CTA Case No. 4530 (Decision)

. \. REPUBLIC OF THE PHI LIPP INES COURT OF TAX APPEALS QUE ZO N CITY BPI DATA SYST EM~ CORPORATION {formerly FILIPINAS MANAGEMENT and EAS NG SERVICES , INC.), j Petitioner , - versus - C. T .A. CASE NO. 45 30 COMMISSIONER OF INTERNAL REVENUE, .Respondent. X- - - - - - - - - -x D..ElCXS.:CO.N This is a petition seeking for a refund of creditable taxes withheld from income payments in the calendar ye ar 1988. Petitioner is a ~ubsidiary of the Bank of Philippine Islands which provides computer services to the bank for a monthly fee. On Apri l 17, 1989, the petitioner fi led its nnual income tax return {Exh. "A") for the calendar year 1988 ref l ecting creditable taxes withheld in the amount of P140,020.00. On December 07, 1990 , it filed with the respondent a claim for the ref und of the said amount and on January 2, 1991, without receiving any response from the respondent, it fi led this instant petition. However, pending this petition , an examination for possible tax deficiency was

DECISION - C.T.A. Case No. 4530 - 2- conducted by the respondent's examiner who, during the last hearing of this case testified that an I assessment notice for deficiency tax was allegedly sent to the petitioner on April 14, 1992 in the amount of P3,735 , 381.12. On this sole basis, the respond en seeks to refute the present action claiming that he issuance of the deficiency asse ssme nt constitut ing t he gre ate r amount precluded the granting of the refund . However, a cursory peru sal of the assessment noti ce submitted in evidence by the respondent (Exh. "G" ) woul d reveal an absence of a registry receipt or any proof of mailing or rece pt th reof. On t he ot her hand, in support of its cla im, the petiti one r submitted in evidence, amo ng others, certificates of tax withheld ) (Exh "B " to "E-9" ) duly issued by the respondent. The on l y issue in his cas e , therefore, is wheth er the as sm n or d efic iency ta x in the amount of P3,7 5 1 81.12 will pre clude the grant of the petitioner's claim or the re fund of creditabl e taxes in the amount of P140 , 0 20.0o. We rul in f vor of he peti ioner. An assessment is a writ en notice that the amount stated the rei n i s due as ta x and containing

DECISION - C.T.A. Case No. 4530 - 3- a demand for payment thereof. In this regard, the law has provided the taxpayer with ample remedies to giv e him an oppoIrtun1' ty to contest or dispute an ass es sment to which he is being ma d e lia ble to pay. Section 229 of the National Inter nal Revenue Co de provides : SEC. 229 . Protesting of assessment. - When the Commissioner of Internal Revenue or h is duly authorized re presentative finds that proper ' taxes should be assessed, he sha ll first notify the taxpayer of h's findings. Within a period to be prescribed 'by impl ementing regulations , the ta xpayer shal l be required to respond to said notic e. If the taxpayer fails to re spond, the Commissioner sha ll issue an assess me n t based on his findings. Such assessment may b e protested administratively by filing a re que st for reconsiderat'on or re investigati on in such form or ma nner as may be prescribed by implementing regula ions wi thin thirty ( 30) days from receipt of the assessment 1 otherwise, the s essment s h?ll become final and unappealable. If the pro st s denied in whole or in part, he 'ndividual , association or corporation adversely affected by the decision on the protest may a ppe al to the Court of Tax Appeals within thi rty ( 30) days from receipt ot the sai d decisio n ; otherwise, the decision s hal l become final, execut e y and demandable. Aside from requiring the res ponden send a pre -a s sess ment notice, the law grants t h e tax p aye r a

DECISION - C.T.A. � case No. 4530 - 4- right to file its protest on both the said notice and resulting assessment. In the case dt bar, not only did the respondent fail to give a prior notice to the petitioner of his findings be fo re issuing an assessment, it likewise failed to es tablish by competent proof that he indeed sent a copy of the assessment to the petitioner. Thus, during the last hearing of the case held on May 22, 1992 the following transpired: "XXX XXX XXX Q. Did you also verify whether the taxpayer was sent a pre-assessment notice be fore t his assessment was sent? A. That I did not verify, Your Honor. Q. But you are aware that under the Internal Revenue Code before an assessment is sent to a taxpayer there must be a pre- assessment notice giving the taxpayer at least ten days from recei pt of the pre - assessment notice to co me to the Bureau and exa mine the findings of the examiner, you are aware of that? A. But I did not, for me it doesn't matter anymore after I have submitted my report because I believe it is not my authority to do that. Q. I am not asking you whether, I realiz e Mr. Zerrudo that it is not your duty t o send the pre-assessment notice. It is a duty that devolves upon your superiors. I am aware of that.

