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CIR v. ASALUS CORPORATION

FACTS:

This case involves a petition for review on certiorari seeking to reverse the Decision and Resolution of the Court of Tax Appeals (CTA) in CTA EB No. 1191. The respondent, Asalus Corporation, received a Notice of Informal Conference from the BIR in connection with an investigation on its VAT transactions for the year 2007. Asalus filed a Letter-Reply questioning the computation of its VAT liability. The CIR issued a Preliminary Assessment Notice (PAN) finding Asalus liable for deficiency VAT for 2007. Asalus filed a protest, but it was denied. Asalus then received a Formal Assessment Notice (FAN) stating its deficiency VAT. It filed a protest and additionally argued that the assessment had prescribed. Asalus received the Final Decision on Disputed Assessment (FDDA), which confirmed the VAT deficiency. As a result, Asalus filed a petition for review before the CTA Division. The CTA Division ruled in favor of Asalus, stating that the VAT assessment had prescribed. The CTA En Banc affirmed the ruling of the CTA Division. The CIR filed a petition for review before the Supreme Court.

ISSUES:

  1. Whether the CIR sufficiently apprised Asalus that the FAN and FDDA were issued under Section 222(A) of the NIRC

  2. Whether Asalus' failure to report all fees collected constitutes a false return under Section 222(A) of the NIRC

  3. Whether the CIR's right to assess Asalus for its deficiency VAT had already prescribed.

  4. Whether the assessment against Asalus had prescribed.

  5. Whether the CIR failed to substantiate the claim that Asalus filed a false return.

  6. Whether the CIR need not immediately present evidence to support the falsity of the return, unless the taxpayer fails to overcome the presumption against it.

  7. Whether the substantial compliance of the notice requirement was satisfied.

RULING:

  1. The Court finds that the assessment against Asalus had not prescribed. While the general rule is that taxes shall be assessed within three years after the last day prescribed for the filing of the return, Section 222 of the NIRC provides exceptions to this rule. In cases of false or fraudulent return with intent to evade tax, the assessment may be made within ten years from the discovery of the falsity, fraud, or omission. In this case, the Court applied the ten-year prescriptive period because the CIR was placed at a disadvantage due to the false returns filed by Asalus.

  2. The CIR did not fail to substantiate the claim that Asalus filed a false return. Under Section 248(B) of the NIRC, there is a presumption of a false return if there is a substantial underdeclaration of taxable sales, receipt, or income. The failure to report sales, receipts, or income in an amount exceeding 30% of what is declared constitutes a substantial underdeclaration. As such, when there is a showing of substantial underdeclaration, there is a presumption that the taxpayer has filed a false return. Therefore, the CIR did not need to immediately present evidence to support the falsity of the return.

  3. The CIR need not present further evidence as the presumption of falsity of the returns was not overcome. Asalus was bound to refute the presumption of the falsity of the return and to prove that it had filed accurate returns. Its failure to overcome the same warranted the application of the ten (10)-year prescriptive period for assessment under Section 222 of the NIRC. To require the CIR to present additional evidence in spite of the presumption provided in Section 248(B) of the NIRC would render the said provision inutile.

  4. The assessment was timely made because the applicable prescriptive period was the ten (10)-year prescriptive period under Section 222 of the NIRC. Asalus was sufficiently informed that with respect to its tax liability, the extraordinary period laid down in Section 222 of the NIRC would apply. This was categorically stated in the PAN and all subsequent communications from the CIR made reference to the PAN. Asalus was eventually able to file a protest addressing the issue on prescription, although it was done only in its supplemental protest to the FAN.

PRINCIPLES:

  • The Court accords the findings of fact by the CTA with the highest respect, but they can be set aside in exceptional cases if there has been an abuse or improvident exercise of authority.

  • Internal revenue taxes shall be assessed within three years after the last day prescribed for the filing of the return, but exceptions apply in cases of false or fraudulent return with intent to evade tax.

  • A false return and a fraudulent return with intent to evade tax are different. A false return implies deviation from the truth, whether intentional or not, while a fraudulent return implies intentional or deceitful entry with intent to evade taxes due.

  • A mere showing of false returns, regardless of intent to defraud, is sufficient to warrant the application of the ten-year prescriptive period.

  • Under Section 248(B) of the NIRC, there is a presumption of a false return if there is a substantial underdeclaration of taxable sales, receipt, or income. A substantial underdeclaration is when sales, receipts, or income are not reported in an amount exceeding 30% of what is declared.

  • The CIR need not immediately present evidence to support the falsity of the return, unless the taxpayer fails to overcome the presumption against it.

  • The presumption of falsity of the return must be refuted and the burden is on the taxpayer to prove that it filed accurate returns.

  • The requirement of Section 228 of the NIRC for notice must be substantially complied with, as long as the taxpayer was sufficiently informed of the factual and legal bases of the assessment so that it may file an effective protest against the assessment.

  • Lawyers are expected to champion the cause of their clients with utmost zeal and competence but must also comply with the standards of civility and decorum. The use of abusive, offensive, or improper language is prohibited.

  • Lawyers are expected to adhere to high standards of conduct and professionalism.

  • Offensive and abusive language in judicial proceedings constitutes unprofessional conduct.

  • Lawyers should abstain from offensive personality and should not advance any fact prejudicial to the honor and reputation of a party.