Commissioner of Internal Revenue vs. Pascor Realty and Development Corporation, et al.

An assessment must be a notice sent to and received by the taxpayer, containing a computation of tax liability and a demand for payment within a prescribed period; a revenue officers' affidavit attached to a criminal complaint for tax evasion and addressed to the Department of Justice is not an assessment that may be questioned before the Court of Tax Appeals. An assessment is also not a prerequisite to a criminal charge for tax evasion where the case involves a false or fraudulent return or failure to file a return.

Pascor Realty and Development Corporation is a corporation whose President was Rogelio A. Dio and whose Treasurer was Virginia S. Dio. The Commissioner of Internal Revenue is the official charged with enforcement of the National Internal Revenue Code, including the assessment and collection of internal revenue taxes and the institution of criminal actions for tax evasion. The case arises against the statutory framework of the NIRC's provisions on assessment, collection, protest, and limitation periods, and the Court of Tax Appeals' exclusive appellate jurisdiction over decisions of the Commissioner on disputed assessments and other matters arising under the NIRC.

Pascor Realty and Development Corporation (PRDC) was a corporation whose President was Rogelio A. Dio and whose Treasurer was Virginia S. Dio. By Letter of Authority No. 001198, then BIR Commissioner Jose U. Ong authorized Revenue Officers Thomas T. Que, Sonia T. Estorco, and Emmanuel M. Savellano to examine PRDC's books of accounts and other accounting records for the years ending 1986, 1987, and 1988. The examination resulted in a recommendation for the issuance of assessments in the amounts of P7,498,434.65 and P3,015,236.35 for 1986 and 1987, respectively.

On March 1, 1995, the Commissioner of Internal Revenue filed a criminal complaint before the Department of Justice against PRDC, Rogelio A. Dio, and Virginia S. Dio, alleging evasion of taxes in the total amount of P10,513,671.00. The complaint was supported by a Joint Affidavit of Revenue Examiners Lagmay and Savellano, which contained details of the tax liabilities, including the kind and amount of tax due and the period covered. The complaint and the affidavit were directed to the Department of Justice, not to the taxpayers.

Private respondents filed an Urgent Request for Reconsideration/Reinvestigation disputing the tax assessment and tax liability. On March 23, 1995, they received a subpoena from the DOJ in connection with the criminal complaint filed by the Commissioner. In a letter dated May 17, 1995, the Commissioner denied the urgent request for reconsideration/reinvestigation on the ground that no formal assessment had as yet been issued by the Commissioner. The request itself sought reconsideration of the tax evasion charges, not of an assessment.

Private respondents then elevated the Commissioner's May 17, 1995 decision to the Court of Tax Appeals on July 21, 1995, docketed as CTA Case No. 5271. On September 6, 1995, the Commissioner filed a Motion to Dismiss on the ground that the CTA had no jurisdiction over the subject matter because no formal assessment had been issued. The CTA denied the motion in a Resolution dated January 25, 1996 and ordered the Commissioner to file an answer within thirty days from receipt. The Commissioner received the resolution on January 31, 1996 but did not file an answer or move for reconsideration. Instead, the Commissioner filed a petition with the Court of Appeals, which effectively affirmed the CTA; the Court of Appeals denied reconsideration on February 13, 1997. The Court of Appeals treated as undisputed that the BIR examination resulted in a recommendation for assessment, that the Commissioner instead filed a criminal complaint for tax evasion with the DOJ, and that the Joint Affidavit attached to that complaint contained the kind and amount of tax due and the period covered.

• Criminal Complaint Not an Assessment: Petitioner argued that the filing of the criminal complaint with the Department of Justice cannot in any way be construed as a formal assessment of private respondents' tax liabilities, citing Section 205 of the National Internal Revenue Code, which provides that remedies for the collection of deficient taxes may be by either civil or criminal action, and Section 223(a) of the same Code, which states that in case of failure to file a return, the tax may be assessed or a proceeding in court may be begun without assessment.
• No Formal Assessment, No CTA Jurisdiction: Petitioner maintained that the Court of Tax Appeals has no jurisdiction over the subject matter of the petition because there was no formal assessment issued against the private respondents.
• Grave Abuse of Discretion: Petitioner alleged that the Court of Tax Appeals acted with grave abuse of discretion and without jurisdiction in considering the affidavit/report of the revenue officer and the indorsement of said report to the Secretary of Justice as an assessment appealable to the Court of Tax Appeals.
• Denial Not Final Decision: Petitioner argued that the Court of Tax Appeals acted with grave abuse of discretion in considering the denial by petitioner of private respondents' Motion for Reconsideration as a final decision appealable to the Court of Tax Appeals.

