MACARIO LIM GAW, JR. v. COMMISSIONER OF INTERNAL REVENUE

Republic of the Philippines COURT OF TAX APPEALS Quezon City FIRST DIVISION MACARIO LIM GAW, JR. CTA Case No. 8502 Petitioner, For: Assessment Members: -versus- DEl ROSARIO, P.J., UY,and MINDARO-GRULLA, JJ. COMMISSIONER OF Promulgated: INTERNAL REVENUE, ~,,._._ Respondent. - - - - - - - - - -x X- - - - - - - - - - - - - - - - - - - - - - - - DECISION MINDARO-GRULLA, .}_.: This resolves the Petition for Review filed on June 19, 2012 by Macario Lim Gaw, Jr. pursuant to Section 7(a)(1) of Republic Act (RA) No. 1125, otherwise known as "An Act Creating the Court of Tax Appeals," as amended 1, as well as Rule 4, Section 3 (a) (1), in relation to Rule 8, Section 4(a), of the Revised Rules of the Court of Tax Appeals (RRCTAf. C 1 Sec. 7. Jurisdiction. - The CTA sha ll exercise : (a) Exclusive appellate jurisdiction to review by appeal, as herein provided: XXX XXX (1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenu e taxes, fee s or other charges, penalti es in relation thereto, or other matters arising under the National Internal Revenue Code or oth er laws administered by t he Bureau of Internal Revenue; XXX XXX 2 Rul e 4. Sec . 3 . Cases within the jurisdiction of the Co u rt in Division. - Th e Court in Division shal l exercise: (a) Exc lu sive origina l over or appe ll ate jurisdiction to review by appeal the following: XXX XXX (1) Decisions of the Commissioner of I nternal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or

CTA Case No. 8502 Page 2 Macario Lim Gaw, Jr. vs. CIR DECISION Petitioner seeks the withdrawal and cancellation of the deficiency income tax assessment for the taxable year 2007 amounting to P1,295,855,151.89 as indicated in the Final Decision on Disputed Assessment (FDDA) No. 2012-0001 3 issued by the Commissioner of Internal Revenue. Petitioner Macario Lim Gaw, Jr. is an individual taxpayer, of legal age, Filipino, and with address at No. 5 David Street, Corinthian Gardens, Quezon City.4 On the other hand, respondent is the duly appointed Commissioner of the Bureau of Internal Revenue (BIR), authorized to perform the duties of his office, including, among others, the power to decide disputed assessments or other charges and penalties imposed in relation thereto pursuant to the provisions of the National Internal Revenue Code (NIRC) of 1997, as amended. Respondent holds office at the 5th Floor, BIR National Office Building, Agham Road, Diliman, Quezon City. In November 2007, petitioner acquired six (6) parcels of land covered by Transfer Certificates of Title (TCT) Nos. 168947, 166440, 158155, 158156, 158149, and 158150 in the aggregate amount of One Billion Nine Hundred Fifty-(' other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue; XXX XXX Rule 8. Sec. 4. Where to appeal; mode of appeal. - (a) An Appeal from a decision or ruling or the inaction of the Commissioner of Internal Revenue on disputed assessments or claim for refund of internal revenue taxes erroneously or illegally collected; the decision or ruling of the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade & Industry, the Secretary of Agriculture, and the Regional Trial Court in the exercise of their original jurisdiction, shall be taken to the Court by filing before it a petition for review as provided in Rule 42 of the Rules of Court. The Court in Division shall act on the appeal. 3 Exhibit "A". 4 Par. 1, Stipulation of Facts, Joint Stipulation of Facts (JSF), Docket, Vol. II, p. 564.

CTA Case No. 8502 Page 3 Macario Lim Gaw, Jr. vs. CIR DECISION Seven Million Four Hundred Twenty-Two Thousand Pesos (P1,957 ,422,000.00). 5 During the period of April to June 2008, petitioner acquired four (4) more parcels of land covered by TCT Nos. 161711, 173506, 1673508, and 173510 in the aggregate amount of Two Billion Sixty-Three Million Nine Hundred Five Thousand Five Hundred Pesos (P2,063,905,500.00). 6 The BIR Revenue District Office (ROO) No. 52- Paranaque City issued the corresponding Certificates Authorizing Registration (CARs) in connection with petitioner's purchase of the parcels of land covered by TCT Nos. 168947, 166440, 158155, 158156, 158149, 158150, 161711, 173506, 1673508, and 173510.7 On April 15, 2008, petitioner filed his Annual Income Tax Return (ITR) for taxable year 2007.8 Thereafter, on August 25, 2010, respondent issued Letter of Authority (LOA) No. 2009-00044669. 9 LOA No. 2009-00044669 authorized the examination of petitioner's books of accounts and other accounting records for all internal revenue taxes. 10 It covers taxable year 2008 and "Unverified prior years." On August 26, 2010, respondent filed with the Department of Justice (DOJ) a Joint Complaint Affidavit against petitioner for violations of Sections 254 and 255 of the NIRC of 1997, as amended, docketed as NPS Docket No. XVI- INV-10H-00256. 11 Meanwhile, on October 4, 2010, petitioner submitted copies of his Annual Income Tax Returns for the taxable( ~ Par. 3, Stipulation of Facts, JSF, Docket, Vol. II, p. 565. 5 Par. 4, Stipulation of Facts, JSF, Docket, Vol. II, p. 565. 1 Par. 5, Stipulation of Facts, JSF, Docket, Vol. II, p. 565. 8 Exhibit "JJJ". 9 Par. 6, Stipulation of Facts, JSF, Docket, Vol. II, p. 565; Exhibit "KKK"; Exhibit "3". 10 Par. 7, Stipulation of Facts, JSF, Docket, Vol. II, p. 565. 11 Par. 8, Stipulation of Facts, JSF, Docket, Vol. II, p. 566.

CTA Case No. 8502 Page 4 Macario Lim Gaw, Jr. vs. CIR DECISION years 2007 and 2008 to the BIR National Investigation Division. 12 Respondent issued a Notice for Informal Conference13 on January 12, 2011, requesting a conference on January 17, 2011 pursuant to eLOA No. 211-2010-00000215. 14 In a letter dated January 13, 2011, 15 petitioner requested respondent to reset the scheduled January 17, 2011 Informal Conference to January 20, 2011 to discuss the audit findings, if any, covering both LOA No. 2009- 00044669 and eLOA No. 211-2010-00000215. On February 15, 2011, respondent, through the BIR National Investigation Division (NID), issued a Preliminary Assessment Notice16 (PAN) with attached Details of Discrepancies and Computation Sheets, informing petitioner of his alleged deficiency income and percentage taxes based on third-party information for taxable years 2007 and 2008. 17 In a letter-reply dated March 28, 2011 18, petitioner challenged the deficiency tax findings of the BIR for taxable year 2007. Thereafter, on April 8, 2011, petitioner received a copy of the Resolution dated March 17, 2011 19 issued by the DOJ in NPS Docket No. XVI-INV-10H-00256, dismissing the charges against him for violation of Section 254 of the NIRC of 1997, as amended, for the taxable year 2007; which is also the subject matter of this case. Petitioner alleges that the BIR did not file a motion for reconsideration or an appeal from the Resolution of the DOJ.~ 12 Exhibit "000". 13 Exhibit "PPP". 1~ Par. 9, Stipulation of Facts, JSF, Docket, Vol. II, p. 566. 15 Exhibit "QQQ". 16 Exhibit "RRR"; Exhibit "6", Docket, Vol. II, pp. 781-789. 11 Par. 10, Stipulation of Facts, JSF, Docket, Vol. II, p. 566. 18 Exhibit "SSS". 19 Exhibit "NNN".

