CTA Case No. O-49 (Resolution)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY FIRST DIVISION PEOPLE OF THE PHILIPPINES, CTA CRIM. CASE NOS. 0-409 & Plaintiff, 0-410 For: Violation of Sections 254 and 255 of the NIRC of 1997, as amended -versus- Members: DEL ROSARIO, P.J./ Chairperson UY,and MINDARO-GRULLA, 11. MA. CARLA BEATRICE C. Promulgated: CASTILLO, Accused. NU v v u )'"_'J ~~~ q,�,o~ ~ X- - - - - - - - - - - - - - - - - - - - - - - - - - - RESOLUTION This resolves accused's Demurrer to Evidence, filed on April 26, 2017, without plaintiff's comment as per Records Verification dated August 30, 2017. The instant Demurrer to Evidence was filed by the accused on the ground of insufficiency of plaintiff's evidence stating that plaintiff's imputations of tax evasion and failure to file an Income Tax Return (ITR) against accused are based on mere speculation and on an unfounded conclusion that accused's acquisition of the La Vista property in 2010 implies her receipt of an alleged undeclared income in 2010. Accused claims that if this absurd position would be upheld, any person who purchased a property using income that she earned or derived from a different year, or using savings, borrowings or other sources, would be immediately held criminally liable for tax evasion and failure to file an ITR.

RESOLUTION CTA CRIM. CASE NOS. 0-409 & 0 -410 Accused is charged before th1s Court with violation of Sections 254 and 255 of the National Interrlal Revenue Code (NIRC) of 1997, as amended, under two (2) separate Informations, both dated May 30, 2014, which read: a. CTA Criminal Case No. 0-+ 9: The undersigned prosecutors of the Department of Justice, hereby accuse MA. CARLA BEATRICE C. CASTILLO for her attempt Ito evade or defeat tax, in violation of Section 254 of thr National Internal Revenue Code of 1997, as amended, c[ mmitted as follows: "That on or about April 2011, in Quezon City and within the jurisdic ion of this Honorable Court, the above-named accused, as a Filipino citizen residing in the Philippines, and required by law, rules and regulations to file her annual income taxi return did, then and there, willfully, unla4 fully and feloniously attempt to evade o~ 1 defeat tax, as said accused did not file her annual income tax return for taxable year 2010, which resulted to a basic deficiency income tax of Five Million Eight Hundred Thirty T~ousand Two Hundred Eighty Pesos (P5,830,2~0.00) for taxable year 2010, exclusive of surcharge and interest, to the damage and prejudice of the Government of the Republic of the P~ ilippines." b. CTA Criminal Case No. 0-410: The undersigned prose~utors of the Department of Justice, hereby accuse M,. CARLA BEATRICE C. CASTILLO for her failure t~l . file her annual income tax return, in violation of Section 255 of the National Internal Revenue Code of 1997, as amended, committed as follows : "That on or about April 2011, in Quezon City and within the jurisdicl,ion of this Honorable Court, the above-named accused, as a Filipino citizen residing in tihe Philippines, and required by law, rules bnd regulations to file her annual income tax return did, then and

