634 Phil.

314

SECOND DIVISION
G.R. No. 178087, May 05, 2010

COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. KUDOS

METAL CORPORATION, RESPONDENT.

DECISION

DEL CASTILLO, J.:

The prescriptive period on when to assess taxes benefits 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) affirming 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 filed 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).

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 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.

On June 22, 2004, the BIR rendered a final Decision[6] on the matter, requesting the
immediate payment of the following tax liabilities:

Kind of Tax Amount

Income Tax P 9,693,897.85
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 filed on
August 27, 2004 a Petition for Review[7] with the CTA. Petitioner in turn filed his
Answer.[8]

On April 11, 2005, respondent filed an "Urgent Motion for Preferential Resolution of the
Issue on Prescription."[9]

On October 4, 2005, the CTA Second Division issued a Resolution[10] canceling the
assessment notices issued against respondent for having been issued beyond the
prescriptive period. It found the first 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 official 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 file 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. x x x[11]

Petitioner moved for reconsideration but the CTA Second Division denied the motion in
a Resolution[12] dated April 18, 2006.

Ruling of the Court of Tax Appeals, En Banc

On appeal, the CTA En Banc affirmed 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
first waiver, it finds 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:

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 deficiency 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 first 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 first period agreed upon. As
previously discussed, the exceptions to the law on prescription must be strictly construed.

In the case at bar, the period agreed upon in the subject first 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
first period agreed upon. Consequently, the same could not have tolled the 3-year
prescriptive period to assess.[13]

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.[14]

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 specified 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[15] 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 filing of the tax return or the actual date of filing 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[16] 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.

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[17] issued on April 4, 1990 and
RDAO 05-01[18] 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 officials. In case the authority is delegated by the taxpayer to a
representative, such delegation should be in writing and duly notarized.

3. The waiver should be duly notarized.

4. 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.

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
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.[19]

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

We find 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.

In Collector of Internal Revenue v. Suyoc Consolidated Mining Company,[20] 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 finding that the
taxpayer made several requests or positive acts to convince the government to postpone
the collection of taxes, viz:

It appears that the first assessment made against respondent based on its second final
return filed on November 28, 1946 was made on February 11, 1947. 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 finally 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 filing of the
second amended final 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
office 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 deficiency 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.

This case has no precedent in this jurisdiction for it is the first 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 specific 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].[21]

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 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
defined, is justice according to natural law and right.[22] As such, the doctrine of estoppel
cannot give validity to an act that is prohibited by law or one that is against public
policy.[23] 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.[24] 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.[25]

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.[26]

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.

Carpio, (Chairperson), Brion, Abad, and Perez, JJ., concur.

[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. Castañeda, 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. Castañeda, Jr.,
Erlinda P. Uy, Caesar A. Casanova and Olga Palanca-Enriquez.
[4]
Records, pp. 227-228.
[5]
Id. at 229-230.
[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 filing 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 filed beyond the period prescribed
by law, the three (3)-year period shall be counted from the day the return was filed. For
purposes of this Section, a return filed before the last day prescribed by law for the filing
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 file a
return, the tax may be assessed, or a proceeding in court for the collection of such tax
may be filed 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
final 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
five (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 identified hereof. This form may be reproduced by the
Office concerned but there should be no deviation from such form. The phrase "but not
after ______ 19 ___" should be filled 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 official 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 Operations For tax cases involving

National Assessment, Excise and Legal on not more than P500,000.00
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

xxxx

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 Office
accepting the waiver. The fact of receipt by the taxpayer of his/her file copy shall be
indicated in the original copy.

5. The foregoing procedures shall be strictly followed. Any revenue official 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 officials 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 Service cases

xxxx

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

The authorized revenue official shall ensure that the waiver is duly accomplished and
signed by the taxpayer or his authorized representative before affixing his signature to
signify acceptance of the same. In case the authority is delegated by the taxpayer to a
representative, the concerned revenue official 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 -

xxxx

(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 fixed 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 file a required return or other document at the time prescribed by
law, or willfully or otherwise files 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.