THIRD DIVISION

[G.R. No. 233990. May 12, 2021.]

UNIVERSAL WEAVERS CORPORATION, petitioner, vs. COMMISSIONER

OF INTERNAL REVENUE, respondent.

DECISION

DELOS SANTOS, J : p

This is a Petition for Review on Certiorari 1 under Rule 45 of the Rules of Court in
relation to Rule 16 of the Revised Rules of the Court of Tax Appeals, seeking to reverse
the Decision 2 dated February 9, 2017 and the Resolution 3 dated August 31, 2017 of
the Court of Tax Appeals (CTA) En Banc in CTA EB No. 1348 which reversed and set
aside the Decision and the Resolution of the CTA First Division dated May 11, 2015 and
August 10, 2015, respectively.
The Facts
On December 3, 2007, Zenaida G. Garcia, Officer-in-Charge, Regional Director
(RD) of the Bureau of Internal Revenue (BIR), Revenue Region No. 4, issued Letter of
Authority No. 000-7465 authorizing, the examination of the books of accounts and other
accounting records of the internal revenue taxes of Universal Weavers Corporation
(petitioner) for the period covering January 1, 2006 to December 31, 2006. 4
On December 6, 2007, Revenue District Office (RDO) No. 20 requested certain
documents and records from petitioner 5 and thereafter issued Notices for Informal
Conference. 6
Petitioner executed several notarized waivers of the statute of limitations to
extend the prescriptive period of assessment for internal revenue taxes due in taxable
year ending December 31, 2006. 7
On September 16, 2009, Anita P. Sabado (Sabado), petitioner's Assistant Vice-
President-Plant Controller, executed the first waiver, but the same did not specify a
definite date within which the Commissioner of Internal Revenue (CIR) may assess
petitioner's tax liability. 8
On November 5, 2010, Wilfrido C. Rodriguez, petitioner's Director, executed the
second waiver, extending the period of assessment of taxes until December 31, 2011.
9

On August 12, 2010, the RD of Revenue Region No. 4 issued a Preliminary

Assessment Notice (PAN), assessing petitioner of deficiency income tax, expanded
withholding tax, and documentary stamp tax for the taxable year 2006. Petitioner
received the PAN on September 9, 2011. 10
In a letter dated September 23, 2011, petitioner filed its administrative protest on
the PAN and further requested for the immediate reinvestigation and/or reconsideration
thereof. 11
On October 18, 2011, Sabado executed the third waiver, extending the period of
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 assessment of taxes until December 31, 2012. 12
On January 13, 2012, petitioner received the Formal Letter of Demand dated
January 3, 2012 with attached assessment notices from the BIR for its alleged
deficiency taxes. 13
On February 10, 2012, petitioner filed its protest against the Formal Letter of
Demand and submitted its supporting documents on April 10, 2012. 14
On November 5, 2012, petitioner filed a Petition for Review before the CTA. 15

