. June 16. 1954. 55 An Act Expanding the Jurisdiction of the Court o f Tax Appeals (CTA), Elevating Its Rank to the Level of a Collegiate Court with Special Jurisdiction and Enlarging Its Membership, Amending for the Purpose Certain Sections o f Republic Act No. I 125, as Amended, Otherwise Known as the Law Creating the Court of Tax Appeals, and for Other Purposes, March 30, 2004.

DECISION CTA Case No. 10937 South Cotaba to 1 Electric Cooperative , Inc . v. Commissioner of Internal Revenue x----------------------------- ------------------------- -- ----- -------- -- -- ---- ------- ------x (a) Exclusive appellate jurisdiction to review by appeal, as herein provided: (1) Decisions of the Commissioner of Internal Revenue 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 Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or oth er 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, where the National Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed a denial; [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 ilxed by law for action as referred to in Section 7(a)(2) herein. ... [Emphasis supplied] The above provisions are likewise reflected 1n Section 3(a)(l) and (2), Rule 456 of the RRCTA. Based on the foregoing, the jurisdiction of the Court of Tax Appeals (CTA) is not limited to the CIR's decisions on disputed assessments and claims for refunds but also includes the CIR's decisions on "other matters" arising from the NIRC of 1997, as amended , or other laws administered by the BIR. 56 Section 3. Cases Within the Jurisdiction ofthe Court in Divisions.- The Court in Divisions shal l exercise: (a) Excl usive origi nal or appellate j urisdiction to review by appeal the fo llowi ng: ( I) Decisions of the Commissioner of Internal Revenue 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 Comm issioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters ari sing under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Reven ue Code or other applicable law provides a specific period for action : ...

DECISION CTA Case No. 10937 South Cotabato 1 Electric Cooperative, Inc . v. Commissioner of Internal Revenue x------------------------------------------------------------------------------------------x The term "other matters" has been ruled to include, but not limited to, a review of the CIR's authority and decision to compromise, 57 a prescription of the CIR's right to collect taxes ,58 and a determination of the validity of a WDL.s9 In Commissioner of Internal Revenue v. Bank of the Philippine Islands (BPI}, 6o the Supreme Court declared that the CTA has jurisdiction to determine the propriety of a WDL, as the law expressly vests the CTA with authority to take cognizance of "other matters" arising from the NIRC, viz.: . .. [T]he issue for the CTA to resolve was the propriety not of any assessment but of a tax collection m easur e implemented against BPI. Accordingly, the CTA's disposition was distinctly for the cancellation of the warrant and nothing else. The law expressly vests the CTA the authority to take cogniza n ce of "other matters" arising from the 1977 Tax Code and other laws administered by the BIR which n ecessarily includes rules, regulations, and measures on the collection of tax. Tax collection is part and parcel of the CIR's power to ma ke assessments and prescribe additional requirements for tax a dministration and enforcement. Thus, the CTA properly exercised jurisdiction over BPI's Second Petition [assailing the WDL]. [Emphasis supplied] In the recent case of Commissioner of Internal Revenue v. Manila Medical Services, Inc. (Manila Doctors Hospital}, 6 1 the Supreme Court echoed the CTA's jurisdiction to determine the validity of the WDL, viz.: As explained by t he Court in Commissioner of Internal Revenu e v. Court of Tax Appeals Second Division, the exclu sive appellate jurisdiction of the CTA Division is not limited to cases involving decisions of the CIR or matters relating to assessments or refunds. The second part of the provision covers other cases that arise out of the NIRC or related laws administered by the BIR. The wording of the provision is clear and simple. It gives the CTA the jurisdiction to determine the validity of the warrant h/ of distraint and levy. [Emphasis supplied] 57 Philippine National Oil Company v. Court ofAppeals, eta/., and Philippine National Bank v. Court ofAppeals, eta/. , G.R. Nos. 109976 and 112800, Apri1 26, 2005 . 58 Commissioner of Internal Revenue v. Court of Tax appeals Second Division, G.R. No. 258947, March 29, 2022; Commissioner ofInternal Revenue v. Hambrecht & Quist Philippines. Inc.. G.R. No. 169225. November 17. 2010. 59 La Flor Dela lsabela, Inc. c. Commissioner of Internal Revenue, G.R. No. 202105, April 28, 202 1; Philippine Journalists, Inc. v. Commissioner ofInternal Revenue, G.R. No. 162852, December 16, 2004. 60 G. R. No. 227049, September 16, 2020. 61 G.R. No. 255473 , February 13, 2023.

