SECOND DIVISION

[G.R. No. 178087. May 5, 2010.]

COMMISSIONER OF INTERNAL REVENUE , petitioner, vs . KUDOS

METAL CORPORATION , respondent.

DECISION

DEL CASTILLO , J : p

The prescriptive period on when to assess taxes bene ts both the government
and the taxpayer. 1 Exceptions extending the period to assess must, therefore, be
strictly construed.
This Petition for Review on Certiorari seeks to set aside the Decision 2 dated
March 30, 2007 of the Court of Tax Appeals (CTA) af rming the cancellation of the
assessment notices for having been issued beyond the prescriptive period and the
Resolution 3 dated May 18, 2007 denying the motion for reconsideration.
Factual Antecedents
On April 15, 1999, respondent Kudos Metal Corporation led its Annual Income
Tax Return (ITR) for the taxable year 1998.
Pursuant to a Letter of Authority dated September 7, 1999, the Bureau of Internal
Revenue (BIR) served upon respondent three Notices of Presentation of Records.
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.
A review and audit of respondent's records then ensued.
On December 10, 2001, Nelia Pasco (Pasco), respondent's accountant, executed
a Waiver of the Defense of Prescription, 4 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 (Salazar). DACTSa

This was followed by a second Waiver of Defense of Prescription 5 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.
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.
Respondent challenged the assessments by ling 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.
On June 22, 2004, the BIR rendered a nal Decision 6 on the matter, requesting
the immediate payment of the following tax liabilities:
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 Kind of Tax Amount

Income Tax P9,693,897.85

VAT 13,962,460.90
EWT 1,712,336.76
Withholding Tax-Compensation 247,353.24
Penalties 8,000.00

Total P25,624,048.76
============
Ruling of the Court of Tax Appeals, Second Division
Believing that the government's right to assess taxes had prescribed, respondent
led on August 27, 2004 a Petition for Review 7 with the CTA. Petitioner in turn led his
Answer. 8
On April 11, 2005, respondent led an "Urgent Motion for Preferential Resolution
of the Issue on Prescription." 9
On October 4, 2005, the CTA Second Division issued a Resolution 1 0 canceling
the assessment notices issued against respondent for having been issued beyond the
prescriptive period. It found the rst Waiver of the Statute of Limitations incomplete
and defective for failure to comply with the provisions of Revenue Memorandum Order
(RMO) No. 20-90. Thus:
First, the Assistant Commissioner is not the revenue of cial authorized to sign the
waiver, as the tax case involves more than P1,000,000.00. In this regard, only the
Commissioner is authorized to enter into agreement with the petitioner in
extending the period of assessment;

Secondly, the waiver failed to indicate the date of acceptance. Such date of
acceptance is necessary to determine whether the acceptance was made within
the prescriptive period;
Third, the fact of receipt by the taxpayer of his le copy was not indicated on the
original copy. The requirement to furnish the taxpayer with a copy of the waiver is
not only to give notice of the existence of the document but also of the
acceptance by the BIR and the perfection of the agreement.

The subject waiver is therefore incomplete and defective. As such, the three-year
prescriptive period was not tolled or extended and continued to run. . . . 1 1
HAIaEc

Petitioner moved for reconsideration but the CTA Second Division denied the
motion in a Resolution 1 2 dated April 18, 2006.
Ruling of the Court of Tax Appeals, En Banc
On appeal, the CTA En Banc af rmed the cancellation of the assessment notices.
Although it ruled that the Assistant Commissioner was authorized to sign the waiver
pursuant to Revenue Delegation Authority Order (RDAO) No. 05-01, it found that the first
waiver was still invalid based on the second and third grounds stated by the CTA
Second Division. Pertinent portions of the Decision read as follows:
While the Court En Banc agrees with the second and third grounds for invalidating
the rst waiver, it nds that the Assistant Commissioner of the Enforcement
Service is authorized to sign the waiver pursuant to RDAO No. 05-01, which
provides in part as follows:
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 A.For National Office cases

Designated Revenue Official

1. Assistant Commissioner (ACIR), For tax fraud and policy

Enforcement Service cases

2. ACIR, Large Taxpayers Service For large taxpayers cases

other than those cases falling
under Subsection B hereof

3. ACIR, Legal Service For cases pending

verification and awaiting
resolution of certain legal
issues prior to prescription
and for issuance/compliance
of Subpoena Duces Tecum

4. ACIR, Assessment Service (AS) For cases which are pending

in or subject to review or
approval by the ACIR, AS

Based on the foregoing, the Assistant Commissioner, Enforcement Service is

authorized to sign waivers in tax fraud cases. A perusal of the records reveals that
the investigation of the subject de ciency taxes in this case was conducted by
the National Investigation Division of the BIR, which was formerly named the Tax
Fraud Division. Thus, the subject assessment is a tax fraud case.