The Ruling of the CTA First Division

On May 11, 2015, the CTA First Division rendered a Decision with the dispositive
portion as follows:
WHEREFORE, premises considered, the Petition for Review is hereby
GRANTED. Accordingly, the Final Demand and Final Assessment Notice No.
020-0704010876 is hereby ordered CANCELLED.
SO ORDERED. 16
The CTA First Division recognized the following defects in the waivers:
1. The agreed date between the BIR and the petitioner, within which the
former may assess and collect revenue taxes, the date of execution of the
waiver, and the date of BIR's acceptance were not specified in the first
waiver;
2. The date when Revenue District Officer, Atty. Abencio T. Torres, accepted
the waiver was not indicated in the second waiver; and
3. The date when Revenue District Officer, Roberto S. Bucoy, accepted the
waiver was not provided in the third waiver. 17
The CIR filed a Motion for Reconsideration, but the same was denied in a
Resolution dated August 10, 2015. The fallo of the Resolution reads:
WHEREFORE, in view of the foregoing, [CIR's] Motion for
Reconsideration (Re: Decision dated 11 May 2015) is DENIED for lack of merit.
SO ORDERED. 18
The Ruling of the CTA En Banc
On February 9, 2017, the CTA En Banc rendered a Decision, 19 with the
dispositive portion as follows:
WHEREFORE, premises considered, the Petition for Review is
GRANTED. Accordingly, the Decision promulgated on May 11, 2015 and the
Resolution promulgated on August 10, 2015 are hereby REVERSED AND SET
ASIDE.
Let this case be remanded to the Court in Division for further
proceedings to determine and rule on the merits of [petitioner's] petition in
seeking nullification of the FLD and Assessment Notices dated January 3,
2012.
SO ORDERED. 20
The CTA En Banc followed the Court's ruling in the case of Commissioner of
Internal Revenue v. Next Mobile, Inc. 21 and declared that the waivers executed by
petitioner cannot be invalidated. It held that even if there was noncompliance with the
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 provisions of BIR Revenue Memorandum Order (RMO) No. 20-90 and Revenue
Delegation Administrative Order (RDAO) No. 05-01, petitioner was already estopped
from claiming that the three waivers are invalid and that the CIR's right to assess has
prescribed because of petitioner's acts that persuaded the BIR to postpone the
issuance of the assessments. 22
The CTA En Banc opined that both petitioner and the CIR were at fault and
accountable for the defects in the three waivers since they continued to transact with
each other despite such infirmities. It noted that petitioner persuaded the BIR to delay
the issuance of the assessment by executing the invalid waivers. Meanwhile, the BIR
was negligent in complying with the requirements of valid waivers as provided in the
National Internal Revenue Code (NIRC) and the existing rules and regulations. Further,
petitioner did not question the validity of the waivers and the running of the prescriptive
period for the assessment of their deficiency taxes in its protest letter filed before the
BIR and in its petition before the CTA First Division. 23
The CTA En Banc concluded that the application of estoppel is necessary to
prevent undue injury to the government because of the cancellation of the assessment
of the petitioner's deficiency taxes. 24
Petitioner moved for the reconsideration of the February 9, 2017 Decision of the
CTA En Banc. However, the same was denied in a Resolution 25 dated August 31,
2017, with the dispositive portion as follows:
WHEREFORE, no compelling reason to reverse the ruling of the Court
in the Assailed decision, the [petitioner's] "Motion for Reconsideration" is
DENIED for lack of merit.
SO ORDERED. 26
Hence, the instant petition.
The Arguments of the Parties
Petitioner argues that the CIR's right to assess has already prescribed
considering that the first waiver failed to comply with RMO No. 20-90 and RDAO No.
05-01. 27 It avers that the CIR cannot heavily rely on Next Mobile and claim the parties
to be equally at fault since it is the duty of the BIR to indicate the date of acceptance of
the waiver. 28 It claims that it should not be penalized for the negligence of the BIR,
which failed to ensure that all the requirements for a valid waiver were met. 29 Finally,
petitioner submits that it is not precluded from raising the invalidity of the waivers
pursuant to Section 1, Rule 9 of the Rules of Court. 30
The CIR, through the Office of the Solicitor General, asserts that the execution of
the second and third waivers effectively cured or ratified any formal defect on the waiver
previously executed. 31 It counters that, assuming for the sake of argument that the
waivers were indeed defective, the infirmities should not prejudice the interest of the
government when it was most probably a mere inadvertence on the part of the revenue
officer, who should have indicated the relevant details. 32 It further points out that both
parties continued dealing with each other on the strength of these waivers, without
bothering to cure the infirmities extant in the documents. Worse, petitioner did not even
question the validity of the waivers. 33 The CIR maintains that it would be the height of
injustice on the part of the government if the waiver would be invalidated after petitioner
had benefitted from the extension of time granted to submit supporting documents
required in the investigation of its internal revenue tax liabilities. 34

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 The Issue
Whether or not the CIR's right to assess the deficiency taxes of petitioner has
already prescribed.
The Court's Ruling
The petition is meritorious.
The prescriptive period for assessment and collection of internal revenue taxes is
governed by Section 203 35 of the 1997 NIRC. The said provision limits the BIR's
authority to assess within three years after the last day prescribed by law for the filing of
the return or from the day the return was filed, whichever comes later. Upon the lapse of
this period, the assessment issued shall no longer be valid and effective 36 as it is
already time-barred.
The period to assess and collect deficiency taxes may be extended upon the
execution of a valid waiver before the expiration of the original three-year prescriptive
period. The CIR and the taxpayer shall execute a written agreement to extend the
original period of assessment in accordance with Section 222 (b) of the NIRC. 37 The
period so agreed upon may be further extended by a subsequent written agreement
provided the same is made before the expiration of the period previously agreed upon.
38