CTA Case No. 8502 Page 5 Macario Lim Gaw, Jr. vs. CIR DECISION On May 24, 2011, respondent served on petitioner a Formal Letter of Demand dated April 8, 2011 20 informing petitioner of his alleged deficiency income and value-added taxes based on third-party information for taxable years 2007 and 2008. 21 Subsequently, on June 7, 2011, petitioner, through his representative, filed a protest-letter on the Formal Letter of Demand, quoted as follows: "Re: Protest Letter for Maca rio L. Gaw, Jr. Formal Letter of Demand for Taxable Years 2007 and 2008 Dated AprilS, 2011 Gentlemen: This is in relation with the above-captioned matter, please be informed that we disagree to the findings stated on the Audit Result/Assessment Notice, as indicated on the BIR Form 401, as hereby attached."22 On June 9, 2011, petitioner, through his legal counsel, filed his protest letter23 dated June 7, 2011 on the Formal Letter of Demand, which detailed the factual and legal bases of his protests against the deficiency tax assessments for taxable years 2007 and 2008. On May 22, 2012, respondent served on petitioner a copy of FDDA No. 2012-0001 dated May 18, 2012. 24 The pertinent portions of FDDA No. 2012-0001 state: { 20 Exhibit "TTT"; Exhibit "7", Docket, Vol. II, pp. 790-797. 21 Par. 11, Stipulation of Facts, JSF, Docket, Vol. II, p. 566. n Par. 1, Supplemental Joint Stipulation of Facts, Docket, Vol. II, pp. 615. 23 Exhibit "VVV". 74 Par. 12, Stipulation of Facts, JSF Docket, Vol. II, p. 566; Exhibit "A"; Exhibit "9", Docket, Vol. II, pp. 802-812.

CTA Case No. 8502 Page 6 Macario Lim Gaw, Jr. vs. CIR DECISION "This resolves the protest on deficiency Income and Value-Added Taxes inclusive of surcharges and interest for taxable years 2007 and 2008 indicated in the corresponding assessment notices as detailed below: Taxable Particulars Amount Year Unexplained Source of Cash P1,295,855,151.89 2007 2,020,001,897.66 2008 (Sec. 32 of the NIRC) 3,201,084,829.93 2008 VAT on Unreported P6,516,941,877 .00 TOTAL Income/Sale of Ordinary Asset (Sec. 106 of the NIRC) Unreported Income & Unexplained Source of Cash (Sec. 32 of the NIRC) XXX XXX XXX Clearly therefore, considering that the protest filed by Mr. Gaw is pro forma in nature thus void and without force and effect, the above assessment of the BIR is now final, executory, and demandable. Thus, there is no other recourse for Mr. Gaw but to fulfill his tax obligations to the State by satisfying the tax deficiencies indicated in the Formal Letter of Demand. To avoid unnecessary delay and further incremental interest, Mr. Gaw is hereby requested to pay the aggregate amount of SEVEN BILLION SIXTEEN MILLION FIVE HUNDRED FORTY ONE THOUSAND EIGHT HUNDRED FIFTY FIVE PESOS and EIGHTY CENTAVOS (P7,016,541,855.80) including 50�/o surcharge and 20�/o annual interest for late payment until fully paid pursuant to Sections 248 and 249 of the NIRC of 1997 in satisfaction of Income Taxes and Value-Added Tax deficiencies for taxable years 2007 and 2008. This is our final decision on the matter."(

CTA Case No. 8502 Page 7 Macario Lim Gaw, Jr. vs. CIR DECISION Thus, petitioner filed the instant Petition for Review25 before this Court on June 19, 2012. In the Answer26 filed on August 15, 2012, respondent interposed the following special and affirmative defenses: "SPECIAl AND AFFIRMATIVE DEFENSES Respondent hereby reiterates and repleads the preceding paragraphs of this Answer as part of her Special and Affirmative Defenses. 4. The deficiency tax assessments are supported by facts, law, rules and jurisprudence. To elucidate the concreteness of the assessment, the following developments transpired in taxable years 2007 as well as 2008. 4.1 Respondent received confidential information that petitioner committed tax evasion through his scheme of making it appear that the numerous real properties which he acquired and subsequently sold are capital assets instead of ordinary assets. 4.2 On the basis of the confidential information, respondent conducted an investigation in accordance with the BIR Rules and Regulations. From the said investigation, it was discovered that petitioner purchased six (6) parcels of land in the year 2007 amounting to f>1,957,422,000.00 and also four (4) parcels of land in 2008 amounting to P2, 161,761,500.00. 4.3 The following are the details of the real estate purchases made by petitioner from various sellers, to wit: Date Selling Price Seller TIN used by Petitioner 1t' 7 ~ Docket, Vol. I, pp. 6-33. /6 Docket, Vol. I, pp. 313-328.

CTA Case No. 8502 Page 8 Macario Lim Gaw, Jr. vs. CIR DECISION ! I on 11/12/07 I I withholding 11/28/07 7,390 18,000 133,020,000.00 Star Asset TIN of 11/29/07 9,000 Mgt. Philtrust I 19,000 ! 171,000,000.00 Philtrust !11/29/07 24,232 TIN of I I 111/30/07 1 7,175 Philtrust 11/29/07 129,442 18,000 436,176,000.00 Philtrust No Payment I 24,464 \ (SPV) 1 4/10/08 24,464 18,000 129,150,000.00 Philtrust 108-304- I ' 796-000 6/25/08 j 22,000 ' 647,724,000.00 Philtrust No Payment 1 ' ! (SPV) I 25,041 18,000 440,352,000.00 Philtrust No Payment I 6/26/08 18,480 I (SPV) i i 25,904 16,000 293,568,000.00 Allied No Payment i l 6/27/08 : Banking (SPV) I i Corp. 25,500 ' 638,545,500.00 LNC 263-231- (SPCANC)_ 513-000 25,500 471,240,000.00 I LNC 263-231- I (SPCANC) 513-000 25,500 660,552,000.00 LNC I 263-231- (SPCANC) i 513-000 4.4 In 2007, petitioner was able to purchase six (6) parcels of land for ~1,957,422,000.00 with his grossly inadequate total cumulative disposable cash consisting only of P66,061,294.14. 4.5 Conclusively, he under-declared his income by ~1,891,360,705.86 resulting in a deficiency income tax liability in the amount of ~605,200,425.00 exclusive of all increments. 4.6 In 2008, petitioner sold the ten (10) parcels of land bought in years 2007 and 2008 to Eagle 1 Landholdings Inc. for the aggregate amount of ~8,419,621,411.12 with the total purchase price of ~4,304,324,080.00, resulting in an income of P4,115,297,361.12. 4. 7 However, petitioner did not pay the correct income tax and the required Value Added Tax. Moreover, he also used various TINs in the acquisition as well as in the subsequent sale of these parcels of land.C