RESOLUTION CfA CRIM. CASE NOS. 0-409 & 0-410 there, willfully, unlawfully and feloniously fail to file her annual income tax return for taxable year 2010, in violation of the provisions of the National Internal Revenue Code of 1997, as am~nded, to the damage and prejudice of thel Government of the Republic of the Philipplnes in the amount of Five Million Eight Huntlred Thirty Thousand Two Hundred Eighty Pesos (P5,830,280.00), as basic income tax dfficiency, exclusive of interests and surcharges." I To substantiate its allegatir,ns in the above Informations, plaintiff presented in open court lthe testimonies of the following witnesses: (a) Josephine D. Duran; and (b) Socrates 0. Regala. Further, plaintiff presented the following documentary evidences: Exhibit I Description "P-1" Referral Letter of ton. Kim S. Jacinto-Henares dated "P-2" August 29, 2012 t 1 Department of Justice Joint Complaint-.AJffidavit of Socrates 0. Regala, "P- 3 " Josephine D. Durah and Cristina A. Kahulugan dated August 29, 2012 "P-4" Joint Reply-Affidavit of Socrates 0. Regala, "P-5" Josephine D. Durah and Cristina A. Kahulugan dated October 25, 2012 "P-6" Memorandum of ~he Bureau of Internal Revenue "P-7" December 27, 201~ Certification date<Ii January 17, 2012 issued by "P-8" Revenue District Office (RDO) No. 39 through Clavelina S. Nacar "P-9" Certification dated!January 20, 2012 issued by RDO "P-10" No. 39 through Clqvelina S. Nacar C.b Annual Income Talx Return (BIR Form 1701) of Ma. Carla Beatrice Castillo for taxable year 2008 consisting of five( ,i) pages Annual Income Ta:x Return (BIR Form 1701) of Ma. Carla Beatrice G. Castillo for the year 2009 consisting of three (3) pages Access Letter dat~d December 26, 2011 addressed to RDO Clavelina ~. Nacar Documentary Starnp Tax (DST) Return (BIR Form 2000-0T) of Ma. Carla Beatrice C. Castillo for the taxable year 2010, consisting of two (2) pages

RESOLUTION CTA CRI M. CASE NOS. 0 -409 & 0 -410 "P- 11" Capital Gains Tax ~CGT) Return (BIR Form 1706) of "P-12" "P- 13" Mrs. Cristina Corona for the taxable year 2010, "P-14" I "P-15" "P-16" consisting of two (J2) pages "P-17" "P-18" Certification datedl October 07, 2010 issued by the "P-19" "P-20" City Treasurer's Office of Quezon City "P-21" " P-21 -A" Tax Declaration of Real Property with Property Index "P-22" "P-22-A" 15-078-03-045 "P-23" "P-23-A" Deed of Absolute Sale between Ma. Cristina R. "P-24" Corona and Ma. [Carla Beatrice C. Castillo dated "P-24-A" October 18, 2010 Access Letter da~d December 27, 2011 addressed to RDO Clavelina . Nacar certificate Autho[izing Registration (CAR 2010 00097318) Tax Clearance Certification (TCC) signed by Mahinardo G. Mailig, consisting of four (4) pages Transfer Certificat~ of Title No. N-254901 in the name of Cristina R. Corona, consisting of four (4) pages Transfer Certificat~ of Title No. 004-2010010259 in the name of Ma. crarla C. Castillo, consisting of four (4) pages I First Notice dated February 9, 2012, consisting of three (3) pages I Second Request for Presentation of Records dated May 29, 2012 with Registry Receipt dated June 1, 2012 I Registry Receipt ~ated June 1, 2012 in relation to Second Request for Presentation of Records dated May 29, 2012 Final Notice dat1d July 27, 2012 with Registry Receipt dated July 27, 2012 Registry Receipt dated July 27, 2012 in relation to Final Notice dated )uly 27, 2012 Letter of Authori~~ (LOA-211-2012-00000003) dated January 25, 201 2J with attached Registry Receipt dated January 30, 2012 Registry Receipt d~ted January 30, 2012 in relation to Letter of Aut ority (LOA-211-2012-00000003) dated January 25, 2012 Notice for an Informal Conference addressed to Ma. Carla Beatriz C. 1 Castillo dated May 14, 2013, consisting of tw9 (2) pages with attached LBC Express Receipt dated May 16, 2013 LBC Express Receipt dated May 16, 2013 in relation 1