Nevertheless, the first waiver is still invalid based on the second and third grounds
stated by the Court in Division. Hence, it did not extend the prescriptive period to
assess.

Moreover, assuming arguendo that the rst waiver is valid, the second waiver is
invalid for violating Section 222(b) of the 1997 Tax Code which mandates that
the period agreed upon in a waiver of the statute can still be extended by
subsequent written agreement, provided that it is executed prior to the expiration
of the rst period agreed upon. As previously discussed, the exceptions to the law
on prescription must be strictly construed. cEAIHa

In the case at bar, the period agreed upon in the subject rst waiver expired on
December 31, 2002. The second waiver in the instant case which was supposed
to extend the period to assess to December 31, 2003 was executed on February
18, 2003 and was notarized on February 19, 2003. Clearly, the second waiver was
executed after the expiration of the rst period agreed upon. Consequently, the
same could not have tolled the 3-year prescriptive period to assess. 1 3

Petitioner sought reconsideration but the same was unavailing.

Issue
Hence, the present recourse where petitioner interposes that:
THE COURT OF TAX APPEALS EN BANC ERRED IN RULING THAT THE
GOVERNMENT'S RIGHT TO ASSESS UNPAID TAXES OF RESPONDENT
PRESCRIBED. 1 4
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 Petitioner's Arguments
Petitioner argues that the government's right to assess taxes is not barred by
prescription as the two waivers executed by respondent, through its accountant,
effectively tolled or extended the period within which the assessment can be made. In
disputing the conclusion of the CTA that the waivers are invalid, petitioner claims that
respondent is estopped from adopting a position contrary to what it has previously
taken. Petitioner insists that by acquiescing to the audit during the period speci ed in
the waivers, respondent led the government to believe that the "delay" in the process
would not be utilized against it. Thus, respondent may no longer repudiate the validity
of the waivers and raise the issue of prescription.
Respondent's Arguments
Respondent maintains that prescription had set in due to the invalidity of the
waivers executed by Pasco, who executed the same without any written authority from
it, in clear violation of RDAO No. 5-01. As to the doctrine of estoppel by acquiescence
relied upon by petitioner, respondent counters that the principle of equity comes into
play only when the law is doubtful, which is not present in the instant case.
Our Ruling
The petition is bereft of merit.
Section 203 1 5 of the National Internal Revenue Code of 1997 (NIRC) mandates
the government to assess internal revenue taxes within three years from the last day
prescribed by law for the ling of the tax return or the actual date of ling of such
return, whichever comes later. Hence, an assessment notice issued after the three-year
prescriptive period is no longer valid and effective. Exceptions however are provided
under Section 222 1 6 of the NIRC.
The waivers executed by respondent's
accountant did not extend the period
within which the assessment can be
made
Petitioner does not deny that the assessment notices were issued beyond the
three-year prescriptive period, but claims that the period was extended by the two
waivers executed by respondent's accountant. TECcHA

We do not agree.
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 the three-year period. RMO 20-90 1 7 issued on April 4,
1990 and RDAO 05-01 1 8 issued on August 2, 2001 lay down the procedure for the
proper execution of the waiver, to wit:
1. 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.
2. 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 of cials. In case the
authority is delegated by the taxpayer to a representative, such
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 delegation should be in writing and duly notarized.
3. The waiver should be duly notarized.
4. The CIR or the revenue of cial 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 of cial 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.
5. 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.
6. 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 Of ce accepting the waiver. The fact of
receipt by the taxpayer of his/her le copy must be indicated in the
original copy to show that the taxpayer was noti ed of the
acceptance of the BIR and the perfection of the agreement. 1 9
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 le copy was not
indicated in the original copies of the waivers.
CHTcSE