CTA Case No. 8502 Page 9 Macario Lim Gaw, Jr. vs. CIR DECISION 4.8 The stratagem of petitioner to evade payment of his correct income tax and VAT liability is very clear: 4.8.1 First, he deliberately misclassified the ten (10) parcels of land he sold as capital assets because he is undoubtedly fully aware of the nature of the properties as ordinary asset subject to Income Tax and VAT. 4.8.2 Second, in the furtherance of his scheme to evade payment of correct taxes, he used multiple TINs to make it difficult for the BIR to detect at least six (6) real estate transaction which will qualify him as habitually engaged in real estate transactions making the sale of the ten (10) parcels of land a sale of ordinary asset subject to 32�/o Income Tax and 12 �/o VAT. 4.9 Petitioner is a taxpayer habitually engaged in real estate business. The subject parcels of land are ordinary assets which were sold precisely to realize billions in profits. As such, he is required to register, file and pay as a VAT taxpayer and declare the gains derived from the sale as part of his gross income in his ITR. 4.10 Under Revenue Regulations (RR) No. 7- 2003 dated December 27, 2002, petitioner is classified as a taxpayer habitually engaged in real estate business, to wit: XXX 'All real properties acquired in the course of trade or business by a taxpayer habitually engaged in the sale of real property shall be considered as ordinary assets. Registration with the HLURB or HUDCC as a real estate dealer or developer shall be sufficient for a taxpayer to be considered as (

CTA Case No. 8502 Page 10 Macario Lim Gaw, Jr. vs. CIR DECISION habitually engaged in the sale of real estate. If the taxpayer is not registered with the HLURB or HDUCC as a real estate dealer or developer, he/it may nevertheless be deemed to be engaged in the real estate business through the establishment of substantial evidence (such as consummation during the preceding year of at least six (6) taxable real estate sale transactions, regardless of amount; registration as habitually engaged in real estate business with the Local Government Unit of the Bureau of Internal Revenue, etc.)' (Emphasis and underscoring supplied.) 4.11 In relation thereto, the parcels of land subject of petitioner's real estate transactions are ordinary assets as laid down by the Supreme Court in the case of 'Tuason Jr. vs. Lingad' to wit: [1] the purpose for which the property was initially acquired; [2] the purpose for which the property was subsequently held; [3] extent to which improvements, if any were made to the property by the taxpayer; [4] the frequency, number and continuity of sales; [5] the extent and nature of the transactions involved; [6] the ordinary business of the taxpayer; [7] the extent of advertising, promotion, or other activities used in soliciting buyers for the sale of the property; [8] the listings of property with brokers; [9] the purpose for which the property was held at the time of sale. (

CTA Case No. 8502 Page 11 Macario Lim Gaw, Jr. vs. CIR DECISION 4.11.1 The sole purpose for acquiring the subject lots was to make profit and also to take advantage of the selling price (P43,046.86 per sq.m.) as compared to the acquisition cost (P18,000 per sq.m). 4.11.2 There was no intention to hold the subject parcels of land as an investment considering that the purchase and sale thereof were made within a period of eight (8) months. In fact, the parcels of land covered by TCT Nos. 173506, 173508 and 173510 were sold less than seventeen ( 17) days after these were bought by petitioner. 4.11.3 No improvements were necessary since the transactions involved the sale of bare lands, and a ready buyer was already available. 4.11.4 There were ten (10) separate purchases and sales transactions, or a total of twenty (20) transactions for the years 2007 and 2008, and with a holding period of only eight (8) months. 4.11.5 As to extent, the sum of all the numerous transactions involved is in billions of pesos. Total lot purchases made by petitioner are valued at P4,119,183,500.00 while the aggregate consideration for the sale is P8,419,621,441.12. 4.11.6 Petitioner has no registered business with the Bureau as he is merely registered as a One-Time Transaction (ONETT) taxpayer in his original TIN: 108-304-796-000 while in TIN: 263-231-513-000 he is registered as a mere 'local employee.' Moreover, his numerous transactions and the creation of a new TIN on July 22, 2008 for some of these transactions have made him a real estate dealer who is deemed engaged in real estate business. t.

CTA Case No. 8502 Page 12 Macario Lim Gaw, Jr. vs. CIR DECISION 4.11. 7 Listing the subject properties with brokers is no longer necessary since a ready buyer was already available. 4.11.8 As discussed in item No. 2, all the transactions were made within a period of eight (8) months with the singular purpose of selling the lots (ordinary asset) for a business gain or profit. 4.12 Petitioner's fraudulent acts in the subject real estate transactions enabled him to evade the payment of correct internal revenue taxes. As a result, a Letter of Authority (LA No. 2009- 00044669), Preliminary Assessment Notice (PAN) with annexed Details of Discrepancies, Formal Letter of Demand (FLO) with the corresponding Notices, and Final Decision on Disputed Assessment (FDDA) were issued by Respondent. 5. Contrary to the surmises and manifest conjectures of petitioner, the FDDA dated 18 May 2012 is supported by factual and legal bases for the 2007 assessments. As opposed to petitioner's baseless allegations, the foundation of the assessments were due to his deceitful acts stated above. Respondent's assessments were not only verified but also supported by documents. 6. It was petitioner's assertion that his funds for the purchases of lands came from loans under a five Billion STL Facility from BOO. Assuming without admitting that he indeed availed of loans from BOO, he cannot refute the fact that banks extend loans to persons or juridical entities with a safety net of collaterals. It is judicial notice that banks require securities in the form of properties to assure payments of the loans. 7. It is definite that if indeed petitioner availed billions of loans, he has a massive amount of properties which served as the collateral for the loans that he availed of. (

CTA Case No. 8502 Page 13 Macario Lim Gaw, Jr. vs. CIR DECISION 8. Likewise, petitioner cannot take refuge in the cited cases of Commissioner of Internal Revenue vs. Hantex Trading Co., Inc., Commissioner of Internal Revenue vs. Alberto D. Benipayo and People of the Philippines vs. Pinuila to support its assertion, as these cases were decided based on the peculiarities of the factual circumstances attendant thereto. In the case of CIR vs. Hantex, the case deal with the admissibility of documents which were mere photocopies of Consumption Entries. In the case of CIR vs. Benipayo, the case deal with the ratio of adults compared to children in the sale of theatre tickets since children's tickets are tax free. While in the case of People of the Philippines vs. Pinuila, the case deal with double jeopardy in a murder case which did not even deal with the civil aspect of the case. 9. Further, Letter of Authority No. (LOA) 2009- 00044669 dated 25 August 2010 issued by respondent is legally valid, thereby giving legitimate authority to the Revenue Examiners to conduct investigation on petitioner. 10. Petitioner in assailing the legality of LOA No. 2009-00044669 miserably failed to take into account that his case involves tax fraud which is way different from ordinary deficiency assessments. 11. Petitioner cited various cases which are not on all fours with the case at bar. In the case of International Pharmaceuticals, Inc. vs. Commissioner of Internal Revenue, the taxpayer was not served at all with the required LOA. In the case of Commissioner of Internal Revenue vs. Sony Philippines, Inc. there was no commission of fraud in the said case. In the case of Hi/ado, et a/. vs. Chavez et a!, the case primarily deal with jurisdiction over the subject matter involving land dispute. 12. Assuming without admitting that petitioner indeed issued the LOA for taxable year 2008 and('

