1) Transitions Optical received a letter of authority from the Bureau of Internal Revenue (BIR) to examine its books for tax year 2004. It later executed two waivers extending the period for BIR to assess taxes, but these waivers did not comply with requirements.
2) The Court of Tax Appeals found the waivers invalid due to lack of proper authorization and documentation. It also found that BIR's assessment of deficiency taxes for 2004 had prescribed.
3) While Transitions Optical's actions induced BIR to delay assessment, the court determined that BIR was ultimately at fault for accepting invalid waivers. The court thus upheld the prescription of BIR's right to assess deficiency taxes for
1) Transitions Optical received a letter of authority from the Bureau of Internal Revenue (BIR) to examine its books for tax year 2004. It later executed two waivers extending the period for BIR to assess taxes, but these waivers did not comply with requirements.
2) The Court of Tax Appeals found the waivers invalid due to lack of proper authorization and documentation. It also found that BIR's assessment of deficiency taxes for 2004 had prescribed.
3) While Transitions Optical's actions induced BIR to delay assessment, the court determined that BIR was ultimately at fault for accepting invalid waivers. The court thus upheld the prescription of BIR's right to assess deficiency taxes for
1) Transitions Optical received a letter of authority from the Bureau of Internal Revenue (BIR) to examine its books for tax year 2004. It later executed two waivers extending the period for BIR to assess taxes, but these waivers did not comply with requirements.
2) The Court of Tax Appeals found the waivers invalid due to lack of proper authorization and documentation. It also found that BIR's assessment of deficiency taxes for 2004 had prescribed.
3) While Transitions Optical's actions induced BIR to delay assessment, the court determined that BIR was ultimately at fault for accepting invalid waivers. The court thus upheld the prescription of BIR's right to assess deficiency taxes for
1) Transitions Optical received a letter of authority from the Bureau of Internal Revenue (BIR) to examine its books for tax year 2004. It later executed two waivers extending the period for BIR to assess taxes, but these waivers did not comply with requirements.
2) The Court of Tax Appeals found the waivers invalid due to lack of proper authorization and documentation. It also found that BIR's assessment of deficiency taxes for 2004 had prescribed.
3) While Transitions Optical's actions induced BIR to delay assessment, the court determined that BIR was ultimately at fault for accepting invalid waivers. The court thus upheld the prescription of BIR's right to assess deficiency taxes for
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CIR VS TRANSITIONS OPTICAL
FACTS
On April 28, 2006, Transitions Optical received Letter of Authority No.
00098746 dated March 23, 2006 from Revenue Region No. 9, San Pablo City, of the Bureau of Internal Revenue. It was signed by then Officer-in-Charge- Regional Director Corazon C. Pangcog and it authorized Revenue Officers Jocelyn Santos and Levi Visaya to examine Transition Optical's books of accounts for internal revenue tax purposes for taxable year 2004. On October 9, 2007, the parties allegedly executed a Waiver of the Defense of Prescription (First Waiver). In this supposed First Waiver, the prescriptive period for the assessment of Transition Optical's internal revenue taxes for the year 2004 was extended to June 20, 2008. The document was signed by Transitions Optical's Finance Manager, Pamela Theresa D. Abad, and by Bureau of Internal Revenue's Revenue District Officer; Myrna S. Leonida. This was followed by another supposed Waiver of the Defense of Prescription (Second Waiver) dated June 2, 2008. This time, the prescriptive period was supposedly extended to November 30, 2008. Thereafter, the Commissioner of Internal Revenue, through Regional Director Jaime B. Santiago (Director Santiago), issued a Preliminary Assessment Notice (PAN) dated November 11, 2008, assessing Transitions Optical for its deficiency taxes for taxable year 2004. Transitions Optical filed a written protest on November 26, 2008. The Commissioner of Internal Revenue, again through Director Santiago, subsequently issued against Transitions Optical a Final Assessment Notice (FAN) and a Formal Letter of Demand (FLD) dated November 28, 2008 for deficiency income tax, value-added tax, expanded withholding tax, and final tax for taxable year 2004 amounting to ₱l 9,701,849.68.11 In its Protest Letter dated December 8, 2008 against the FAN, Transitions Optical alleged that the demand for deficiency taxes had already prescribed at the time the FAN was mailed on December 2, 2008. In its Supplemental Protest, Transitions Optical pointed out that the FAN was void because the FAN indicated 2006 as the return period, but the assessment covered calendar year 2004. Years later, the Commissioner of Internal Revenue, through Regional Director Jose N. Tan, issued a Final Decision on the Disputed Assessment dated January 24, 2012, holding Transitions Optical liable for deficiency taxes in the total amount of ₱l9,701,849.68 for taxable year 2004. On March 16, 2012, Transitions Optical filed a Petition for Review before the Court of Tax Appeals. In her Answer, the Commissioner of Internal Revenue interposed that Transitions Optical's claim of prescription was inappropriate because the executed Waiver of the Defense of Prescription extended the assessment period. She added that the posting of the FAN and FLD was within San Pablo City Post Office's exclusive control. She averred that she could not be faulted if the FAN and FLD were posted for mailing only on December 2, 20081 since November 28, 2008 fell on a Friday and the next supposed working day, December 1, 2008, was declared a Special Holiday. The Commissioner of Internal Revenue filed a Motion for Reconsideration, which was denied by the First Division in its Resolution dated November 7, 2014. The Court of Tax Appeals En Banc affirmed the First Division Decision19 and subsequently denied the Commissioner of Internal Revenue's Motion for Reconsideration. Hence, this Petition was filed before this Court. Transitions Optical filed its Comment.