RESOLUTION CTA CRIM . CASE NOS. 0 -409 & 0-410 "P-25" to the Notice for an Informal Conference addressed "P-26" to Ma. Carla Beatri~ C. Castillo dated May 14, 2013 Letter dated May �3, 2013 of Ma. Carla Beatrice C. "P-27" Castillo addressed o the BIR "P-28" Preliminary Asse,ssment Notice (PAN) dated "P-29" November 6, 2013[addressed to Ma. Carla Beatriz C. Castillo with Tot~l amount of Php11,783,530.59, "P-29-A" consisting of three l(3) pages Letter dated January 24, 2014 of Ms. Julie Ann S. Morales, Authorizt d Representative of Ma. Carla Beatrice C. Castillo addressed to the BIR Response to the l Preliminary Assessment Notice dated November 6, 2013, dated February 19, 2014 Formal Letter of ~emand (FLD) dated September 29, 2015 addressed to Ma. Carla Beatrice C. Castillo with total amount! of P13,913,215.52, consisting of three (3) pages wi~h Registry Receipt dated October 6, 2015 Registry Receipt d~ted October 6, 2015 in relation to the FLD dated September 29, 2015 In the Resolution' dated AJ il 20, 2017, the Court admitted Plaintiff's exhibits except for Exhibits "P-2", "P-3"f "P-4"f "P-5"f "P- 19"f "P-20"f "P-21"f "P-21-A"f "P-22"f "P-22-A"f "P-23-A"f "P-24-A"f "P-25", "P-27", and "P-29-A". On April 26, 2017, accused filed a Motion for Leave to File Demurrer to Evidence with attached Demurrer to Evidence. In a Resolution dated August 9, 2017, the Court granted the same and directed the prosecution to file his comment/opposition to accused's Demurrer to Evidence. Considering that plaintiff faii Jd to file his comment/opposition, the Court shall now resolve accused's Demurrer to Evidence. I Accused's Demurrer to Evidence is based on the following grounds: (1) plaintiff's evidence failed to prove accused's alleged receipt of undeclared income in 2(i)10, and her supposed liability to pay tax on said income; (2) plainti~'s evidence is insufficient to prove accused's alleged "willfulness" in ~vading the payment of taxes or filing of ITR; and (3) plaintiff's ~wn evidence reveal that these 1 Docket, CTA Crim. Case No . 0-409, val. V, pp. 2545-2546.

RESOLUTION CfA CRIM. CASE NOS. 0-409 & 0-410 criminal cases were prematurely and hastily filed in violation of accused's right to due process. As regards the first grou~d, accused cited the case of Commissioner ofInternal Revenue~ let a/. vs. Court ofAppeals, et a/.2, where the Supreme Court ruled ttiat "before one is prosecuted for willful attempt to evade or defeat Iany tax under Section 253 (now 254) and 255 (now 256) of the (011) Tax Code, the fact that a tax is due must first be proved." Accuse9 also avers that it is a well-settled rule that no income tax is due u ~ less there is an income or gain which is realized or received, citi ~g the case of Chamber of Real Estate and Builders'Associations, I!fc. vs. Executive Secretary. Accused further states that inl order for the plaintiff to establish the elements of the receipt of income, and the corresponding tax due from accused, plaintiff's evidence rust prove the "property, activity or service" that produced the accused's supposed undeclared income, pursuant to the case of Commission! er of Internal Revenue vs. Baier- Nicke/.4 I In addition, accused asserts that it is plaintiff's position that the amount that may be used to p~rchase a property can only be sourced from income derived in the same year of purchase and that if this position would be upheld, a person who purchased a property using income that she earned or ~erived from a different year, or using savings, borrowings, and oth~r sources would automatically be held criminally liable for tax evasionl. Accused argues that plaintiff's witnesses admitted that they merely relied on her ITRs for 2008 and 2009, the Deed of Sale, Certificate Authorizing Registration j (CAR), Documentary Stamp Tax (DST) Return and Transfer Cert~icate of Title (TCT) No. 004- 2010010259 covering the La V sta property in presuming or concluding that accused's acquisitio of the La Vista Property in 2010 implies her receipt of income inl the said year. Plaintiff merely speculated that since accused purc~ased a property in 2010, accused must have received undeclared income in the same year. accus~d For the second ground, contends that plaintiff failed to show the existence of any preme~itated, malicious and fraudulent 2 G.R. No. 119322, June 4, 1996. 3 G.R. No. 160756, March 9, 2010. 4 G.R. No. 153793, August 29, 2006 .