CTA Case No. 8502 Page 14 Macario Lim Gaw, Jr. vs. CIR DECISION unverified prior year, the issuance is valid since the fraud was discovered in 2008 and there is no way for respondent to ascertain as to when the tax fraud started to take place. Respondent cannot be faulted for its duty to investigate incidents when the taxpayer had a taxable income way higher than that which was reported, more so that the government is on the verge of losing billions of pesos. 13. Moreover, petitioner's assertion of prescription pursuant to Section 203 of the Tax Code is manifestly misplaced. It cannot be over emphasized that this case involves fraud and the applicable provision is Section 222 of the Tax Code, which provides: '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 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. 14. Petitioner willfully and deliberately under- declared his income by more than 30�/o (which constitutes fraud) in his intent to evade payment of correct taxes consisting of billions of pesos, as clearly stated in the factual and legal basis of the assessment. (

CTA Case No. 8502 Page 15 Macario Lim Gaw, Jr. vs. CIR DECISION 15. As opposed to petitioner's assertion that the FDDA issued by respondent is void, on the contrary it is clearly the former's protest letter which did not conform with the requirements prescribed by law and revenue regulations pertinent thereto. 16. Petitioner filed a protest letter dated 07 June 2011 described as 'Protest Letter for Macario L. Gaw, Jr. Formal Letter of Demand for Taxable Years 2007 and 2008 dated April 8, 2011.' For ease of reference, the entire body of the letter is quoted below in full: 'This is in relation with the above captioned matter, please be informed that we disagree to the findings stated on the Audit Result/Assessment Notice, as indicated on the BIR Form 401, as hereby attached. Thank you very much.' 17. On 4 August 2011, petitioner wrote a supplement to the protest letter earlier filed which is mere cover letter introducing additional evidence in the form of copies of promissory notes. 18. The protest letter dated 07 June 2011 submitted by petitioner was denied by respondent on the ground that it is a pro forma protest which offers no issue and cause for reconsideration. The aforesaid protest is nothing but an empty statement of objection executed simply to disagree. 19. A taxpayer or his duly authorized representative may protest administratively against the Formal Letter of Demand and corresponding assessment notices within thirty (30) days from date of receipt. The taxpayer shall state the facts, the applicable law, rules and regulations, or jurisprudence on which his protest is based, otherwise, his protestc

CTA Case No. 8502 Page 16 Macario Lim Gaw, Jr. vs. CIR DECISION shall be considered void and without force and effect. 20. Section 228 of the Tax Code provides the procedure in protesting an assessment, to wit: 'Protesting of Assessment. - When the Commissioner or his duly authorized representative finds that the proper taxes should be assessed, he shall first notify the taxpayer of his findings: XXX Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his representative shall issue an assessment bases on his findings. Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all the relevant supporting documents shall have been submitted; otherwise, the assessment shall become final. If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the (

CTA Case No. 8502 Page 17 Macario Lim Gaw, Jr. vs. CIR DECISION lapse of one hundred eighty (180) day period; otherwise, the decision shall become final, executory and demandable.' (Emphasis supplied) 21. In relation thereto, the contents of a valid protest recapitulated under Revenue Regulation (RR) No. 12-85, provides: '(a) Name of the taxpayer and address for the immediate past three (3) taxable years. (b) Nature of request whether reinvestigation or reconsideration specifying newly discovered evidence he intends to present if it is a request for investigation. (c) The taxable period covered. (d) Assessment number. (e) Date of receipt of assessment notice or letter of demand. (f) Itemized statement of the findings to which the taxpayer agrees as a basis for computing the tax due, which amount should be paid immediately upon the filing of the protest. For this purpose, the protest shall not be deemed validly filed unless payment of the agreed portion of the tax is paid first. (g) The itemized schedule of the adjustments with which the taxpayer does not agree. (h) A statement of facts and/or law in support of the protest.' 22. Whereas, the effect of a pro forma protest as stated in Revenue Regulations No. 12-99, is quoted as follows: 'SECTION 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: {

CTA Case No. 8502 Page 18 Macario Lim Gaw, Jr. vs. CIR DECISION XXX 3.5.1 Disputed Assessment. xxx The taxpayer shall state the facts, the applicable law, rules and regulations, or jurisprudence on which his protest is based, otherwise, his protest shall be considered void and without force and effect. xxx If the taxpayer fails to file a valid protest against the formal letter of demand and assessment notice within thirty (30) days from date of receipt thereof, the assessment shall become final, executory and demandable.' 23. Finally, the filing of a pro forma protest is clarified in the case of Ferdinand R. Marcos II vs. Court of Appeals, et al, the Supreme Court had these words to describe the definitive effect of failure to file a timely protest: 'Moreover, these objections to the assessments should have been raised, considering the ample remedies afforded the taxpayer by the Tax Code, with the Bureau of Internal Revenue and the Court of Tax Appeals, as described earlier, and cannot be raised now via Petition for Certiorari, under the pretext of grave abuse of discretion. The course of action taken by the petitioner reflects his disregard or even repugnance of the established institutions for governance in the scheme of well-ordered society. The subject tax assessments having become final, executory and enforceable, the same can no longer be contested by means of a disguised protest. In the main, Certiorari may not be used as a substitute for a lost appeal or remedy. This judicial policy becomes more pronounced in view of the{.

CTA Case No. 8502 Page 19 Macario Lim Gaw, Jr. vs. CIR DECISION absence of sufficient attack against the actuations of government.' 24. The letter protest dated 07 June 2011 made by petitioner clearly does not comply with the pre- requisites of a valid protest sanctioned under Section 228 of the Tax Code, R.R. 12-85 and established jurisprudence. The second letter dated 04 August 2011 which is a mere cover letter adducing additional evidence likewise has no statement of facts, applicable law, rules and regulations. 25. Both letters are pro forma which merely stated petitioner's disagreement or attaches documents sans explanation or clarification required by law as if no administrative protest was filed at all. Thus, the assessment is already final, executory and demandable. 26. Based on the foregoing, the finding of deficiency tax liabilities against petitioner is proper in all respects. Worthy of note, are the words of the Supreme Court in the case of Commissioner of Internal Revenue vs. Bank of Philippine Islands: 'Tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer has the duty to prove otherwise. In the absence of proof of any irregularities in the performance of duties, an assessment duly made by a Bureau of Internal Revenue examiner and approved by his superior officers will not be disturbed. All presumptions are in favour of the correctness of tax assessments." The Pre-Trial Conference was set on September 13, 2012. 27 Thus, respondent's Pre-Trial Brief28 was filed on(" n Docket, Vol. I, p. 330. 78 Docket, Vol. I, pp. 333-337.