DECISION CTA Case No. 10937 South Cotabato 1 Electric Cooperative, Inc. v. Commissioner of Internal Revenue X------------------------------------------------------------------------------------------X In the instant case, petitioner received on June 8, 2022, a WDL from the BIR seeking to collect from it the alleged deficiency IT, PT, VAT, EWT, and FWT for CY 2004 for P56,711,558.26, including interest and surcharge.62 Records reveal that the WDL was issued based on the FLD issued on December 10, 2007, and "released" on December 27, 2007. 63 Under the circumstances, We find that petitioner's remedy was indeed to appeal to this Court within 30 days from the date it was notified of the WDL. 64 Therefore, the filing of the instant Petition for Review on July 8 , 2022, or within 30 days from receipt of the WDL, is on time.6s We shall now resolve whether the CIR may collect the � alleged deficiency taxes. Respondent's right to collect the alleged deficiency taxes from petitioner has already prescribed. Section 203 of the NIRC of 1997, as amended, which provides for the three (3)-year ordinary prescriptive period to assess and collect taxes, reads: SEC. 203. Period of Limitation Upon Assessment a nd Collection. -Except as provided in Section 222, internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period: Provided, That in case where a return is filed beyond the period prescribed by law, the three (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 prescribed by law for the filing thereof shall be considered as filed on such last day. [Emphasis supplied] The Supreme Court, in CIR v. Court of Tax Appeals Second Division & QL Development (QL Development}, 66 citing CIR v. United Salvage and Towage (Phils.), Inc., 67 held that in cases of 62 Supra at note 17. 63 Reso lution dated January 6. 2023 , Docket. pp. 279 to 288. 64 Commissioner ofInternal Revenue v. South Entertainment Ga!lety, Inc., G.R. No. 225809, March 17, 2021. 65 Supra at note I . 66 G.R. No. 258947, March 29, 2022. 67 G.R. No. 197515, July 2, 20 14, 738 PHIL 33 5-357.

DECISION CTA Case No. 10937 South Cotabato 1 Electric Cooperative, Inc. v. Commissioner of Internal Revenue }{------------------------------------------------------------------------------------------}{ assessments issued within the three-year ordinary period, the CIR has another three years to collect taxes, viz.: In CIR v. United Salvage and Towage (Phils.}, Inc., the Court held that in cases of assessments issued within the three-year ordinary period, the CIR has another three years within which to collect taxes, thus: 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.] On the other hand, Section 222 of the NIRC of 1997, as amended, provides the exceptions to the 3-year prescriptive period to assess and collect taxes, to wit: 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 with out 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, t h e fact of fraud shall be judicially taken cognizance of in the civil or criminal action for the collection thereof. (c) Any internal revenue tax which has been assessed within the period of limitation as prescribed in paragraph (a) h ereof may be collected by distraint or levy or by a proceeding in court within five (5) years following the assessment of the tax. (Emphasis supplied) \J

DECISION CTA Case No. 10937 South Cotabato 1 Electric Coopera tive, Inc. v. Commissioner of Internal Revenue }(------------------------------------------------------ ----- --- --------------- ---- ------ ---}( Indeed, when the BIR validly issues the assessment within the prescribed 3-year period under Section 203, it has another three (3) years to collect the tax due. However, when the assessment is issued within the extraordinary period of ten (10) years in case of false or fraudulent return or failure to file a return under Section 222, the BIR has five (5) years to pursue collection efforts. As ruled in the QL Development case, the 3-year period to collect the assessed tax begins when the assessment notice is released, mailed, or sent to the taxpayer. 68 Furthermore, the CIR's-collection efforts are initiated by distraint, levy, or court proceeding. The distraint and levy proceedings are validly begun or commenced by the issuance of a WDL and service thereof on the taxpayer. 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. Relatedly, Section 223 of the NIRC of 1997, as amended, provides the instances when such period to collect is tolled, vzz.: SEC. 223. Suspension of Running of Statute of Limitations. - The running of the Statute of Limitations provided in Sections 203 and 222 on the making of assessment and the beginning of distraint or levy a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty (60) days thereafter; when the taxpayer requests for a reinvestigation which is granted by the Commissioner; when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected: Provided, that, if the taxpayer informs the Commissioner of any change in address, the running of the Statute of Limitations will not be suspended; when the warrant of distraint or levy is duly served upon the taxpayer, his authorized representative, or a member of his household with sufficient discretion, and no property could be located; and when the taxpayer is out of the Philippines." 68 !d.

