CIR vs kudos

COMMISSIONER OF INTERNAL REVENUE VS. KUDOS METAL CORPORATION

G.R. No. 178087, May 05, 2010 

Facts:

1. On April 15, 1999, Kudos  filed its Annual ITR for the taxable year 1998.

2. Pursuant to a Letter of Authority dated September 7, 1999, the BIR, served upon respondent three Notices of Presentation of Records. 

3. Respondent failed to comply with these notices, hence, the BIR issued a Subpeona Duces Tecum dated September 21, 2006, receipt of which was acknowledged by respondent's President, Mr. Chan Ching Bio, in a letter dated October 20, 2000.

4. A review and audit of respondent's records then ensued.

5. On December 10, 2001, Nelia Pasco, respondent's accountant, executed a Waiver of the Defense of Prescription, which was notarized on January 22, 2002, received by the BIR Enforcement Service on January 31, 2002 and by the BIR Tax Fraud Division on February 4, 2002, and accepted by the Assistant Commissioner of the Enforcement Service, Percival T. Salazar.

5. This was followed by a second Waiver of Defense of Prescription executed by Pasco on February 18, 2003, notarized on February 19, 2003, received by the BIR Tax Fraud Division on February 28, 2003 and accepted by Assistant Commissioner Salazar.

6. On August 25, 2003, the BIR issued a Preliminary Assessment Notice for the taxable year 1998 against the respondent. This was followed by a Formal Letter of Demand with Assessment Notices for taxable year 1998, dated September 26, 2003 which was received by respondent on November 12, 2003.

7. Respondent challenged the assessments by filing its "Protest on Various Tax Assessments" on December 3, 2003 and its "Legal Arguments and Documents in Support of Protests against Various Assessments" on February 2, 2004.

8. On June 22, 2004, the BIR rendered a final Decision on the matter, requesting the immediate payment of the following tax Believing that the government's right to assess taxes had prescribed, respondent filed on August 27, 2004 a Petition for Review with the CTA.

Issue:

Whether or not the government's right to assess unpaid taxes or respondent prescribed

Ruling:

✔️The waivers executed by respondent's accountant did not extend the period within which the assessment can be made

Section 222 (b) of the NIRC provides that the period to assess and collect taxes may only be extended upon a written agreement between the CIR and the taxpayer executed before the expiration of 17 the three-year period. RMO 20-90 issued on April 4, 1990 and 18 RDAO 05-01 issued on August 2, 2001 lay down the procedure for the proper execution of the waiver, to wit:

A. The waiver must be in the proper form prescribed by RMO 20-90. The phrase "but not after ______ 19 ___", which indicates the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of prescription, should be filled up.

B. The waiver must be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation, the waiver must be signed by any of its responsible officials. In case the authority is delegated by the taxpayer to a representative, such delegation should be in writing and duly notarized.

C. The waiver should be duly notarized.

D. The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has accepted and agreed to the waiver. The date of such acceptance by the BIR should be indicated. However, before signing the waiver, the CIR or the revenue official authorized by him must make sure that the waiver is in the prescribed form, duly notarized, and executed by the taxpayer or his duly authorized representative.

E. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed.

F. The waiver must be executed in three copies, the original copy to be attached to the docket of the case, the second copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the taxpayer of his/her file copy must be indicated in the original copy to show that the taxpayer was notified of the acceptance of the BIR and the perfection of the agreement.

A perusal of the waivers executed by respondent's accountant reveals the following infirmities:

1. The waivers were executed without the notarized written authority of Pasco to sign the waiver in behalf of respondent.

2. The waivers failed to indicate the date of acceptance.

3. The fact of receipt by the respondent of its file copy was not indicated in the original copies of the waivers.

Due to the defects in the waivers, the period to assess or collect taxes was not extended. Consequently, the assessments were issued by the BIR beyond the three-year period and are void.

✔️Estoppel does not apply in this case

The doctrine of estoppel cannot be applied in the present case as an exception to the statute of limitations on the assessment of taxes considering that there is a detailed procedure for the proper execution of the waiver, which the BIR must strictly follow. The doctrine of estoppel cannot give validity to an act that is prohibited by law or one that is against public policy.

The BIR cannot hide behind the doctrine of estoppel to cover its failure to comply with RMO 20-90 and RDAO 05-01, which the BIR itself issued. 

Neither can the BIR use the delay of the respondent to furnish the BIR of the required documents as an excuse for issuing the assessments beyond the three year period because with or without the required documents, e CIR has the power to make an assessments based on the best evidence obtainable.