CTA Case No. 8502 Page 20 Macario Lim Gaw, Jr. vs. CIR DECISION September 7, 2012; while petitioner's Pre-Trial Brief29 was filed on September 10, 2012. The parties filed their Joint Stipulation of Facts30 on October 8, 2012. This was approved by the Court in the Resolution31 dated October 10, 2012, which likewise terminated the Pre-Trial. Afterwards, the parties filed a Supplemental Joint Stipulation of Facts32 on December 19, 2012. This was approved by the Court via Resolution33 dated December 27, 2012. During trial, petitioner presented as his witness, Ms. Florita B. Santos, Managing Partner of the accounting firm Santos Verde San Juan & Associates, hired by petitioner. 34 Petitioner filed his Formal Offer of Documentary Exhibits35 on February 1, 2013. In the Resolution36 dated March 5, 2013, the Court admitted petitioner's Exhibits "A", "B" "C"I "D" I "E"I "F"I "G"I "H"I "I"I "J"I "K"I "L"I "M"I "N"I f "0"I "P"I "JJJ"I "KKK"I "LLL"I "000"f "QQQ"I "RRR"I "SSS"f "TTI"I "UUU"I "VVV"I "WWW"I "XXX"I and "XXX-1"' However, the Court denied the admission of Exhibits "NNN", "PPP", "WWW-1"f "WWW-2"f "WWW-3"f "WWW-4"f "WWW- 5"f "WWW-6"f "WWW-7"f "WWW-8"f "WWW-9"f "WWW-10"f "WWW-11"f "WWW-12"f "WWW-13"f "WWW-14"f and "WWW-15" for failure of petitioner to have the witness identify the afore-mentioned exhibits. On March 18, 2013, petitioner filed a Motion for Partial Reconsideration (Re: Resolution promulgated on OS March 2013) 37, praying for the admission of Exhibits "NNN", "PPP", "WWW-1" to "WWW-15" as they have been properly c identified by his witness. This was partially granted by the 79 Docket, Vol. I, pp. 339-358. 30 Docket, Vol. II, pp. 564-568. 31 Docket, Vol. II, pp. 570-571. 37 Docket, Vol. II, pp. 615-616. 33 Docket, Vol. II, p. 618. 31 Judicial Affidavit of Ms. Florita B. Santos, Docket, Vol. I, pp. 379-396; Minutes of the Hearing dated October 10, 2012, Docket, Vol. II, p. 569. 35 Docket, Vol. II, pp. 675-684. 36 Docket, Vol. II, pp. 701-702. 37 Docket, Vol. II, pp. 705-709.

CTA Case No. 8502 Page 21 Macario Lim Gaw, Jr. vs. CIR DECISION Court in the Resolution 38 dated June 6, 2013. Exhibits "NNN" and "PPP" were admitted, however Exhibits "WWW-1" to "WWW-15" were still denied admission. Petitioner's admitted documentary exhibits are as follows: Exhibits Description A Final Decision on Disputed Assessment No. 2012-0001 promulgated on 18 May 2012 (FDDA) consisting of eleven (11) pages B Banco De Oro Promissory Note No. 803102160037 amounting to Php5,000,000.00, with value date of 9 November 2007 and maturity date of 8 c January 2008 Banco De Oro Promissory Note No. 803102160080 amounting to Php128,020,000.00, with value date of 12 November 2007 and maturity date of 8 January 2008 D Banco De Oro Promissory Note No. 803102185553 amounting to Php185,130,000.00, with value date of 28 November 2007 and maturity date of 10 December 2007 E Banco De Oro Promissory Note No. 803102185586 amounting to Php1,703,004,060.00, with value date of 29 November 2007 and maturity date of 10 December 2007 F Banco De Oro Promissory Note No. 803102186034 amounting to Php380,036,000.00, with value date of 11 December 2007 and maturity date of 10 January 2008 G Banco De Oro Promissory Note No. 803- 102-186-276 amounting to Php335,388,600.00, with value date of 17 December 2007 and maturity date of 27 December 2007 H Banco De Oro Promissory Note No. 803- 102-186-275 amounting to Php164,800,000.00, with value date of 17(. 38 Docket, Vol. II, pp. 727-729.

CTA Case No. 8502 Page 22 Macario Lim Gaw, Jr. vs. CIR DECISION December 2007 and maturity date of 27 December 2007 I Banco De Oro Promissory Note No. J K 803102186316 amounting to L M Php98,621,040.00, with value date of 18 N 0 December 2007 and maturity date of 27 P JJJ December 2007 KKK LLL Banco De Oro Promissory Note No. NNN 803102186821 amounting to Php72,200,000.00, with value date of 10 January 2008 and maturity date of 25 January 2008 Banco De Oro Promissory Note No. 803- 102-190-704 amounting to Php126,726,670.00, with value date of 31 March 2008 and maturity date of 02 May 2008 Banco De Oro Promissory Note No. 803102190804 amounting to Php72,200,000.00, with value date of 03 April 2008 and maturity date of 02 May 2008 Banco De Oro Promissory Note No. 803102190937 amounting to Php200,000,000.00, with value date of 09 April 2008 and maturity date of 24 April 2008 Banco De Oro Promissory Note No. 803102191521 amounting to Php550,975,500.00, with value date of 30 April 2008 and maturity date of 6 June 2008 Banco De Oro Promissory Note No. 803- 102-199-408 amounting to Php572,388,600.00, with value date of 06 June 2008 and maturity date of 02 July 2008 Banco De Oro Promissory Note No. 803102199776 amounting to Php159,330,375.00, with value date of 23 June 2008 and maturity date of 02 July 2008 Petitioner's Annual Income Tax Return for Taxable Year 2007 BIR's Leter of Authority No. 2009- 00044669 dated 25 August 2010 (LOA) BIR's Joint Complaint Affidavit in NPS Docket No. XVI- INV-10H-00256 DOJ Resolution dated 17 March 2011 in NPS Docket No. XVI- INV-10H-00256 {.