RESOLUTION CTA CRIM. CASE NOS. 0-409 & 0-410 scheme on her part in order to prove the element of "willfulness" to evade the payment of tax and in failing to file a return in these cases. Accused avers that the filing of thfse criminal cases was based on mere inference or speculations instead of concrete evidence showing fraud. I Accused avers that plaintiff'J reliance on the Net Worth and Expenditure Methods in arriving I at its baseless conclusions is inapplicable in these criminal cases and that plaintiff cannot rely on these methods to prove fraud in these cases. Facts seeking to establish a criminal violation can never be based on mere presumptions. To rule otherwise would be contrary to accused's constitutional right to be presumed innocent. Anent the last ground, accused asserts that there has been a violation of her right to due process considering that the criminal cases were prematurely and hastily lfiled. Accused relies on the Supre~e Court ruling in Commissioner of Internal Revenue vs. Court of Appeals, saying that in the absence of a prima facie evidence showing a !fraudulent income tax return, an assessment of deficiency tax due is a condition sine qua non for a 1 criminal prosecution for willful attempt to defeat and evade the income tax. I argue~ Moreover, accused that pursuant to Revenue Memorandum Order (RMO) No. 217-2010, a Complaint involving a case covered by the Run After Tax Evaders (RATE) Program, may be filed only after the BIR conducted: (1) a preliminary investigation, where the prima facie evidence of f~aud or tax evasion is established; and (2) formal investigation, where Ithe taxpayer's books of accounts, accounting records and third party records are examined. In this case, accused stresses that neithe~ a preliminary investigation nor a formal investigation was actually corducted by the BIR. It must be noted that a 9emurrer to the evidence is an objection by one of the parties in 1an action, to the effect that the evidence which his adversary produced is insufficient in point of law, whether true or not, to make out ~ case or sustain the issue. The party demurring challenges the suriciency of the whole evidence to sustain a verdict.5 I 5 Gutib vs. Court ofAppeals/ eta!./ G.R. No. 131209, August 13, 1999.

RESOLUTION CTA CRIM. CASE NOS. 0 -409 & 0 -410 ch~rged In this case, accused is with attempt to evade or defeat tax and failure to file rety~n for taxable year 2010, under Sections 254 and 255 of the NIRC of 1997, as amended, respectively. Accordingly, the Court shall 01 W discuss whether the elements of Sections 254 and 255 of the IRC of 1997, as amended, were established by the prosecution as it is settled that in passing upon the sufficiency of the evidence raised in a demurrer, the Court is merely required to ascertain whethrr there is competent or sufficient proof to sustain the indictment or tf support a verdict of guilt.6 It has been said that a demurrer to evide~ce is sustainable when, admitting every proven fact favorable to the plaintiff and indulging in his favor all conclusions fairly and reasonably inferable therefrom, the plaintiff has failed to make out one or mo ~e of the material elements of his ase, or when there is no evidence ~o support an allegation nece~ to his claim. 7 t~e Sections 254 and 255 of NIRC of 1997, as amended provide: IE "SEC. 254. Attempt to vade or Defeat Tax. - Any person who willfully att~mpts in any manner to evade or defeat any tax im osed under this Code or the payment thereof shall, in addition to other penalties provided by law, pan conviction thereof, be punished by a fine not lf ss than Thirty thousand (P30,000) but not more th~n One hundred thousand pesos (P100,000) and suffert imprisonment of not less than two (2) years but not more than four (4) years: Provideft That the conviction or acquittal obtained under this Section shall not be a b, r to the filing of a civil suit for the collection of taxes." "SEC. 255. Failure to IFile Return Supply Correct and Accurate Information Pf Y Tax Withhold and Remit Tax and Refund Excess Taxe~. Withheld on Compensation. - An erson re uired under this Code or b rules and regulations promulg � ted thereunder to pay any tax make a return, ke1ep any record, or supply correct the accurate inforlation, who willfully fails to pay such tax, make uch return, keep such 6 Rivera vs. People of the Philippines, G.R. No. 1 June 9, 2005. 16i996, ' Spouses Condes vs. Court ofAppeals, G.R. No. 1~ 1304, July 27, 2007.