DECISION CTA Case No. 10937 South Cotabato 1 Electric Cooperative, Inc. v. Commissioner of Internal Revenue x----------- ---- ------- ---- ----------------------------------------------------------------x As pointed out in our Resolution dated January 6, 2023,69 a review of the FLD shows that it was issued on December 10, 2007, and was "released" on December 27, 2007. Applying the rules on the prescriptive period as discussed above, respondent had, at most, until December 27, 2010, to collect on the deficiency taxes if the FLD was issued within the 3-year ordinary period, or until December 27, 2012, if the FLD was issued within the extra-ordinary period of 10 years in case of false or fraudulent return or failure to file a return. Here, none of the circumstances provided in Section 223 that may suspend the period to collect is present. Moreover, no WDL was served to petitioner, and no judicial proceeding was initiated by the CIR within the period to collect. As such, the prescriptive period counted from the "release" of the FLD on December 27, 2007, remains uninterrupted. Verily, prescription had already set in when the WDL was served to petitioner's witness on June 8, 2022,70 more than fourteen (14) years after the "release" of the FLD. Regardless of which period to apply, i.e., three years under Section 203 or five years under Section 222 , the CIR1S collection effort was already barred by prescription. At this juncture, 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.71 With the foregoing ruling, the Court deems it unnecessary to discuss the other issues raised by the parties. In closing, the Court reminds counsels to be more circumspect in preparing pleadings filed before it. In the instant case , respondent states in his Pre-trial Brie.f2 that he finds it unnecessary to present evidence, to wit: 69 Docket, pp. 279 to 288. 70 Exhib it " P-7-1 ," Docket, p. 183. 71 Commissioner ofInternal Revenue v. Court ofTax Appeals Second Division, supra at note 66. 72 Pre-trai l Brief dated April 17, 2023 , Docket, pp. 3 10-3 14.

DECISION CTA Case No. 10937 South Cotaba to 1 Electric Cooperative , In c. v. Commissioner of Internal Revenue X---------------------------------------- ----------------------------------- ------ ---------X IV. Documents or Exhibits to be Presented 1. Con s idering that r espon dent will submit legal issues , h e finds it unnecessary to present evidence . However, in r espondent's Comment and Opposition (Re: Motion for Summary Judgment dated 1 7 July 2 02 3), h e insists on a "full-blown trial" to allow h im to present his evidence, vtz .: 1. In th e ins ta n t Motion, petitioner prays that a summary judgment be render ed , a perman en t injunction order be issued in it s favor a nd t h at the scheduled pre-tria l conferen ce on 3 1 Augu st 2023 be deferred . With this, respondent respectfully opposes the Motion for utter lack of merit. 2. 3. Responden t also submits that th ere a re other issu es submitted before th is Hon or able Cou rt wh ich requires trial on the merits. Further , respondent has not yet exhausted all his defenses for the merits of the case. 4 . ... 5. Con sidering th e varian ce in the a llegation s of petition er and respondent, it would definitely serve due process if respondent will be given the opportunity to present his evidence to attest and support his defenses on the merits. 6. 7. In view of th e conflicting averments of t h e parties, a full- blown trial is necessary to provide this Honorable Court sufficient evidence to properly ruled on the instant case . Petition er's prayer for a summary judgment withou t full-blown tria l is clearly in violation of respondent's right to due process given th a t petitioner failed to sa tisfactorily sh ow that its a llegation s in th e petition er were sufficien tly d enied in respon den t 's An swer, thus creatin g a genuine issu e a s to t h e m a teria l facts in the petition . Hen ce, th e Motion for Su mmary J u dgm ent mu st fail. 8. In fact, even a perusa l of petitioner's a llegations in its m otion would readily reveal tha t a full-blown trial is n ecessary. Respondent should not be denied of his right to controv e rt pe titione r's allegations.

DECISION CTA Ca se No. 10937 Sou th Cotabato 1 Electric Cooperative, Inc. v. Commission er of Interna l Revenue X----------- --------------------------- -- ------------------- ---------------- ---- -------- ---X The inconsistency in respondent's submissions cannot just be ignored. While asserting in his Comment and Opposition that a "full-blown trial" is warranted because he has yet to present evidence to attest and support his defenses on the merits and controvert petitioner's allegations, his Pre-trial Brief indicates a contrary stance by deeming the presentation of evidence unnecessary as he will submit "legal issues." Hence, given the foregoing, the Court reminds counsels, especially the CIR's counsels, of the prohibition against misleading the Court73 and to be more circumspect or cautious when preparing and filing pleadings before the Court. WHEREFORE, premises considered, the instant Petition for Review is GRANTED. Respondent Commissioner of Internal Revenuels right to collect from petitioner South Cotabato 1 Electric Cooperative, Inc. the alleged deficiency taxes in the amount ofP56,711 ,558.26 including interest and surcharge , for CY 2004 is declared to have PRESCRIBED. Accordingly, the undated Warrant of Distraint and/or Levy No. RR18-22-113 enforcing collection of the deficiency tax liabilities per the Formal Letter of Demand dated December 10, 2007 , is CANCELLED and SET ASIDE, for being NULL and VOID. Further, respondent is ENJOINED from proceeding with the collection of taxes in the above-captioned case. SO ORDERED. ~Afi~A;:Jn;R WE CONCUR: LArfll,~~tcui:bAVID Associate Justice Presiding Justice \ JEAN MARI"'~LENA ~i;�e J ustice 73 2023 New Code of Professional Responsibili ty.

DECISION CTA Case No. 10937 South Cotab a to 1 Electr ic Cooperative, Inc. v. Com missioner of Internal Revenue x--------------------------------------- --- ----- -- ------------------------------ -- ------ ---x CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation b efore the case was assigned to the writer of the opinion of the Court's Division. Presiding Justice