WHEN AN ASSESSMENT IS BASED ON THIRD-PARTY INFORMATION (TPI), THE INVESTIGATING REVENUE OFFICER (RO) IS REQUIRED TO PREPARE & SEND A CONFIRMATION REQUEST TO THE TAXPAYER SERVING AS THE TPI'S SOURCE

Petitioner Redentor Agpuldo Tagala filed a Petition for Review praying for the cancellation of the Final Decision on Disputed Assessment (FDDA), issued by the Respondent Commissioner of Internal Revenue (CIR) which demands payment of his alleged tax deficiencies for the Calendar Year (CY) 2016. The Petitioner argued that the Respondent made different findings on separate occasions, both of which were before the Petitioner was even able to present any of his records. The Petitioner claimed that the Respondent applied for a "50% disallowance" without considering the supporting documents for his expenses in the Annual Income Tax Returns (AITR). As to procedure, the Petitioner pointed out that the Respondent unlawfully served the Letter of Authority (LOA) on his sister, Abe-Abe, who was not authorized to accept the same. On the other hand, the Respondent countered that it did not violate the Petitioner's due process rights. The audit team assigned considered all the supporting documentation they had on hand, as well as the Petitioner's Letter-Protest. In ruling, the Supreme Court, in the case of CIR vs. BASF Coating + Inks Philippines, Inc., underscored that actual knowledge of the new address should take precedence over the registered address in sending out notices in order to meet the minimum due process requirements. In the case at bar, RO Malana did not know and could not have known of the Petitioner's new address which would have prompted her to approach the service of the LOA differently. Given this, RO Malana could not be faulted for resorting to substituted service (leaving the LOA with a person of legal age residing in the taxpayer's residence). Moreover, the Supreme Court, in CIR vs. Liquigaz Philippines Corporation, clarified that a void FDDA does not automatically invalidate the assessment, distinguishing it from the assessment process outlined in the Preliminary Assessment Notice (PAN) and Formal Letter of Demand/Final Assessment Notice (FLD/FAN). On another note, the Court held that preprocessed data is deemed unsubstantiated, rendering the assessment item void for lack of factual and legal basis. Verily, when an assessment is based on TPI, the investigating RO must send a confirmation request to the taxpayer providing the TPI or coordinate with the relevant Revenue District Office (RDO) for its issuance. Nonetheless, Petitioner's expenses declared in his AFS and claimed as deductions in his AITR were disallowed pursuant to an assessment based on the "Best Evidence Obtainable" Rule. The Court held that it is the duty of the person who asserts something to produce evidence in order to prove it-which, unfortunately, the Petitioner failed to do in this case. In consideration, after covering all the assessment items, the assessments for deficiency Income Tax and Value-Added Tax (VAT) were adjusted. In view of this, the Petition was PARTIALLY GRANTED. [REDENTOR AGPULDO TAGALA VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 10721, MARCH 11, 2025]

[A VOID FINAL DECISION ON DISPUTED ASSESSMENT (FDDA) DOES NOT RENDER THE ASSESSMENT VOID] [ONLY AN APPROVED REQUEST FOR REINVESTIGATION WILL SUSPEND THE RUNNING OF THE STATUTE OF LIMITATIONS & NOT A REQUEST FOR RECONSIDERATION]

Petitioner Master Sports Corporation filed a Petition for Review seeking to annul the assessment issued by the Respondent Commissioner of Internal Revenue (CIR). The Petitioner argued that the Respondent’s right to collect the alleged deficiency taxes has already prescribed. It asserts that despite the assessment becoming final and executory, the Respondent failed to initiate any distraint, levy, or court action against the Petitioner. In addition, the assessments were issued in violation of due process, and the Respondent ignored its arguments and evidence when the FDDA was issued. On the other hand, the Respondent argues that the assessments have become final and executory after the Petitioner failed to timely appeal the FDDA. In addition, the period to collect deficiency taxes was suspended when the Petitioner filed its protest to the Final Assessment Notice (FAN) and its first Motion for Reconsideration (MR) which were duly granted. The issues raised for the Court’s resolution are whether the subject assessment is valid and whether the period to collect deficiency taxes has indeed prescribed. In ruling, the Court held that the subject assessments are valid. Although the FDDA appears to be a reiteration of the FAN, it is not sufficient to nullify the assessments. Also, the assessments became final and executory due to the Petitioner’s failure timely appeal the FDDA. However, the Respondent’s right to collect has already prescribed. The Court emphasizes that even if the Respondent had acted on the MR, it did not toll the running of the prescriptive period and only a request for reinvestigation which the Petitioner has granted will suspend the running of the Statute of Limitations and not through a Request for Reconsideration. Therefore, for failing to demand payment of the deficiency taxes within the prescribed period, the Respondent’s right to collect has indeed prescribed. Thus, the Petition is GRANTED. [MASTER SPORTS CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 10490, MARCH 11, 2025]

IN CASE OF SERVICE VIA REGISTERED MAIL, MERE PRESENTATION OF REGISTRY RECEIPTS IS INSUFFICIENT TO PROVE ACTUAL RECEIPT BY THE TAXPAYER