• Assessment Is Notice of Amount Due: Respondents maintained that an assessment is not an action or proceeding for the collection of taxes, but merely a notice that the amount stated therein is due as tax and that the taxpayer is required to pay the same.
• Joint Affidavit as Assessment: Respondents argued that the BIR examiners' Joint Affidavit contained the details of the supposed taxes due from respondent for taxable years ending 1987 and 1988, and that it was attached to the tax evasion Complaint filed with the DOJ; consequently, it qualified as an assessment, and the denial by the BIR of private respondents' request for reinvestigation of the disputed assessment was properly appealable to the CTA.
• Assessment Precedes Criminal Indictment: Private respondents insisted that Section 222 should be read in relation to Section 255 of the NIRC, which penalizes failure to file a return, and that a tax assessment should precede a criminal indictment.

• Assessment: Whether the criminal complaint for tax evasion, including the revenue officers' Affidavit-Report attached thereto, can be construed as an assessment that may be questioned before the Court of Tax Appeals.
• Necessity of Assessment Before Criminal Charge: Whether an assessment is necessary before criminal charges for tax evasion may be instituted.
• CTA Jurisdiction: Whether the Court of Tax Appeals can take cognizance of the case in the absence of an assessment.

• Assessment: No. The criminal complaint and attached affidavit did not constitute an assessment because an assessment must be sent to and received by the taxpayer and must demand payment within a specific period; the affidavit was addressed to the DOJ and merely supported the criminal complaint.
• Necessity of Assessment Before Criminal Charge: No. Under Section 222 of the NIRC, in cases of false or fraudulent return or failure to file a return, the tax may be assessed or a proceeding in court may be begun without assessment; Section 205 allows civil and criminal remedies to be pursued simultaneously.
• CTA Jurisdiction: No. Absent a valid assessment, there was no disputed assessment to appeal, and CTA Case No. 5271 was dismissed.

• Assessment: An assessment is not merely a computation; it contains a demand for payment within a prescribed period and signals when penalties and protests accrue. Due process requires it to be served on and received by the taxpayer. The NIRC imposes a 25 percent penalty for failure to pay deficiency tax within the time prescribed in the notice of assessment and interest of 20 percent per annum from the date prescribed for payment until full payment. Issuance of an assessment is vital in determining the period of limitation under Sections 203 and 222 and the protest period under Section 228. An assessment is deemed made only when the collector of internal revenue releases, mails, or sends notice to the taxpayer. Here, the revenue officers' Affidavit merely contained a computation of respondents' tax liability; it did not state a demand or a period for payment, and it was addressed to the Justice Secretary, not to the taxpayers. Its purpose was merely to support and substantiate the criminal complaint for tax evasion. The complaint itself was directed and sent to the Department of Justice, not to private respondents, showing that the Commissioner intended to file a criminal complaint, not to issue an assessment. Private respondents received a notice from the DOJ that a criminal case for tax evasion had been filed, not a notice that the BIR had made an assessment. Their request was for reconsideration of the tax evasion charges, not of an assessment. Thus, no assessment existed.
• Necessity of Assessment Before Criminal Charge: Section 222 of the NIRC specifically states that in cases where a false or fraudulent return is submitted or in cases of failure to file a return, proceedings in court may be commenced without an assessment. Section 205 of the same Code mandates that the civil and criminal aspects of the case may be pursued simultaneously. In Ungab vs. Cusi, the Court held that protests could not stop or suspend the criminal action, which was independent of the resolution of the protest in the CTA, because the Commissioner had discretion on whether to issue an assessment or to file a criminal case against the taxpayer or to do both. Section 222 read in relation to Section 255 does not require a prior assessment; the general rule is that an assessment is not necessary before a criminal charge can be filed. Private respondents failed to show that they are entitled to an exception. The criminal charge need only be supported by a prima facie showing of failure to file a required return, which need not be proven by an assessment. The issuance of an assessment must be distinguished from the filing of a complaint: before an assessment is issued, there is, by practice, a pre-assessment notice sent to the taxpayer, who is given a chance to submit position papers and documents; if the Commissioner is unsatisfied, an assessment signed by him or her is sent to the taxpayer. In contrast, the criminal charge is filed directly with the DOJ, and the taxpayer is notified that a criminal case had been filed, not that the Commissioner has issued an assessment. A criminal complaint is instituted not to demand payment, but to penalize the taxpayer for violation of the Tax Code.
• CTA Jurisdiction: Because no valid assessment was issued, the Court of Tax Appeals had no disputed assessment over which to exercise its exclusive appellate jurisdiction. Its denial of the Commissioner's Motion to Dismiss and the Court of Appeals' affirmance were reversed, and CTA Case No. 5271 was dismissed.