CTA Case No. 8502 Page 23 Macario Lim Gaw, Jr. vs. CIR DECISION 000 Letter dated 30 September 2010 from Santos Verde San Juan & Associates, ppp consisting of one (1) page BIR's Notice for Informal Conference QQQ dated 12 January 2011 signed by OIC- Chief of the National Investigation RRR Division, Sixto C. Dy, Jr., consisting of one (1) page sss Letter dated 13 January 2011 from Santos Verde San Juan & Associates, consisting of TTT one (1) page BIR's Preliminary Assessment Notice uuu dated 15 February 2011 with Annex A on vvv Details of Discrepancies signed by the Assistant Commissioner of the www Enforcement Division, James H. Roldan, consisting of nine (9) pages XXX Letter-Reply dated 28 March 2011 from Tan Acut Lopez and Pison Law Offices duly XXX-1 received by the BIR on 31 March 2011, consisting of eight (8) pages, with voluminous attachments marked as Annexes 1 to 53 BIR's Formal Letter of Demand dated 08 April 2011 with Annex A on Details of Discrepancies signed by the Assistant Commissioner of the Enforcement Division, James H. Roldan, consisting of eight (8) pages Letter dated 07 June 2011 from Santos Verde San Juan & Associates with attached BIR Forms No. 401, consisting of four (4) pages Protest-Letter dated 07 June 2011 from Tan Acut Lopez and Pison Law Offices duly received by the BIR on 09 June 2011, consisting of eight (8) pages, with voluminous attachments marked as Annexes 1 to 53 Letter dated 04 August 2011 from Tan Acut Lopez and Pison Law Offices duly received by the BIRon 08 August 2011, consisting of two (2) pages, with attachments marked as Annexes 2-A to 2-0 Judicial Affidavit of Ms. Florita B. Santos dated 03 October 2012, consisting of 18 pages Name and Signature of Ms. Florita B. Santos(

CTA Case No. 8502 Page 24 Macario Lim Gaw, Jr. vs. CIR DECISION On May 17, 2013, Presiding Justice Roman G. Del Rosario voluntarily inhibited himself from the instant case, as the Division he headed, when he was Assistant Solicitor General, acted as counsel for the People of the Philippines in connection with the filing of a Petition for Certiorari before the Supreme Court to seek the annulment of the Resolution dated January 3, 2013 rendered by then CTA First Division in the consolidated cases of People of the Philippines vs. Macario Lim Gaw, Jr., CTA Crim No. 0-026; People of the Philippines vs. Macario Lim Gaw, Jr., CTA Crim No. 0-027; and Macario Lim Gaw, Jr. vs. Commissioner of Internal Revenue, CTA Case No. 8503. 39 Respondent presented Revenue Officer Leonesto D. Bernal as his sole witness. 40 Respondent filed his Formal Offer of Evidence41 on November 7, 2013. In the Resolution42 dated February 24, 2014, the Court admitted respondent's Exhibits "1", "2", "3", "5", "6", "7", "8", "9", "10", and "10-a", but denied the admission of Exhibit "4" for respondent's failure to submit the original document for comparison. In the same Resolution, the Court likewise granted petitioner's motion to set additional hearing for the presentation of rebuttal evidence. Respondent filed a Motion for Reconsideration (Re: Resolution dated February 24, 2014)43 on March 17, 2014, praying that the denial of Exhibit "4" be reconsidered and that the same be admitted as evidence for respondent. Respondent offered the following exhibits, to wit:{ 39 Docket, Vol. II, pp. 722-723. ~ 0 Judicial Affidavit of Leonesto D. Bernal, Docket, Vol. II, pp. 747-756; Minutes of the Hearing dated October 22, 2013, Docket, Vol. II, pp. 842-846. ~ 1 Docket, Vol. II, pp. 853-859. 47 Docket, Vol. II, pp. 887-888. 43 Docket, Vol. II, pp. 894-897.

CTA Case No. 8502 Page 25 Macario Lim Gaw, Jr. vs. CIR DECISION Exhibits Description 1 2 Memorandum for CIR Kim S. Jacinto- 3 Henares dated August 9, 2010 4 Judicial Affidavit of Leonesto D. Bernal in 5 Criminal Case 0-206 & 0-207 6 Letter of Authority No. LOA 2009 7 00044669 dated August 25, 2010 8 Electronic Letter of Authority (eLOA) No. 2010 00015001 dated August 25, 2010 9 Notice for Informal Conference dated 10 January 12, 2011 Preliminary Assessment Notice with Details of Discrepancies dated February 15, 2011 Formal Letter of Demand dated April 8, 2011 with Details of Discrepancies and Final Assessment Notices Protest Letter received by the National Investigation Division of the BIR on June 7, 2011 captioned "PROTEST LETTER FOR MACARIO L. GAW, JR. FORMAL LETTER OF DEMAND FOR TAXABLE YEARS 2007 AND 2008 DATED APRIL 8, 2011" Final Decision on Disputed Assessment dated May 18, 2012 Judicial Affidavit of Leonesto D. Bernal During the hearing on March 20, 2014, instead of presenting the testimony of petitioner's witness subject of the subpoena, the parties stipulated on the Transcript of Stenographic Notes taken during the hearing held on April 25 and May 9, 2012 in CTA Crim. Case Nos. 0-206 and 0- 207.44 Thereafter, on March 31, 2014, petitioner filed his Formal Offer of Rebuttal Evidence, 45 as follows: Exhibits Description P-1-Rebuttal Certified True Copy of the Transcript of inclusive of Stenographic Notes (TSN) dated 25 sub-markings April 2012 in CTA Criminal Case Nos. 0-206 & 0-207 P-2-Rebuttal Original copy of TSN dated 09 May inclusive of 2012 in CTA Criminal Case Nos. 0-206 sub-markings & 0-2071( 44 Resolution dated March 20, 2014, Docket, Vol. II, pp. 904-905. 4~ Docket, Vol. II, pp. 909-911.

CTA Case No. 8502 Page 26 Macario Lim Gaw, Jr. vs. CIR DECISION On April 2, 2014, petitioner filed an Extremely Urgent Verified Motion for Suspension of Collection of Taxes46. In support of his motion, petitioner presented Ms. Florita B. Santos47 as his witness. Petitioner then filed his Formal Offer of Evidence in Support of Motion48 on April 22, 2014. All of his exhibits were admitted during the hearing on April 25, 2014, 49 and are enumerated as follows: Exhibits Description P-1-Motion Faithful Reproduction of the Warrant of Distraint and/or Levy dated 11 January P-2-Motion 2013 P-3-Motion Certified true copy of Condominium P-4-Motion Certificate of Title No. 101756 P-5-Motion Certified true copy of Condominium P-6-Motion Certificate of Title No. 82073 P-7-Motion Certified true copy of Condominium P-8-Motion Certificate of Title No. 82074 Certified true copy of Transfer Certificate P-9-Motion of Title No. T-388616 P-9-a-Motion Certified true copy of Transfer Certificate of Title No. T-395413 Certified true copy of Transfer Certificate of Title No. T-389050 Original copy of Notice of Sale dated 05 March 2014 published on page B-7 of the 31 March 2014 edition of the Philippine Star Original copy of the Judicial Affidavit of Ms. Florita B. Santos dated 02 April 2014 Name and signature of Ms. Florita B. Santos ( ~6 Docket, Vol. II, pp. 1116-1130. 47 Exhibit "P-9-Motion", Judicial Affidavit of Ms. Florita B. Santos (In support of Petitioner's Extremely Urgent Motion for the Suspension of Collection of Taxes), Docket, Vol. II, pp. 1279-1285; Minutes of the Hearing dated April 11, 2014, Docket, Vol. II, pp. 1217-1219. '~8 Docket, Vol. II, pp. 1240-1244. 49 Minutes of the Hearing dated April 25, 2014, Docket, Vol. II, pp. 1300-1304; Resolution dated April 25, 2014, Docket, Vol. II, pp. 1306-1307.