The Petitioner Commissioner of Internal Revenue (CIR) filed a Petition for Review seeking to reverse the Decision of the Court of Tax Appeals (CTA) Special Third (3^rd) Division which canceled the assessment for Taxable Year (TY) 2013 and lifted the Warrant of Garnishment (WOG) against the Respondent One Cypress Agri-Solution, Inc. (OCAI). The Petitioner argued that the Respondent never notified the BIR of the change in its registered address and that it exercised due diligence in the service of the Final Assessment Notice (FAN). Likewise, he insists on the presumption of regularity in the performance of duties of the revenue officers and invokes the lifeblood doctrine to ensure the collection of taxes without unnecessary hindrance. On the other hand, the Respondent counters that the registry mail receipts presented by the Petitioner only prove the fact of mailing the Formal Letter of Demand/Final Assessment Notice (FLD/FAN), but not the receipt of the Respondent. Since the Petitioner failed to validly serve the FLD/FAN, the Respondent’s right to due process was violated which renders the assessments void. The issue raised for the Court’s resolution is whether there was a valid service of FLD/FAN. In ruling, the Court held that the presumption that the assessment notice is deemed received in the regular course of mail is merely disputable and can be controverted. If the Petitioner fails to discharge the burden to prove receipt of the notice, it leads to a conclusion that the assessment was not validly issued, and the burden to prove due service by registered mail and receipt thereof was shifted to the Petitioner. Moreover, the presentation of the Registry Receipts in evidence is insufficient to prove valid service and receipt of the FLD/FAN. The Petitioner should have presented other independent and competent evidence apart from the Registry Receipts to establish valid service and receipt, without which, the completion of service through registered mail cannot be verified. Here, the Respondent’s due process rights were disregarded, and the FLD/FAN was declared VOID. Consequently, the related WOG cannot be enforced against the Respondent. [COMMISSIONER OF INTERNAL REVENUE VS. ONE CYPRESS AGRI-SOLUTION, INC., CTA EN BANC CASE NO. 2813, MARCH 5, 2025]

[THE PROVINCE SHALL NOT IMPOSE THE TAX ON BUSINESS ENJOYING FRANCHISE OPERATING WITHIN THE TERRITORIAL JURISDICTION OF ANY CITY LOCATED WITHIN THE PROVINCE] [TAXPAYERS SHALL RECORD THE SALE IN THE BRANCH OR SALES OUTLET MAKING THE SALE OR TRANSACTION & THE TAX THEREON SHALL ACCRUE AND SHALL BE PAID TO THE CITY OR MUNICIPALITY WHERE SUCH BRANCH OR SALES OUTLET IS LOCATED]

Petitioner Smart Communications, Inc. filed a Petition for Review challenging the decision of the Regional Trial Court (RTC), Tuguegarao City, Branch 10, dismissing its judicial protest against the Franchise Tax assessments issued by the Respondent Province of Cagayan for the Calendar Years (CY) 2011 to 2015. The Petitioner argued that the Respondent's right to assess for CY 2011 is barred by prescription pursuant to Section 194 of the Local Government Code (LGC) and Section 133 of the Cagayan Revenue Code (CRC). In addition, the assessment for local Franchise Tax is null and void since the Petitioner is outside the Respondent's territorial jurisdiction. Contrarily, the Respondent insisted that the Petitioner is liable to the local Franchise Tax by virtue of Section 137 of the LGC, in relation to Section 2G.02 of CRC, considering that the Petitioner's business is being conducted in the whole Province of Cagayan and not just in the City of Tuguegarao. In ruling, Section 194 of the LGC provides that local taxes, fees, or charges shall be assessed within five (5) years from the date they became due. No action for the collection of such taxes, fees, or charges, whether administrative or judicial, shall be instituted after the expiration of such period. The Respondent, thus, only had five (5) years from the date the tax became due within which to assess the same. The Respondents’ power to assess local Franchise Tax for the CY 2011, however, had already prescribed when the Petitioner received the demand letter on May 13, 2016. Moreover, Article 266 (b) of the Implementing Rules and Regulations (IRR) of the LGC clarified that the province shall not impose the tax on businesses enjoying franchises operating within the territorial jurisdiction of any city located within the province. Local Franchise Tax is imposed on where the receipts are recorded, regardless of where the service that generated the gross receipts is realized. In the case at bar, it is undisputed that the Petitioner's gross receipts are recorded in Tuguegarao City. As such, Petitioner's gross receipts are already outside the Respondent's territorial jurisdiction. Further, it was found that the numerical data remained exactly the same for the CY 2011 to 2015, which to the Court's mind is not factually feasible. While Respondent, as a government authority, enjoys the presumption of regularity in the performance of its duties and that tax assessments are prima facie correct, the same cannot apply to an assessment that is without foundation or is arbitrary and capricious. In view of this, the Petition was GRANTED, and the assailed Decision and Resolution were REVERSED and SET ASIDE. The assessment made for alleged local Franchise Taxes was CANCELLED and SET ASIDE. [SMART COMMUNICATIONS VS. PROVINCE OF CAGAYAN & LILIA M. LACAMBRA, IN HER CAPACITY AS OIC-PROVINCIAL TREASURER OF THE PROVINCE OF CAGAYAN, CTA AC NO. 291, FEBRUARY 27, 2025]