Issues: 1. whether or not the two (2) Waivers of the Defense of Prescription entered into by the parties on October 9, 2007 and June 2, 2008 were valid; and 2. 2. Whether or not the assessment of deficiency taxes against respondent Transitions Optical Philippines, Inc. for taxable year 2004 had prescribed.
Held:
1. As a general rule, petitioner has three (3) years to assess taxpayers from the filing of the return. Section 203 of the National Internal Revenue Code provides: Section 203. Period of Limitation Upon Assessment m1d 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. An exception to the rule of prescription is found in Section 222(b) and (d) of this Code, viz: Section 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. - (b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax. both the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed within the period agreed upon. The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon. d) Any internal revenue tax, which has been assessed within the period agreed upon as provided in paragraph (b) hereinabove, may be collected by distraint or levy or by a proceeding in court within the period agreed upon in writing before the expiration of the five (5) - year period. The period so agreed upon may be extended by subsequent written agreements made before the expiration of the period previously agreed upon. Thus, the period to assess and collect taxes may be extended upon the Commissioner of Internal Revenue and the taxpayer's written agreement, executed before the expiration of the three (3)-year period. In this case, two (2) waivers were supposedly executed by the parties extending the prescriptive periods for assessment of income tax, value-added tax, and expanded and final withholding taxes to June 20, 2008, and then to November 30, 2008. The Court of Tax Appeals, both its First Division and En Banc, declared as defective and void the two (2) Waivers of the Defense of Prescription for non-compliance with the requirements for the proper execution of a waiver as provided in RMO No. 20-90 and RDAO No. 05-01. Specifically, the Court of Tax Appeals found that these Waivers were not accompanied by a notarized written authority from respondent, authorizing the so-called representatives to act on its behalf. Likewise, neither the Revenue District Office's acceptance date nor respondent's receipt of the Bureau of Internal Revenue's acceptance was indicated in either document. In the case at bar, respondent performed acts that induced the BIR to defer the issuance of the assessment. Records reveal that to extend the BIR's prescriptive period to assess respondent for deficiency taxes for taxable year 2004, respondent executed two (2) waivers. The first Waiver dated October 2007 extended the period to assess until June 20, 2008, while the second Waiver, which was executed on June 2, 2008, extended the period to assess the taxes until November 30, 2008. As a consequence of the issuance of said waivers, petitioner delayed the issuance of the assessment. Notably, when respondent filed its protest on November 26, 2008 against the Preliminary Assessment Notice dated November 11, 2008, it merely argued that it is not liable for the assessed deficiency taxes and did not raise as an issue the invalidity of the waiver and the prescription of petitioner's right to assess the deficiency taxes. In its protest dated December 8, 2008 against the FAN, respondent argued that the year being audited in the FAN has already prescribed at the time such FAN was mailed on December 2, 2008. Respondent even stated in that protest that it received the letter (referring to the FAN dated November 28, 2008) on December 5, 2008, which accordingly is five (5) days after the waiver it issued had prescribed. The foregoing narration plainly does not suggest that respondent has any objection to its previously executed waivers. By the principle of estoppel, respondent should not be allowed to question the validity of the waivers. the Bureau of Internal Revenue was at fault when it accepted respondent's Waivers despite their non-compliance with the requirements of RMO No. 20-90 and RDAO No. 05-01. Nonetheless, respondent's acts also show its implied admission of the validity of the waivers. First, respondent never raised the invalidity of the Waivers at the earliest opportunity, either in its Protest to the PAN, Protest to the FAN, or Supplemental Protest to the FAN. It thereby impliedly recognized these Waivers' validity and its representatives' authority to execute them. Respondent only raised the issue of these Waivers' validity in its Petition for Review filed with the Court of Tax Appeals. Court finds no clear and convincing reason to overturn these factual findings of the Court of Tax Appeals. Finally, petitioner's contention that the assessment required to be issued within the three (3)-year or extended period provided in Sections 203 and 222 of the National Internal Revenue Code refers to the PAN is untenable. Considering the functions and effects of a PAN vis a vis a FAN, it is clear that the assessment contemplated in Sections 203 and 222 of the National Internal Revenue Code refers to the service of the FAN upon the taxpayer. A PAN merely informs the taxpayer of the initial findings of the Bureau of Internal Revenue. It contains the proposed assessment, and the facts, law, rules, and regulations or jurisprudence on which the proposed assessment is based. It does not contain a demand for payment but usually requires the taxpayer to reply within 15 days from receipt. Otherwise, the Commissioner of Internal Revenue will finalize an assessment and issue a FAN. The PAN is a part of due process. It gives both the taxpayer and the Commissioner of Internal Revenue the opportunity to settle the case at the earliest possible time without the need for the issuance of a FAN.
2. On the other hand, a FAN contains not only a computation of tax liabilities but also a demand for payment within a prescribed period. As soon as it is served, an obligation arises on the part of the taxpayer concerned to pay the amount assessed and demanded. It also signals the time when penalties and interests begin to accrue against the taxpayer. Thus, the National Internal Revenue Code imposes a 25% penalty, in addition to the tax due, in case the taxpayer fails to pay the deficiency tax within the time prescribed for its payment in the notice of assessment. Likewise, an interest of 20% per annum, or such higher rate as may be prescribed by rules and regulations, is to be collected from the date prescribed for payment until the amount is fully paid. Failure to file an administrative protest within 30 days from receipt of the FAN will render the assessment final, executory, and demandable.