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
We nd no merit in petitioner's claim that respondent is now estopped from
claiming prescription since by executing the waivers, it was the one which asked for
additional time to submit the required documents.
I n Collector of Internal Revenue v. Suyoc Consolidated Mining Company, 2 0 the
doctrine of estoppel prevented the taxpayer from raising the defense of prescription
against the efforts of the government to collect the assessed tax. However, it must be
stressed that in the said case, estoppel was applied as an exception to the statute of
limitations on collection of taxes and not on the assessment of taxes, as the BIR was
able to make an assessment within the prescribed period. More important, there was a
nding that the taxpayer made several requests or positive acts to convince the
government to postpone the collection of taxes, viz.:
It appears that the rst assessment made against respondent based on its
second nal return led on November 28, 1946 was made on February 11, 1947.
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 Upon receipt of this assessment respondent requested for at least one year within
which to pay the amount assessed although it reserved its right to question the
correctness of the assessment before actual payment. Petitioner granted an
extension of only three months. When it failed to pay the tax within the period
extended, petitioner sent respondent a letter on November 28, 1950 demanding
payment of the tax as assessed, and upon receipt of the letter respondent asked
for a reinvestigation and reconsideration of the assessment. When this request
was denied, respondent again requested for a reconsideration on April 25, 1952,
which was denied on May 6, 1953, which denial was appealed to the Conference
Staff. The appeal was heard by the Conference Staff from September 2, 1953 to
July 16, 1955, and as a result of these various negotiations, the assessment was
nally reduced on July 26, 1955. This is the ruling which is now being questioned
after a protracted negotiation on the ground that the collection of the tax has
already prescribed.
It is obvious from the foregoing that petitioner refrained from collecting the tax by
distraint or levy or by proceeding in court within the 5-year period from the ling
of the second amended nal return due to the several requests of respondent for
extension to which petitioner yielded to give it every opportunity to prove its claim
regarding the correctness of the assessment. Because of such requests, several
reinvestigations were made and a hearing was even held by the Conference Staff
organized in the collection of ce to consider claims of such nature which, as the
record shows, lasted for several months. After inducing petitioner to delay
collection as he in fact did, it is most unfair for respondent to now take advantage
of such desistance to elude his de ciency income tax liability to the prejudice of
the Government invoking the technical ground of prescription.

While we may agree with the Court of Tax Appeals that a mere request for
reexamination or reinvestigation may not have the effect of suspending the
running of the period of limitation for in such case there is need of a written
agreement to extend the period between the Collector and the taxpayer, there are
cases however where a taxpayer may be prevented from setting up the defense of
prescription even if he has not previously waived it in writing as when by his
repeated requests or positive acts the Government has been, for good reasons,
persuaded to postpone collection to make him feel that the demand was not
unreasonable or that no harassment or injustice is meant by the Government. And
when such situation comes to pass there are authorities that hold, based on
weighty reasons, that such an attitude or behavior should not be countenanced if
only to protect the interest of the Government. IcTCHD

This case has no precedent in this jurisdiction for it is the rst time that such has
risen, but there are several precedents that may be invoked in American
jurisprudence. As Mr. Justice Cardozo has said: "The applicable principle is
fundamental and unquestioned. 'He who prevents a thing from being done may
not avail himself of the nonperformance which he has himself occasioned, for the
law says to him in effect "this is your own act, and therefore you are not
damnified.'" "(R. H. Stearns Co. vs. U.S.,78 L. ed., 647). Or, as was aptly said, "The
tax could have been collected, but the government withheld action at the speci c
request of the plaintiff. The plaintiff is now estopped and should not be permitted
to raise the defense of the Statute of Limitations." [ Newport Co. vs. U.S., (DC-WIS),
34 F. Supp. 588]. 2 1