CTA Case No. 8502 Page 27 Macario Lim Gaw, Jr. vs. CIR DECISION During the said hearing, respondent presented his witness, Revenue Officer Cynthia M. Catolico50 . Respondent verbally offered his documentary exhibits, which were all admitted by the Court. 51 The documentary exhibits of respondent's are, to wit: Exhibits Description R-1-Suspension The Warrant of Distraint and/or Levy served on the petitioner on R-2-Suspension January 16, 2013 R-3-Suspension and The Memorandum dated January R-3-1-Suspension 17, 2013 The testimony Ms. Cynthia M. Catolico Petitioner filed his Memorandum (Re: Petitioner's Extremely Urgent Verified Motion for Suspension of Collection of Taxes) 52 on April 28, 2014. Respondent likewise filed his Memorandum 53 on April 28, 2014. In the Resolution54 dated April 28, 2014, the Court granted petitioner's Extremely Urgent Verified Motion for Suspension of Collection of Taxes and directed respondent to cease and desist from collecting the alleged income tax deficiency from petitioner subject to petitioner's filing of a cash bond. On May 6, 2014, petitioner filed a Motion to Nullify 29 April 2014 Auction Sale55 . The motion was denied by the Court in the Resolution 56 promulgated on July 21, 2014. Petitioner then filed a Motion for Reconsideration (Re: ( 30 Exhibit "R-3-Suspension", Judicial Affidavit of Revenue Officer Cynthia M. Catolico, Docket, Vol. II, pp. 1291-1296; Minutes of the Hearing dated April 25, 2014, Docket, Vol. II, pp. 1300-1304. 31 Minutes of the Hearing dated April 25, 2014, Docket, Vol. II, pp. 1300-1304; Resolution dated April 25, 2014, Docket, Vol. II, pp. 1306-1307. 52 Docket, Vol. II, pp. 1308-1322. 33 Docket, Vol. II, pp. 1324-1335. s-1 Docket, Vol. II, pp. 1339-1346. 33 Docket, Vol. III, pp. 1351-1360. 36 Docket, Vol. III, pp. 1392-1395.

CTA Case No. 8502 Page 28 Macario Lim Gaw, Jr. vs. CIR DECISION Resolution dated 21 July 2014) 57 on August 12, 2014. This was likewise denied by the Court in the Resolution 58 dated October 23, 2014. On April 6, 2015, the Court resolved petitioner's Formal Offer of Rebuttal Evidence and admitted petitioner's Exhibits "P-1-Rebuttal" and "P-2-Rebuttal", inclusive of sub- markings. 59 On May 8, 2015, respondent filed a Motion for Issuance of Subpoena Ad Testificandum and Subpoena Duces Tecum to require Banco De Oro Assistant Manager, Ms. Filipina R. Matito, or any other officer of BOO who is competent to testify on some BOO promissory notes. This was granted by the Court and a Subpoena Duces Tecum and Ad Testificandum 60 was issued to Ms. Filipina R. Matito on May 14, 2015. In the Resolution61 dated July 24, 2015, respondent was deemed to have waived his right to present sur-rebuttal evidence for failure of respondent's counsel to comply with the Resolution62 dated June 4, 2015. Within the extended time granted by the Court,63 petitioner filed his Memorandum64 on September 28, 2015. Respondent, on the other hand, failed to file his Memorandum per Records Verification Report65 issued by this Court's Judicial Records Division on October 2, 2015. Hence, in the Resolution66 dated October 8, 2015, the Court declared the present case submitted for decision.( 51 Docket, Vol. III, pp. 1397-1411. Resolution dated ~8 Docket, Vol. III, pp. 1425-1433. ~9 Resolution dated April 6, 2015, Docket, Vol. III, pp. 1446-1448. 60 Docket, Vol. III, p. 1453. 61 Docket, Vol. III, pp. 1467-1468. 62 Docket, Vol. III, p. 1463. 63 Order dated August 27, 2015, Docket, Vol. III, p. 1472; September 16, 2015, Docket, Vol. III, p. 1478. G<'l Docket, Vol. III, pp. 1479-1524. 6~ Docket, Vol. III, pp. 1527. 66 Docket, Vol. III, p. 1528.

CTA Case No. 8502 Page 29 Macario Lim Gaw, Jr. vs. CIR DECISION Petitioner submitted the following issues67 for this Court's resolution: 1. Whether respondent's failure to validly assess petitioner within the period prescribed by law rendered the deficiency income tax assessment against petitioner for taxable year 2007 void. 2. Whether respondent's issuance of the deficiency assessments in blatant violation of petitioner's right to due process rendered the deficiency income tax assessment against petitioner for taxable year 2007 void. a. Whether the Letter of Authority No. 2009-00044669 which covers the audit of "Unverified Prior Years" is invalid, being in direct contravention of Section C of Revenue Memorandum Order No. 43-90. b. Whether the Formal Letter of Demand dated 08 April 2011 and Final Decision on Disputed Assessment No. 2012-0001 dated 18 May 2012 were improperly served on petitioner. c. Respondent disregarded petitioner's protest letter dated 07 June 2011 and additional submissions in support of his protest. 3. Whether the deficiency income tax assessment against petitioner for taxable year 2007 has no factual and legal bases. Petitioner contends that respondent issued the deficiency assessment beyond the three-year prescriptive~ 67 Issues, Petitioner's Memorandum, Docket, Vol. III, pp. 1495-1496.

CTA Case No. 8502 Page 30 Macario Lim Gaw, Jr. vs. CIR DECISION period provided under Section 203 of the NIRC of 1997, as amended, and is therefore void. Moreover, he argues that Letter of Authority No. 2009-00044669, which covers the audit of "unverified prior years" is invalid, being in direct contravention of Section C of Revenue Memorandum Order (RMO) No. 43-90. Petitioner further alleges that the Formal Letter of Demand dated April 8, 2011 and Final Decision on Disputed Assessment No. 2012-0001 dated May 18, 2012 were improperly served on petitioner. He also contends that respondent disregarded his protest letter dated June 7, 2011 and additional submissions in support of his protest. Lastly, petitioner avers that the deficiency income tax assessment against petitioner for taxable year 2007 has no factual or legal basis. On the other hand, respondent argues that the deficiency tax assessments are supported by facts, laws, rules, and jurisprudence. He likewise contends that Letter of Authority No. 2009-00044669 dated August 25, 2010 is valid. Respondent alleges that in assailing the legality of the Letter of Authority, petitioner failed to take into account that the instant case involves tax fraud which is way different from ordinary deficiency assessments. Moreover, respondent asserts that since the case involves fraud, the applicable provision is Section 222 of the NIRC of 1997, as amended. Lastly, respondent points out that petitioner's protest-letter did not conform to the requirements prescribed by law and pertinent revenue regulations. Respondent assessed petitioner for deficiency taxes for taxable year 2007 within the period prescribed by law. The Court shall determine first whether respondent issued the deficiency assessment within the three-year prescriptive period provided under Section 203 of the NIRC of 1997, as amended.(