RESOLUTION CTA CRIM. CASE NOS. 0 -409 & 0 -410 record, or supply correct Jnd accurate information, or withhold or remit taxes withheld, or refund excess taxes withheld on compensation, at the time or times required j by law or rules and regulations shall, in addition to other penalties provided by law, upon conviction therelof, be punished by a fine of not less than Ten thousand pesos (P10,000) and suffer imprisonment of not less tha ~ one (1) year but not more than ten (10) years. attemp~s Any person who to make it appear for any reason that he or another h1as in fact filed a return or statement, or actually files ~ return or statement and subsequently withdraws the I same return or statement after securing the official receiving seal or stamp of receipt of internal revenue office wherein the same was actually filed shall, upon con~iction therefor, be punished ~~tan~~~~~en~~a~~~~:~~ ~~b u~~~~s~~~o~et~;O~~6g) 0~~~ suffer imprisonment of not le~s than one (1) year but not more than three (3) years." [(Boldfacing & underscoring supplied) Parenthetically, to sustain a aonviction for attempt to evade or defeat tax under Section 254 of th ~ NIRC of 1997, as amended, the following elements must be establisred: b~ 1. Accused is required the NIRC to pay tax; 2. Accused attempts to evade or defeat any tax or the payment thereof; and t~x 3. Such attempt to evade is willful. On the other hand, to conr ict the accused for the offense charged under Section 255 of the NIRC of 1997, as amended, the following elements must be established by the prosecution: 1. Accused is required 1 under the NIRC or its rules and regulation~ to pay any tax or make a return;

RESOLUTION CTA CRIM. CASE NOS. 0 -409 & 0 -410 2. Accused failed to pay the required tax, or make a return at the time required by law or rules and regulations; and 3. Accused's failure to payl the required tax or to make a return at the time rEtquired by law or rules and regulations is willful. The common element under Sections 254 and 255 of the NIRC of 1997, as amended, is to establish that the accused is required to pay tax and/or file a tax return. The rest of the elements of both offenses under Sections 254 and 255 of the NIRC of 1997, as amended, are dependent on their respective first element, which is the presence of the requirement to pay tax and/or to file a return as required by the NIRC. In other words, neither can there be a willful attempt to evade tax nor willful failure to pay a tax if there is no requirement to pay the same. o~l To prove the first element the offense under Sections 254 and 255 of the NIRC of 1997, ~ s amended, the prosecution is burdened to establish two (2) indis~ensable components, namely: (1) that accused is a resident of the Philippines as alleged in both Informations; and (2) the source of income of the accused in taxable year 2010 including the taxable ilncome derived therefrom, which income was not declared in the corresponding Income Tax Return (ITR) for 2010. 1 I It is worth stressing that tre NIRC of 1997, as amended, requires a Filipino citizen residing i~ the Philippines to file an Income Tax Return and to pay income tax on income from within and without the Philippines. This requirement Is evident from the provisions of Sections 23, 24 and 51 of the NIRCiof 1997, as amended, viz.: "SEC. 23. General Prin}ip/es of Income Taxation in the Philippines- Except when otherwise provided in this Code: (A) A citizen of the Philippines residing therein is taxable on all income derived from sources within and withdut the Philippines; (B) A nonresident citizen is taxable !only on income derived from sources within the Philippine~; (C) An individual citizen of the Philippines who is worki~g and deriving income from abroad as an overseas contract worker is taxable only on income derived from sour~es within the Philippines: Providect That a seaman whq is a citizen of the Philippines

