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CIR v. KUDOS METAL CORPORATION

FACTS:

The case involves a Petition for Review on Certiorari filed by the petitioner, seeking to set aside the decision of the Court of Tax Appeals (CTA) in favor of the respondent, Kudos Metal Corporation. The CTA affirmed the cancellation of assessment notices against the respondent for being issued beyond the prescriptive period.

The respondent filed its Annual Income Tax Return for the taxable year 1998 on April 15, 1999. Subsequently, the Bureau of Internal Revenue (BIR) served three Notices of Presentation of Records to the respondent, following a Letter of Authority. However, the respondent failed to comply, leading to the issuance of a Subpoena Duces Tecum.

On December 10, 2001, the respondent's accountant executed a Waiver of the Defense of Prescription. Later on, a second waiver was executed by the respondent on February 18, 2003. The BIR issued assessment notices for the taxable year 1998 on August 25, 2003, which were received by the respondent on November 12, 2003.

Challenging the assessments, the respondent filed a protest. The CTA Second Division canceled the assessment notices for being issued beyond the prescriptive period due to defects in the first waiver. The CTA En Banc affirmed the cancellation, basing its decision on the second and third grounds determined by the CTA Second Division.

The petitioner argues that the government's right to assess taxes is not barred by prescription, as the waivers effectively tolled or extended the assessment period. Conversely, the respondent maintains that prescription had set in due to the invalidity of the waivers. Additionally, the respondent argues that the principle of estoppel by acquiescence does not apply in this case.

ISSUES:

  1. Whether or not the waivers executed by respondent's accountant extended the period within which the assessment can be made.

  2. Whether or not the doctrine of estoppel applies in this case.

  3. Whether the taxpayer can be prevented from invoking the defense of prescription when the government has been persuaded to postpone collection due to repeated requests or positive acts of the taxpayer.

  4. Whether the doctrine of estoppel can be applied as an exception to the statute of limitations on the assessment of taxes.

RULING:

  1. No, the waivers executed by respondent's accountant did not extend the period within which the assessment can be made. The waivers failed to comply with the requirements under Section 222 of the National Internal Revenue Code of 1997 (NIRC) and the prescribed form by RMO 20-90. Specifically, the waivers were executed without the notarized written authority of the accountant to sign on behalf of respondent, failed to indicate the date of acceptance by the Bureau of Internal Revenue (BIR), and did not indicate the fact of receipt by respondent of its file copy. Due to these defects, the period to assess or collect taxes was not extended and the assessments issued by the BIR beyond the three-year period are void.

  2. No, the doctrine of estoppel does not apply in this case. Estoppel was applied as an exception to the statute of limitations on collection of taxes in a previous case, but not on the assessment of taxes. In that previous case, the taxpayer made several requests or positive acts to convince the government to postpone the collection of taxes. However, in this case, there is no evidence that respondent made any requests or positive acts to extend the period of assessment. Therefore, estoppel does not apply.

  3. The Supreme Court held that the taxpayer cannot be prevented from invoking the defense of prescription unless there is a written agreement to extend the period between the collector and the taxpayer. Mere requests for reexamination or reinvestigation do not have the effect of suspending the running of the period of limitation, but there may be cases where a taxpayer may be prevented from setting up the defense of prescription if by his repeated requests or positive acts, the government has been persuaded to postpone collection. However, in this case, the assessments were issued beyond the prescribed period, and there was no showing that the taxpayer made any request to persuade the Bureau of Internal Revenue (BIR) to postpone the issuance of the assessments.

  4. Further, the court ruled that the doctrine of estoppel cannot be applied as an exception to the statute of limitations on the assessment of taxes. The doctrine of estoppel is not applicable when there is a detailed procedure for the proper execution of the waiver which the BIR must strictly follow. Estoppel cannot give validity to an act that is prohibited by law or against public policy. The doctrine must be sparingly applied and cannot be used to defeat the administration of the law or to secure an undue advantage or accomplish a wrong.

PRINCIPLES:

  • Section 203 of the NIRC mandates the government to assess internal revenue taxes within three years from the last day prescribed by law for the filing of the tax return or the actual date of filing of such return, whichever comes later. Exceptions are provided under Section 222 of the NIRC.

  • The period to assess and collect taxes may only be extended upon a written agreement between the Commissioner of Internal Revenue (CIR) and the taxpayer executed before the expiration of the three-year period. The waivers must comply with the requirements and prescribed form set by RMO 20-90 and RDAO 05-01.

  • The doctrine of estoppel can prevent a taxpayer from raising the defense of prescription against the efforts of the government to collect the assessed tax. However, estoppel applies to the collection of taxes, not to the assessment of taxes. There must be evidence of requests or positive acts by the taxpayer to convince the government to postpone the collection of taxes.

  • A mere request for reexamination or reinvestigation does not suspend the running of the period of limitation for the assessment of taxes.

  • A taxpayer may be prevented from invoking the defense of prescription if by repeated requests or positive acts, the government has been persuaded to postpone collection.

  • The doctrine of estoppel cannot be applied as an exception to the statute of limitations when there is a detailed procedure for the proper execution of the waiver.

  • The doctrine of estoppel must be sparingly applied and cannot be used to defeat the administration of the law or to accomplish a wrong.