CTA Case No. 8502 Page 31 Macario Lim Gaw, Jr. vs. CIR DECISION Section 203 of the NIRC of 1997, as amended, mandates that internal revenue taxes must be assessed within three years reckoned from the period fixed by law for the filing of the tax return or the actual date of filing, whichever is later, thus: "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 prescribed by law for the filing thereof shall be considered as filed on such last day." (Emphasis supplied) Pursuant to Section 74 of the NIRC of 1997, as amended, the Final Adjusted Income Tax Return of an individual taxpayer is due to be filed on or before April 15 of the following calendar year. Records show that petitioner filed his Annual Income Tax Return for taxable year 200768 on April 15, 2008. Pursuant to Section 203 of the NIRC of 1997, as amended, respondent had until April 15, 2011 within which to assess petitioner for deficiency income tax for taxable year 2007. The Supreme Court, in the case of Barcelon Roxas Securities, Inc. vs. Commissioner of Internal Revenue, 69 held that assessment is made within the prescriptive period if notice to this effect is released, mailed or sent by the BIR Commissioner to the taxpayer within said period, to wit: "Under Section 203 of the National Internal Revenue Code (NIRC), respondent had three (3)<:" 68 Exhibit "JJJ". 69 G.R. No. 157064, August 7, 2006.

CTA Case No. 8502 Page 32 Macario Lim Gaw, Jr. vs. CIR DECISION years from the last day for the filing of the return to send an assessment notice to petitioner. In the case of Collector of Internal Revenue v. Bautista, this Court held that an assessment is made within the prescriptive period if notice to this effect is released, mailed or sent by the CIR to the taxpayer within said period. Receipt thereof by the taxpayer within the prescriptive period is not necessary. At this point, it should be clarified that the rule does not dispense with the requirement that the taxpayer should actually receive, even beyond the prescriptive period, the assessment notice which was timely released, mailed and sent." (Emphasis supplied) A perusal of the Formal Letter of Demand 70 shows that it was issued on April 8, 2011. Thus, the deficiency income tax assessment for taxable year 2007 was issued within the three (3)-year prescriptive period. The deficiency income tax assessment issued against petitioner for taxable year 2007 is void due to the invalidity of the Letter of Authority. The Court shall now resolve the issue pertaining to the validity of the Letter of Authority. It must be emphasized that before any revenue officer can conduct an examination or assessment, there must be a valid Letter of Authority. Section 6(A) of the NIRC of 1997, as amended, vests the Commissioner of Internal Revenue with the power to( 70 Exhibit "TIT"; Exhibit "7".

CTA Case No. 8502 Page 33 Macario Lim Gaw, Jr. vs. CIR DECISION authorize the examination of any taxpayer and the assessment of the correct amount of tax due, to wit: "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 taxpayer." (Emphasis supplied) In relation thereto, Section 13 of the NIRC of 1997, as amended, provides that a Letter of Authority is the authority given to the appropriate revenue officer assigned to perform assessment functions. It empowers or enables said revenue officer to examine the books of account and other accounting records of a taxpayer for the purpose of collecting the correct amount of tax. 71 Section 13 provides: "SEC. 13. Authority of a Revenue Officer. - Subject to the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner, a Revenue Officer assigned to perform assessment functions in any district may, pursuant to a Letter of Authority issued by the Revenue Regional Director, examine taxpayers within the jurisdiction of the district in order to collect the correct amount ( 71 Commissioner of Internal Revenue vs. Sony Philippines, Inc., G.R. No. 178697, November 17, 2010.

CTA Case No. 8502 Page 34 Macario Lim Gaw, Jr. vs. CIR DECISION of tax, or to recommend the assessment of any deficiency tax due in the same manner that the said acts could have been performed by the Revenue Regional Director himself." (Emphasis supplied) Clearly, there must be a grant of authority before any revenue officer can conduct an examination or assessment. Equally important is that the revenue officer so authorized must not go beyond the authority given. In the absence of such an authority, the assessment or examination is a nullity. 72 It must be noted that Section C of Revenue Memorandum Order No. 43-9073 provides that a Letter of Authority should cover a period not exceeding one taxable year. It also prohibits the practice of issuing Letters of Authority covering audit of "unverified prior years". Section 3 of RMO No. 43-90 reads: "C. Other policies for issuance of L/As. XXX XXX XXX 3. 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." (Emphasis supplied) Moreover, in the case of Commissioner of Internal Revenue vs. Sony Philippines, Inc. / 4 the Supreme Court also upheld the invalidity of the phrase "unverified prior~ 12 Ibid. 73 Amendment of Revenue Memorandum Order No. 37-90 Prescribing Revised Policy Guidelines for Examination of Returns and Issuance of Letters of Authority to Audit, dated September 20, 1990. 74 G.R. No. 178697, November 17, 2010.

CTA Case No. 8502 Page 35 Macario Lim Gaw, Jr. vs. CIR DECISION years" in the Letter of Authority, because it violated Section C of RMO No. 43-90. In the present case, LOA No. 2009-0004466975 dated August 25, 2010, allowing respondent to investigate and ascertain the internal revenue taxes of petitioner, indicated the period of taxable year 2008 and unverified prior years, to wit: "The bearer(s) hereof, Revenue Officer A.R. Aquino Under the supervision of V.C. Clemente of the National Investigation Division is/are authorized to examine your books of accounts and other accounting records for All Internal Revenue Taxes for the period from Taxable year 2008 and Unverified prior years. xxx" (Emphasis supplied) Clearly, LOA No. 2009-00044669 is invalid having been issued in violation of Section C of RMO No. 43-90. Thus, the assessment issued by respondent for taxable year 2007 was unauthorized, because there was no valid Letter of Authority covering it. A deficiency assessment issued without a valid authority is a nullity. 76 And considering that the Letter of Authority issued in this case authorized the audit of taxable year 2008 and "unverified prior years", which is prohibited, the deficiency income tax assessment for taxable year 2007 is null and void. Therefore, the same must be cancelled and set aside. Finding that the assessment for taxable year 2007 is void for being issued without a valid authority, the Court finds it no longer necessary to discuss the other issues raised.~ 15 Exhibit "KKK"; Exhibit "3". 76 People of the Philippines vs. Edwin T. So, Raymond R. Lee, Techpoint Computer Corporation, CTA EB Crim. No. 028, March 6, 2015.

CTA Case No. 8502 Page 36 Macario Lim Gaw, Jr. vs. CIR DECISION WHEREFORE, premises considered, the instant Petition for Review is GRANTED. Accordingly, the deficiency income tax assessment for taxable year 2007, amounting to P1,295,855,151.89 as found in FDDA No. 2012-0001, is hereby CANCELLED and WITHDRAWN. SO ORDERED. ~ ~- M~~ . CvJL.. CIELITO N. MINDARO-GRULLA Associate Justice WE CONCUR: -INHIBITED- , ROMAN G. DEL ROSARIO ERL~P. UY Presiding Justice Associate Justice CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, 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. Presiding Justice Chairperson, 1sL Division