Conversely, in this case, the assessments were issued beyond the prescribed
period. Also, there is no showing that respondent made any request to persuade the
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 BIR to postpone the issuance of the assessments.
The doctrine of estoppel cannot be applied in this 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. As
we have often said, the doctrine of estoppel is predicated on, and has its origin in,
equity which, broadly de ned, is justice according to natural law and right. 2 2 As such,
the doctrine of estoppel cannot give validity to an act that is prohibited by law or one
that is against public policy. 2 3 It should be resorted to solely as a means of preventing
injustice and should not be permitted to defeat the administration of the law, or to
accomplish a wrong or secure an undue advantage, or to extend beyond them
requirements of the transactions in which they originate. 2 4 Simply put, the doctrine of
estoppel must be sparingly applied.
Moreover, 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. As stated
earlier, the BIR failed to verify whether a notarized written authority was given by the
respondent to its accountant, and to indicate the date of acceptance and the receipt by
the respondent of the waivers. Having caused the defects in the waivers, the BIR must
bear the consequence. It cannot shift the blame to the taxpayer. To stress, a waiver of
the statute of limitations, being a derogation of the taxpayer's right to security against
prolonged and unscrupulous investigations, must be carefully and strictly construed. 2 5
As to the alleged delay of the respondent to furnish the BIR of the required
documents, this cannot be taken against respondent. Neither can the BIR use this as an
excuse for issuing the assessments beyond the three-year period because with or
without the required documents, the CIR has the power to make assessments based on
the best evidence obtainable. 2 6
WHEREFORE , the petition is DENIED . The assailed Decision dated March 30,
2007 and Resolution dated May 18, 2007 of the Court of Tax Appeals are hereby
AFFIRMED .
SO ORDERED . EcTaSC

Carpio, Brion, Abad and Perez, JJ., concur.

Footnotes

1.Republic of the Phils. v. Ablaza, 108 Phil. 1105, 1108 (1960).

2.Rollo, pp. 31-45; penned by Associate Justice Lovell R. Bautista and concurred in by
Associate Justices Juanito C. Castaeda, Jr., Erlinda P. Uy, Caesar A. Casanova and
Olga Palanca-Enriquez. Presiding Justice Ernesto D. Acosta was on leave.
3.Id. at 46-50; penned by Associate Justice Lovell R. Bautista and concurred in by Presiding
Justice Ernesto D. Acosta and Associate Justices Juanito C. Castaeda, Jr., Erlinda P.
Uy, Caesar A. Casanova and Olga Palanca-Enriquez.
* Note from the Publisher: Copied verbatim from the official copy.
4.Records, pp. 227-228.

5.Id. at 229-230.

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 6.Id. at 18-21.
7.Id. at 1-17.

8.Id. at 161-165.
9.Id. at 219-226.
10.Id. at 259-266.
11.Id. at 265.
12.Id. at 294-296.

13.Rollo, pp. 42-43.

14.Id. at 17.
15.SEC. 203. Period of Limitation Upon Assessment and Collection. Except as provided in
Section 222, internal revenue taxes shall be assessed within three (3) years after the last
day prescribed by law for the ling of the return, and no proceeding in court without
assessment for the collection of such taxes shall be begun after the expiration of such
period: Provided, That in a case where a return is led beyond the period prescribed by
law, the three (3)-year period shall be counted from the day the return was led. For
purposes of this Section, a return led before the last day prescribed by law for the ling
thereof shall be considered as filed on such last day.
16.SEC. 222. Exceptions as to period of limitation of assessment and collection of taxes.

(a) In the case of a false or fraudulent return with intent to evade tax or of failure to le a
return, the tax may be assessed, or a proceeding in court for the collection of such tax
may be led without assessment, at any time within ten (10) years after the discovery of
the falsity, fraud, or omission: Provided, That in a fraud assessment which has become
nal and executory, the fact of fraud shall be judicially taken cognizance of in the civil or
criminal action for the collection thereof.
(b) If before the expiration of the time prescribed in Section 203 for the assessment of the
tax, both the Commissioner and the taxpayer have agreed in writing to its assessment
after such time, the tax may be assessed within the period agreed upon. The period so
agreed upon may be extended by subsequent written agreement made before the
expiration of the period previously agreed upon.
(c) Any internal revenue tax which has been assessed within the period of limitation as
prescribed in paragraph (a) hereof may be collected by distraint or levy or by a
proceeding in court within five (5) years following the assessment of the tax.
(d) Any internal revenue tax, which has been assessed within the period agreed upon as
provided in paragraph (b) hereinabove, may be collected by distraint or levy or by a
proceeding in court within the period agreed upon in writing before the expiration of the
ve (5)-year period. The period so agreed upon may be extended by subsequent written
agreements made before the expiration of the period previously agreed upon.
(e) Provided, however, That nothing in the immediately preceding Section and paragraph (a)
hereof shall be construed to authorize the examination and investigation or inquiry into
any tax return filed in accordance with the provisions of any tax amnesty law or decree.
17.In the execution of said waiver, the following procedures should be followed:
1. The waiver must be in the form identi ed hereof. This form may be reproduced by the
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 Of ce concerned but there should be no deviation from such form. The phrase "but not
after _______ 19 ___" should be lled up. This indicates the expiry date of the period
agreed upon to assess/collect the tax after the regular three-year period of prescription.
The period agreed upon shall constitute the time within which to effect the
assessment/collection of the tax in addition to the ordinary prescriptive period.
2. The waiver shall 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.
Soon after the waiver is signed by the taxpayer, the Commissioner of Internal Revenue or the
revenue of cial authorized by him, as hereinafter provided, shall sign the waiver
indicating that the Bureau has accepted and agreed to the waiver. The date of such
acceptance by the Bureau should be indicated. 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.