RESOLUTION CTA CRIM. CASE NOS . 0 -409 & 0 -410 and who receives compensation for services rendered abroad as a member of t rle complement of a vessel engaged exclusively in international trade shall be treated as an overseas contract wor~er; (D) An alien individual, whether a resident or not of the Philippines, is taxable only on income derived I from sources within the Philippines;(E) A domestic cprporation is taxable on all income derived from sources within and without the Philippines; and (F) A foreign corporation, whether engaged or not in trade or 9usiness in the Philippines, is taxable only on income deri'Ved from sources within the Philippines." XXX I XXX x~x I "SEC. 24. Income Tax Rates- (A) Rates ofIncome Tal on Individual Citizen and Individual Resident Alien of t1e Philippines. (1) An income tax is hereb im osed: (a) On the taxable income define in Section 31 of this Code, 1 other than income subject td tax under Subsections (B), I (C) and (D) of this Section, gerived for each taxable year from all sources within and without the Philippines I by every individual citizen of the Philippines residing therein; (b) On t~e taxable income defined in Section 31 of this Code, othelr than income subject to tax under Subsections (B), (C) an~ (D) of this Section, derived for each taxable year frdm all sources within the Philippines by an individual citizen of the Philippines who is residing outside of the Philippines including overseas contract workers referred to in Subsection(C) of Section 23 hereof; and (c) On the taxable income defined in Section 31 of this Code, other than income subject to tax under Subsections (b), (C) anld (D) of this Section, derived for each taxable year from all sources within the 1 Philippines by an individual alien who is a resident of the Philippines." XXX XXX XXX "SEC. 51. Individual keturn. - (A) Requirements.-

RESOLUTION CTA CRIM. CASE NOS. 0-409 & 0-410 (1) Except as providep in paragraph (2) of this Subsection, the following individuals are required to file an income tax return: (a) Every Filipino citizen residing in the Philippines; (b) Every Filipino citizen residing woituhtisnidethethPehilPiphpiilinped~i;ne(sc,) on his income from sources Every alien residing in the Philippines, on income dehved from sources within the Philippines; and (d) Every nbnresident alien engaged in trade or business or in the t xercise of profession in the Philippines. (2) The following indivi1uals shall not be required to file an income tax return; (9) An individual whose gross income does not exceed his ~otal personal and additional exemptions for dependents pnder Section 35: Provided, That a citizen of the Philippires and any alien individual engaged in business or practice of profession within the Philippine shall file an income tax return, regardless of the amount of gross income; (b) An individual with respect to pure compensation income, as defined in Section 32 (A)(l), derived from source~ within the Philippines, the income tax on which has been correctly withheld under tahneinpdriovvidisuioanl sdeorfivSinegctcioonmp7e9~bsaf ttihoins Code: Provided, That concurrently from two or more employers at any time during the taxable year shall file an income tax retur~ : Provided, further, That an individual whose compensa~ion income derived from sources within the Philippin s exceeds Sixty thousand pesos (P60,000) shall also fie an income tax return; (c) An individual whose sole in me has been subjected to final withholding tax pursuart to Section 57(A) of this Code; and (d) An individual _rho is exempt from income tax pursuant to the provisionl ?f this Code and other laws, general Or special. XXX." rso/dfacing & underscoring supplied) The aforequoted provisions ~lso require a non-resident citizen of the Philippines to file an ITR. Iand pay income tax on taxable income derived only from within t~ e Philippines. This shows that a resident citizen and a non-resident [itizen are required to file ITR and pay income tax, albeit the taxable ~ase is different, that is, on income from all sources (within and witHout the Philippines) for resident citizen and on income derived froP, within the Philippines for non- resident citizen. While both Inforr ations allege that accused is a resident of the Philippines, the prosecution must establish by