In Philippine Journalists, Inc. v. Commissioner of Internal Revenue , 39 the Court

enunciated that "a waiver of the statute of limitations under the NIRC, to a certain
extent, is a derogation of the taxpayers' right to security against prolonged and
unscrupulous investigations" conducted by revenue officers. Make no mistake, it is not
a renunciation of the right to invoke the defense of prescription. "It is an agreement
between the taxpayer and the BIR that the period to issue an assessment and collect
the taxes due is extended to a date certain." 40 It is, therefore, imperative that the waiver
is carefully and strictly construed and duly compliant with the preset guidelines and
procedural requirements prescribed by the BIR to serve its purpose of affording
protection to the taxpayer.
To guide the revenue officers and the taxpayers in the proper execution of the
waiver of the statute of limitations, RMO No. 20-90 41 and RDAO No. 05-01 42 were
issued on April 4, 1990 and August 2, 2001, respectively. The revenue orders require
that:
1. The waiver must be in the form specified in RMO No. 20-90.
2. The phrase "but not after __________ 19__" should be filled out as it
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.
3. The waiver shall be signed by:
a. the taxpayer themselves or their duly authorized representative, or,
in the case of a corporation, its responsible officials; and
b. the CIR or the revenue official authorized by them, indicating that
the BIR has accepted and agreed to the waiver.
The date of the BIR's acceptance should be indicated in the waiver.
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 The waiver shall be signed by the revenue officials authorized under
RDAO No. 05-01.
4. The date of execution of the waiver by the taxpayer and date of BIR's
acceptance 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.
5. The waiver should be duly notarized.
6. The waiver must be executed in three copies, namely, 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 their file copy shall be indicated in the
original copy.
7. The foregoing procedures shall be strictly followed.
Faithful compliance with the provisions of RMO No. 20-90 and RDAO 05-01 is
enjoined to accord legal and binding effect to the waiver of statute of limitations.
Here, all three waivers were not in accordance with the requisites of RMO No. 20-
90 and RDAO No. 05-01.
The first waiver did not reflect the agreed date within which the BIR may assess
and collect taxes. RMO No. 20-90 explicitly states that the phrase "but not after
__________ 19__" should be filled out. Petitioner's failure to accurately state such
material date logically implies that the first waiver is one of indefinite duration, in
violation of Section 222 (b) of the NIRC. Furthermore, the first waiver did not specify the
date of execution of the agreement, which is necessary to determine whether the waiver
was made well-within the period of prescription. Petitioner's blunders in the
accomplishment of the first waiver were too glaring to miss, yet the CIR still accepted
the same without question. Thus, when the original three-year prescriptive period has
lapsed, there was nothing more to extend and the execution of the second waiver was
no longer necessary. There being no assessment having been issued, prescription has
already set in.
It is likewise noteworthy to mention that the waivers executed by petitioner were
tainted with a common fatal flaw, that is, the absence of the date of acceptance of the
CIR or their authorized revenue officials. The Court has explained in Commissioner of
Internal Revenue v. FMF Development Corp. 43 that the date of acceptance of the CIR
must reflect in the waiver to determine whether it was validly accepted before the
expiration of the original period or the period agreed upon in a subsequent waiver.
Interestingly, this requirement has been completely disregarded by the CIR in all three
occasions. They were remiss in their duty to exact compliance with RMO No. 20-90 and
RDAO No. 05-01 and follow the mandates of these issuances.
The fact that RMO No. 20-90 and RDAO No. 05-01 require that they be strictly
complied with underscores the mandatory nature of the procedural guidelines. They
cannot be dispensed with or disregarded since "failure to fulfill any of the requisites
renders a waiver defective and ineffectual." 44 Consequently, the period to assess the
tax liabilities is deemed never to have been extended and the government ultimately
loses its right to enforce collection on the ground of prescription.
The CIR invokes the oft-repeated principle that taxes are the lifeblood of the
government and contends that the equitable principles of in pari delicto, unclean hands,
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 and estoppel should be applied to sustain the validity of defective waivers, citing as a
basis the Court's ruling in Next Mobile. 45 In said case, the taxpayer, after deliberately
executing five waivers, insisted on their invalidity due to the following defects: (1) the
waivers were signed by an employee without any notarized written authority from the
Board of Directors; (2) the dates of the acceptance by the Revenue District Officer were
not indicated in the waivers; and (3) the fact of receipt by the taxpayer of its copy of the
second waiver was not indicated on the face of the original second waiver. The Court
therein reiterated the general rule that failure to comply with the requirements of RMO
No. 20-90 and RDAO No. 05-01 renders the waiver invalid and ineffective. However, we
also found sufficient reasons to uphold the validity of the defective waivers in Next
Mobile due to its peculiar circumstances, viz.:
First, the parties in this case are in pari delicto or "in equal fault." In
pari delicto connotes that the two parties to a controversy are equally culpable
or guilty and they shall have no action against each other. However, although
the parties are in pari delicto, the Court may interfere and grant relief at the suit
of one of them, where public policy requires its intervention, even though the
result may be that a benefit will be derived by one party who is in equal guilt
with the other.