3. The following revenue officials are authorized to sign the waiver.

A. In the National Office

1. ACIRs for Collection, Special For tax cases involving

Operations National Assessment, not more than P500,000.00
Excise and Legal on tax cases
pending before their respective
offices. In the absence of the
ACIR, the Head Executive
Assistant may sign the waiver.
3. Commissioner For tax cases involving more
than P1M

xxx xxx xxx

4. The waiver must be executed in three (3) 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 Of ce
accepting the waiver. The fact of receipt by the taxpayer of his/her le copy shall be
indicated in the original copy.

5. The foregoing procedures shall be strictly followed. Any revenue of cial found not to have
complied with this Order resulting in prescription of the right to assess/collect shall be
administratively dealt with.
18.I. Revenue Officials Authorized to Sign the Waiver

The following revenue of cials are authorized to sign and accept the Waiver of the Defense
of Prescription Under the Statute of Limitations (Annex A) prescribed in Sections 203,
222 and other related provisions of the National Internal Revenue Code of 1997:
A. For National Office cases
Designated Revenue Official

1.Assistant Commissioner (ACIR),For tax fraud and policy

Enforcement Servicecases
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 xxx xxx xxx
In order to prevent undue delay in the execution and acceptance of the waiver, the assistant
heads of the concerned of ces are likewise authorized to sign the same under
meritorious circumstances in the absence of the abovementioned officials.

The authorized revenue of cial shall ensure that the waiver is duly accomplished and signed
by the taxpayer or his authorized representative before af xing his signature to signify
acceptance of the same. In case the authority is delegated by the taxpayer to a
representative, the concerned revenue of cial shall see to it that such delegation is in
writing and duly notarized. The "WAIVER" should not be accepted by the concerned BIR
office and official unless duly notarized.
II. Repealing Clause

All other issuances and/or portions thereof inconsistent herewith are hereby repealed and
amended accordingly.

19.Philippine Journalist, Inc. v. Commissioner of Internal Revenue, 488 Phil. 218, 235 (2004).
20.104 Phil. 819 (1958).
21.Id. at 822-824.
22.La Naval Drug Corporation v. Court of Appeals, G.R. No. 103200, August 31, 1994, 236 SCRA
78, 87.
23.Ouano v. Court of Appeals, 446 Phil. 690, 708 (2003).
24.C & S Fishfarm Corporation v. Court of Appeals, 442 Phil. 279, 290 (2002).

25.Philippine Journalist, Inc. v. Commissioner of Internal Revenue, supra note 19 at 231-232.

26.SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional
Requirements for Tax Administration and Enforcement.
xxx xxx xxx
(b) Failure to Submit Required Returns, Statements, Reports and other Documents. When a
report required by law as a basis for the assessment of any national internal revenue tax
shall not be forthcoming within the time xed by law or rules and regulation or when
there is reason to believe that any such report is false, incomplete or erroneous, the
Commissioner shall assess the proper tax on the best evidence obtainable.
In case a person fails to le a required return or other document at the time prescribed by law,
or willfully or otherwise les a false or fraudulent return or other document, the
Commissioner shall make or amend the return from his own knowledge and from such
information as he can obtain through testimony or otherwise, which shall be prima facie
correct and sufficient for all legal purposes.

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