RESOLUTION CTA CRIM. CASE NOS. 0-409 & 0-410 competent and sufficient evidence that accused was a resident of the Philippines during the year 2010. After carefully reviewing the records, the Court noted the absence of evidence, whethe ~ documentary or testimonial, establishing the foregoing compo~ents of the first element of the offenses charged against the accusrd. The prosecution failed to show that accused was a resident of the Philippines in taxable year 2010. Neither was there a proof of the possible or likely source of income of the accused in 2010, nor proof of 1 accused's taxable income derived therefrom. The prosecution found prob1ble cause against the accused in this case holding that the use of tthe expenditure method is a valid tool to determine a taxpayer's alleged liability citing as basis Section 43 of the NIRC of 1997, as amended and the ruling in William Li Yao vs. Commissioner of Internal R4venue.8 The prosecution further states that the expenditure methpd, together with the net worth method, is utilized by the BIR in order to track undeclared income of taxpayers. ~ommissioner There is no denying that the of Internal Revenue is allowed to employ methods to cpmpute the income of a taxpayer pursuant to Section 43 of the NIRC of 1997, as amended/ and in fact, it is settled that in civil ease l the application of the net worth method does not require identification of the sources of the alleged unreported income and the determilnation of the tax deficiency by the government is prima facie correct. 1LNevertheless, in criminal case, as in the cases at bar, the prpsecution has to identify the likely source of the unreported or undeclared income. The requirement to prove the likely sou ce of income to justify the use of the expenditure method was e unciated in Bureau of Internal Revenue vs. Court ofAppeals1 wh re the Supreme Court held: In Ungab v. Judge Cusl Jr., we ruled that tax evasion is deemed complete when thel violator has knowingly and 8, 1963. 9 SEC. 43. General Rule. - The taxable incorre shall be computed upon the basis of the taxpayer's annual accounting period (fiscal yea r, or calendar year, as the case may be) in accordance with the method of accounting reg ylarly employed in keeping the books of such taxpayer, but if no such method of accounting has been so employed, or if the method employed does not clearly reflect the income, the compu~ation shall be made in accordance with such method as in the opinion of the Commissioner clearly reflects the income. 10 The Commissioner ofInternal Revenue vs. Ave/1r�o, G.R. No. L-14847, September 19, 1961. 11 G.R. No. 197590, November 24, 2014.

RESOLUTION CTA CRIM. CASE NOS. 0-409 & 0 -410 willfully filed a fraudulent retu rn with intent to evade and defeat a part or all of the tax. torollarily, an assessment of the tax deficiency is not requi ~ed in a criminal prosecution for tax evasion. However, in ~ommissioner ofInternal Revenue v. Court of Ateals, we clarified that although a deficiency asse sment is not necessary, the fact that a tax is due m st first be proved before one can be prosecuted for tax evasion. In the case of income, 1 for it to be taxable, there must be a gain realized or received by the taxpayer, which is not excluded by law or I treaty from taxation. The government is allowed to resort to all evidence or resources available to determine a taxpayer's income and to use methods to reconstr~ct his income. A method commonly used by the government is the expenditure method, which is a method o~ reconstructing a taxpayer's income by deducting the ag~regate yearly expenditures from the declared yearly i~come. The theory of this method is that when the amount of the money that a taxpayer spends during a giver1 year exceeds his reported or declared income and the source of such money is unexplained, it may be infer~ed that such expenditures peti~ioner represent unreported or undeclared income. In the case at bar, used this method to determine respondent spousr s' tax liability. Petitioner deducted respondent spouser ' major cash acquisitions from their available funds. XXX XXX XXX And since the underdeclcllration is more than 30�/oof respondent spouses' reported or declared income, which under Section 248(8) of the NIRC constitutes as prima facie evidence of false or f~audulent return, petitioner recommended the filing or criminal cases against respondent spouses under Sections 254 and 255, in relation to Section 248(8) of th~ NIRC. The CA, however, found no probable cause to indict respondent spouses for tax evasion. It agreed with Acting Justice Secretary D~vanadera that petitioner failed to make "a categorifal finding of the exact amount of tax due from [r~spondent spouses]" and "to show sufficient proo~ of a likely source of