Here, to uphold the validity of the Waivers would be consistent with the
public policy embodied in the principle that taxes are the lifeblood of the
government, and their prompt and certain availability is an imperious need.
Taxes are the nation's lifeblood through which government agencies continue
to operate and which the State discharges its functions for the welfare of its
constituents. As between the parties, it would be more equitable if petitioner's
lapses were allowed to pass and consequently uphold the Waivers in order to
support this principle and public policy.
Second, the Court has repeatedly pronounced that parties must come
to court with clean hands. Parties who do not come to court with clean hands
cannot be allowed to benefit from their own wrongdoing. Following the
foregoing principle, [the taxpayer] should not be allowed to benefit from the
flaws in its own Waivers and successfully insist on their invalidity in order to
evade its responsibility to pay taxes.
Third, respondent is estopped from questioning the validity of its
Waivers. While it is true that the Court has repeatedly held that the doctrine of
estoppel must be sparingly applied as an exception to the statute of limitations
for assessment of taxes, the Court finds that the application of the doctrine is
justified in this case. Verily, the application of estoppel in this case would
promote the administration of the law, prevent injustice and avert the
accomplishment of a wrong and undue advantage. Respondent executed five
Waivers and delivered them to petitioner, one after the other. It allowed
petitioner to rely on then and did not raise any objection against their validity
until petitioner assessed taxes and penalties against it. Moreover, the
application of estoppel is necessary to prevent the undue injury that the
government would suffer because of the cancellation of petitioner's assessment
of respondent's tax liabilities.
Finally, the Court cannot tolerate this highly suspicious situation. In
this case, the taxpayer, on the one hand, after voluntarily executing waivers,
insisted on their invalidity by raising the very same defects it caused. On the
other hand, the BIR miserably failed to exact from respondent compliance with
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 its rules. The BIR's negligence in the performance of its duties was so gross
that it amounted to malice and bad faith. Moreover, the BIR was so lax such
that it seemed that it consented to the mistakes in the Waivers. Such a situation
is dangerous and open to abuse by unscrupulous taxpayers who intend to
escape their responsibility to pay taxes by mere expedient of hiding behind
technicalities.
It is true that petitioner was also at fault here because it was careless in
complying with the requirements of RMO No. 20-90 and RDAO [05-01].
Nevertheless, petitioner's negligence may be addressed by enforcing the
provisions imposing administrative liabilities upon the officers responsible for
these errors. The BIR's right to assess and collect taxes should not be
jeopardized merely because of the mistakes and lapses of its officers,
especially in cases like this where the taxpayer is obviously in bad faith. 46
(Emphases supplied; citations omitted)
In contrast with Next Mobile, only the first waiver in the present case was replete
with defects attributable to both petitioner and the BIR. The first waiver was not properly
executed on September 16, 2009 as it did not contain the agreed date within which the
BIR may assess and collect taxes and the date of acceptance by the CIR. The first
waiver could not have effectively extended the three-year prescriptive period to assess
and collect taxes for the taxable year 2006. Even if we recognize the doctrine of
estoppel and uphold the first waiver because the parties were in pari delicto, the second
waiver did not toll the prescriptive period because of the failure to affix the date of
acceptance of the second waiver — a mistake solely on the BIR's part. Similarly, the
date of acceptance by the CIR was absent in the third waiver executed on October 18,
2010. Thus, even assuming that the first and second waivers were validly executed, the
third waiver still resulted in the non-extension of the period to assess or collect taxes
since its execution was contrary to the procedural guidelines in RMO No. 20-90 and
RDAO No. 05-01.
Equally telling, there is no justification for the application of the doctrine of
estoppel as an exception to the statute of limitations on the assessment of taxes in light
of the detailed procedure for the proper execution of the waiver, which the BIR must
strictly follow. 47 There is nothing vague nor difficult to understand about the procedural
guidelines. The CIR and the revenue officials knew fully well the drastic consequences
of noncompliance with RMO No. 20-90 and RDAO No. 05-01, yet they utterly failed to
faithfully follow these BIR issuances. Clearly, the BIR is not entitled to the mantle of
protection accorded by the doctrine of estoppel. Having caused the defects in the
waivers, the BIR must bear the consequence of its own negligence.
Given that Next Mobile is of a different factual milieu, the equitable principles of in
pari delicto, unclean hands, and estoppel cannot be properly applied to herein case. In
all, having established that petitioner's defective waivers of the statute of limitations did
not suspend the three-year prescriptive period to issue an assessment, we hold that the
right of the government to assess or collect the alleged deficiency taxes in this case is
already barred by prescription.
WHEREFORE, in view of the foregoing reasons, the Court GRANTS the Petition
for Review on Certiorari of petitioner Universal Weavers Corporation and REVERSES
a n d SETS ASIDE the Decision dated February 9, 2017 and the Resolution dated
August 31, 2017 of the Court of Tax Appeals En Banc in CTA EB No. 1348. The Court
REINSTATES the Decision dated May 11, 2015 of the Court of Tax Appeals First
Division cancelling the Final Demand and Final Assessment Notice No. 020-
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 0704010876.
SO ORDERED.
Leonen, Hernando, Inting and J.Y. Lopez, JJ., concur.