DECISION - C.T.A. Case No. 4530 - 5- A. Yes, Sir. Q. I am only asking you whether as an experienc~d examiner you are aware of the proceduies in the sending of the assessments? A. Well, Your Honor, I agree with Y.�U. That should have ~;en the case. Q. Now, this assessment letter is supposed to have been released or mailed April 14, 1992. I wish to make of record, Your Honor, that it is now May 22, 1992 and the taxpayer has not yet received this. A. I will ask again the Assessment Branch to certify that. I will do that. Q. And in the meantime, it is supposed to have mailed, according to this paper you showed me on April 14, 1992 under Registry No. � blank. Do you realize that when an assessment is sent it is sent by registered mail. Are you aware of that practice? A. Yes. Q. And therefore the mailing clerk attaches, puts down the registry number, Post Office Registry Number. Did you ask why there is no registry? A. No, Your Honor, I did not ask anymore. I only asked a service copy of this." (Testimony of Revenue Examiner Graciano Zerando, pp. 39-f to 39-i, CTA resords) Curiously enough, a mere perusal of the assessment notice allegedly sent by the respondent reveals that the respondent has left blank the space

DECISION - C.T.A . Case No. 4530 - 6- provided for the words "REGISTRY NO." s tamped across its face . ) One of the ~o st basic and fu ndamental precept of law enshrined in the Constitution is that no pers on shall be deprived of his property without due proc ess of law (S ec. 1 Art.III, 1987 Constitution). The pervasiveness of the right to due proces s reaches out to both s ubstantive and procedural r ights, regardless of their source, be it the constitution, or only a statute or a rule of court (Tupas vs. Court of Appeals, 193 SCRA 597). The procedure granted by law under Sec. 22 9 of the National Internal Revenue Code is a seatutory righ t of the taxpayer which cannot be wantonly dis regarded without violating the taxpayer's right to due pro cess. In the observance of procedural due process, this Court is always mindful that a taxpayer being made liable with h is property be give n an opportunity to be heard which is one of its essential elements (Banco Espafiol vs. Palanca 37 Phil.9 21) . With the failure of the respondent to strictly comply with th e procedure prescri b ed by law and for the fai lure of the petitioner to receive a

DECISION - C.T . A. Case No . 4530 - 7- copy of t he alleged assessment , th e latter was not affo rde d its right to be heard for it was denied the opportun ity to protest or d ispute the alleged assessment. I The respondent utterly failed to establish that the assessme n t it has co nducted is a disputed assessment whereby "the taxpayer questions an assessment and asks t he Collector to recons i der or cancel the same because he belie ves he is not liable therefor" . (Morales v s. Collector of Internal Revenue, 17 SCRA 1018). Had the taxpayer been gi ven the opportunity to d spute t le questioned assessme nt, then the same may ha ve been giver due consideration. In the absenc e of any show � ng that ad'ministra t i ve remedies granted by law has been pro perly ex hausted or that petitioner has faile d to file a pro te st on the assessment within the prescribed pe ri od despite receipt thereof , this Court cou ld not bes tow the pre s ump tion of correctness on the said assessment. This Court has made a pronouncement, which was duly affirmed by the Supreme Court in the case of Coll ector of Int erna l Revenue v s. Benipayo (4 SCRA 182), to wit: "To our mind, the a pealed deci sion l a no f c u l b is and must be reversed. an asse sm nt fixes n~ deter mines th e tax liability of a taxpayer. As soon as it is

DECISION - C.T.A. Case No. 4530 - 8- - served, an obligation arises on the part � of the taxpa ye r concerned to pay the amount assessed and demanded. Hence, assessments should not be based on mere presumptions no matter how reasonable or logical presumptions may be. x x x In order ~o stand the test of judicial scrutiny, the assessment must be bas ed on actual facts. The presumption of cor rectness of assessment being a mere presumption cannot be made to rest or another presumption x x x. In the case under consideration there are no su bsta ntial facts to support the assessment in � question. x x x" (Underscoring supplied) In the same vein, with the absence of the �' service of the corresponding noti ce of the alleged assessment, there exists no obli gation on the part of the petitioner to pay to the respondent any of the amou nt stated therein, and more importantly, the ..petitioner has no existin g liabi lity to the State from wh ich we could set-off or precl ud e the granting of the present claim . for refund which stands pncontroverted. At most, the assessment should proceed independently of the cla im for refund and may be prosecuted by her follow ing the procedure +aid down by law bear ing in mind that due process is a l so pa rt and parcel of administrative procedure . .' WHEREFORE, judgment is hereby rendered ordering the ~es pondent to ~efund to the petitioner the ~~6unt of Pl40,020 .00 . representing creditable taxes -~i~ h~e ld for the calendar y ear 1988.

.: i. ~ _, DE CISI ON - c.r . A ~ Ca se Nq. 4 53 0 - 9- SO ORDERED. � Quezbri Ci t y, . Hetro Mani l a , Jarfuary 12, 1994 . .--l?m-: fl4 ~~ . / RAMON 0. DE V A ; Associate Ju ge WE ~O N C UR : I e~~ ~RNESrO D. ACOSTA � Pre siding > I her~by c~rtit y th at the dec ision was reached a tter d u e consultation among t he members of the C o~rt o f Tax Ap pe~ls i n accor4~n ce with Section 13, A rt~c l e VIII ot th e C on st~tut~oq. : ' .... ' ~C2-~ ~R~ ESTO D. ACOSTA �. Pre s i ding Judge Co ~ ~ t of Tax Appeals _,