RESOLUTION CTA CRIM. CASE NOS. 0-409 & 0 -410 [respondent spouses'] inco~e that enabled them to purchase the real and perspnal properties adverted to x x x." We find otherwise. The amount of tax duethf~rb~- mCroemsppolanindte-nAtffsidpaovuist.es was specifically alleged in The computation, as well as the ~ ethod used in determining the tax liability, was also clet ly explained. The revenue officers likewise showed th t the under declaration exceeded 30�/o of the reported or declared income. llso The revenue officers identified the likely source of the unreported r undeclared income in their Reply-Affidavit. The p ,rtinent portion reads: 7. X X X X [Respondent spo ~ses] are into rental business and the net P( Ofit for six (6) years before tax summed onl'tf to P1,238,938.32 (an average of more or I less Php200,000.00 annually). We asked respondent [Antonio] if we can proceed to hi~ rented property to [appraise] the earning cbpacity of the building [for] lease/ rent, b ~1 t he declined our proposition. Due to sue~ refusal made by the respondent, [petitioner , thru its examiners, took pictures of the ubject property and came up with the findipgs that indeed the unexplained funds s~ught to have been used in acquiring th! valuable property in Tagaytay x x x came from the underdeclaration of t ntal income. Apparently, the reve11ue officers considered respondent Antonio's ren~l business to be the likely source of their un~eported or undeclared income due to his unjustified refusal to allow the revenue officers to inspect ~he building." (Boldfacing and underscoring supplied) Without evidence on the likFIY source of income and the corresponding income derived therr rom by the accused during the

RESOLUTION CTA CRIM. CASE NOS. 0-409 & 0 -410 concerned taxable year, the Courtl casts a serious doubt as to the veracity of the offenses charged against the accused. The acquisition made by accused of the La Vi ~ta property in 2010 could not conclusively be presumed as arisinqJ from her receipts of undeclared income in 2010 as the consideratio~ involved therein may likewise be presumed to have been sourced from donations, borrowings and/or from income subjected to final tax t onsistent with an accused's right to the presumption of innocence. 1 pro~ecution It is basic truism that the has the burden of proving beyond reasonable doubt each elerent of the crime as its case will rise or fall on the strength of �ls own evidence, never on the weakness or even absence of that of the defense. 12 Failing to prove the required quantum of evidenc :, the presumption of innocence must prevail and accused should be acquitted. 13 I All told, as there is absence o~ proof showing that accused is a resident of the Philippines in 2010 and that there was a likely source of income of accused in 2010 v~ s-a-vis the income she derived therefrom during the same year, the present Demurrer to Evidence should rightly be granted. I In view of the foregoing, lthe Court deems it no longer necessary to discuss the other issuj s raised. WHEREFORE, premises co~sidered, accused's Demurrer to Evidence is GRANTED. Accordingly, CTA Criminal Case Nos. 0-409 and 0-410 are DISMISSED for failure of the prosecution to present sufficient evidence to warrant conviction beyond reasonable doubt. SO ORDERED. Presiding !Justice ER~P� .UY ~ N . M~~~ G~ �IELITO N. MINDARO-GRULLA Associate Justice I Associate Justice 12 Alferez vs. People of the Philippines, G.R. No. 1 ~2301, January 31, 2011. 13 The People of the Philippines vs. Santos, G.R. Np. 175593, October 17, 2007.