Footnotes

1. Rollo, pp. 12-40.

2. Id. at 41-53; penned by Associate Justice Ma. Belen M. Ringpis-Liban, with Presiding
Justice Roman G. Del Rosario and Associate Justices Juanito C. Castañeda, Jr., Lovell
R. Bautista, Erlinda P. Uy, Caesar A. Casanova, Esperanza R. Fabon-Victorino, Cielito
N. Mindaro-Grulla and Catherine T. Manahan, concurring.

3. Id. at 58-61.

4. Id. at 14.

5. First Request for Presentation of Records, dated December 6, 2007.

6. Rollo, pp. 14-15.

7. Id. at 15.

8. Id.

9. Id.

10. Id.

11. Id.

12. Id.

13. Id.

14. Id.

15. Id.

16. Id. at 44.

17. Id. at 50-51.

18. Id. at 44.

19. Id. at 41-53.

20. Id. at 51-52.

21. 774 Phil. 428 (2015).

22. Rollo, p. 51.

23. Id.

24. Id.
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 25. Id. at 58-61.

26. Id. at 61.

27. Id. at 26.

28. Id. at 28-30.

29. Id. at 32.

30. Id. at 34.

31. Id. at 74.

32. Id. at 74-75.

33. Id. at 79-80.

34. Id. at 80.

35. 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.

36. Commissioner of Internal Revenue v. Systems Technology Institute, Inc., 814 Phil. 933,
941 (2017).

37. See Nava v. Commissioner of Internal Revenue, 121 Phil. 117 (1965).

38. SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. —
xxx xxx xxx

(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.

39. 488 Phil. 218 (2004).

40. Id. at 231-232.

41. April 4, 1990
REVENUE MEMORANDUM ORDER NO. 20-90

Subject: Proper Execution of the Waiver of the Statute of Limitations under the National
Internal Revenue Code

To: All Internal Revenue Officers and Others Concerned

Pursuant to Section 223 of the Tax Code, internal revenue taxes may be assessed or
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 collected after the ordinary prescriptive period, if before its expiration, both the
Commissioner and the taxpayer have agreed in writing to its assessment and/or
collection after said period. The period so agreed upon may be extended by subsequent
written agreement made before the expiration of the period previously agreed upon.
This written agreement between the Commissioner and the taxpayer is the so-called
Waiver of the Statute of Limitations. 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 [out]. 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:
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
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.

This Revenue Memorandum Order shall take effect immediately.

(SGD.) JOSE U. ONG
Commissioner of Internal Revenue
42. Delegation of Authority to Sign and Accept the Waiver of the Defense of Prescription under
the Statute of Limitations.
43. 579 Phil. 174 (2008).

44. Commissioner of Internal Revenue v. Standard Chartered Bank, 765 Phil. 102, 116 (2015).

45. Supra note 21.

46. Id. at 443-445.

47. Commissioner of Internal Revenue v. Kudos Metal Corp., 634 Phil. 314, 328 (2010).
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