Nature, Effects, and Basis of Assessment (Taxation Law)

CIR vs. Sony Phils., Inc. (2010)

- An invalid Letter of Authority or an authorized revenue officer going beyond such authority results to an invalid assessment. A Letter of Authority should cover a period not exceeding one taxable year. If the audit of a taxpayer shall include more than one taxable period, either (a) the other periods or years shall be specifically indicated in the LoA or (b) the CIR must issue another LoA covering such period.

CIR vs. Pascor Realty and Dvpt. Corp. (1999)

- An assessment (FLDAN – Formal Letter of Demand and Assessment Notice) contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period. It MUST STATE the facts, the law, rules and regulations, or jurisprudence on which the assessment id based, otherwise the FLDAN shall be void.

- It is a notice duly sent to a taxpayer, and signals the time when penalties and remedies (protest; prescription) begin to accrue against or for the latter. Thus, due process requires that it must be served on and received by the taxpayer, and that the latter must be certain that the document constitutes an assessment.

- An affidavit, which was executed by revenue officers stating a computation of the taxpayer’s tax liabilities and attached to a criminal complaint for tax evasion, cannot be deemed an assessment that can be questioned before the CTA.

CIR vs. Hantex Trading (2005)

-       The principle of “best evidence obtainable” envisaged in Sec. 6(B)of the 1997 NIRC includes:

a) corporate and accounting records of the taxpayer who is is the subject of the assessment process;

b) accounting records of other taxpayers engaged in the same line of business, including their gross profit and net profit sales;

c) data, record, paper, document or any evidence gathered by internal revenue officers from other taxpayers who had personal transactions with or from whom the subject taxpayer received any income;

d) record, data, document and information secured from government offices or agencies (ex. SEC, Central Bank, Bureau of Customs, Tariff and Customs Commission)

- The law allows the BIR access to all relevant or material records and data in the person of the taxpayer, in whatever form they may be kept. The standard is not the form but where it might shed light on the accuracy of the taxpayer’s return.

- Generally, administrative agencies such as the BIR are not bound by technical rules of evidence. Hence, it can accept documents, which cannot be admitted in a judicial proceeding where the Rules of Court are strictly observed (ex. hearsay evidence). It can choose to give weight or disregard such evidence, depending on their trustworthiness.

- However, this principle does NOT include photocopies of records or documents. Such photocopies have no probative value if offered as proof of the contents thereof nor as basis for any deficiency income or business taxes against a taxpayer.

- General Rule: in the absence of accounting records of a taxpayer, his tax liability may be determined by estimation. The BIR is not required to compute such tax liabilities with mathematical exactness, and to rule otherwise will be tantamount to ruling that skillful concealment is an invincible barrier to proof.

Exception: where the estimation is arrived at arbitrarily and capriciously

Sy Po vs. CTA and BIR (1988)

- The rule on the “best evidence obtainable” applies when a tax report required by law for the purpose of assessment is not available or when the tax return required by law is incomplete or fraudulent. In this case, the persistent failure of the petitioners to present their books of accounts for examination for the taxable years involved left the CIR no other legal option except to resort to the power conferred upon him under Sec. 6 (B) of the NIRC.

Bache and Co. (Phil.), Inc. vs. Judge Ruiz (1971)

-  Exception to the rule on “best evidence obtainable”: Notwithstanding the powers of the CIR, the taxpayers are still entitled to their constitutional right against illegal searches and seizures. Evidence obtained through illegal searches and seizures, when made the basis of an assessment, will render such assessment invalid.

-  In this case, the warrants sanctioning the seizure of all records of the petitioners, whatever their nature, contravened the explicit command of the Bill or Rights that the things to be seized must be particularly described. The language used in the warrants was all-embracing as to include all conceivable records of the petitioner corporation, which, if seized, could possibly render its business inoperative.

Fitness By Design, Inc. vs CIR

-  Consent of the taxpayer is not necessary for the procurement of his books of accounts in the exercise of the CIR’s access power provided in Sec.5 of the NIRC. To require such consent would defeat the law’s intent to help the BIR to assess and collect the correct amount of taxes.

-   In this case, Sablan, a colleague of petitioner’s former bookkeeper, became an informer to the CIR regarding the tax liability of petitioner. Petitioner alleges that Sablan illegally took custody of its accounting records, and submitted the same to the BIR without petitioner’s consent.