• Assessment as Notice and Demand — An assessment contains not only a computation of tax liabilities but also a demand for payment within a prescribed period. It signals the time when penalties and protests begin to accrue against the taxpayer. Due process requires that it be served on and received by the taxpayer. Not every document from the BIR containing a computation of tax liability can be deemed an assessment. In this case, the revenue officers' Joint Affidavit attached to the criminal complaint was not an assessment because it did not state a demand or a period for payment and was addressed to the Justice Secretary, not to the taxpayers.
• No Prior Assessment Necessary for Criminal Tax Evasion Prosecution — Under Section 222 of the NIRC, 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. Section 205 allows the civil and criminal aspects of the case to be pursued simultaneously. The Commissioner has discretion to issue an assessment, file a criminal case, or do both. A criminal charge need only be supported by a prima facie showing of failure to file a required return; it need not be proven by an assessment.
• Commissioner's Discretion in Tax Collection Remedies — The Commissioner of Internal Revenue may pursue civil or criminal remedies, or both simultaneously, in the discretion of the authorities charged with the collection of taxes. Protests before the Court of Tax Appeals do not stop or suspend a criminal action for tax evasion, which is independent of the resolution of the protest.
• Jurisdiction of the Court of Tax Appeals over Disputed Assessments — The Court of Tax Appeals has exclusive appellate jurisdiction over decisions of the Commissioner of Internal Revenue on disputed assessments and other matters arising under the NIRC. Absent a valid assessment, there is no disputed assessment to appeal, and the CTA cannot take cognizance of the case.

• "An assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period. It also signals the time when penalties and protests begin to accrue against the taxpayer. To enable the taxpayer to determine his remedies thereon, due process requires that it must be served on and received by the taxpayer. Accordingly, an affidavit, which was executed by revenue officers stating the tax liabilities of a taxpayer and attached to a criminal complaint for tax evasion, cannot be deemed an assessment that can be questioned before the Court of Tax Appeals." — This passage states the ratio decidendi: it defines an assessment and explains why the affidavit attached to the criminal complaint was not an assessment appealable to the CTA.
• "To start with, an assessment must be sent to and received by a taxpayer, and must demand payment of the taxes described therein within a specific period." — This sentence sets out the essential requisites of an assessment for purposes of protest and appeal.
• "Indeed, an assessment is deemed made only when the collector of internal revenue releases, mails or sends such notice to the taxpayer." — This passage fixes the moment an assessment is deemed made, which is central to the Court's conclusion that no assessment existed.
• "To reiterate, said Section 222 states that an assessment is not necessary before a criminal charge can be filed. This is the general rule." — This excerpt articulates the Court's holding that a criminal complaint for tax evasion may be filed without a prior assessment.

• Ungab vs. Cusi, 97 SCRA 877, May 30, 1980 — Cited for the rule that protests before the Court of Tax Appeals could not stop or suspend the criminal action, which was independent of the resolution of the protest, because the Commissioner of Internal Revenue had discretion to issue an assessment or to file a criminal case against the taxpayer or to do both.
• Basilan Estates vs. Commissioner of Internal Revenue, 21 SCRA 17, September 5, 1967 — Cited for the proposition that an assessment is deemed made only when the collector of internal revenue releases, mails, or sends such notice to the taxpayer.

• Section 205, National Internal Revenue Code — Provides the remedies for the collection of delinquent taxes, including civil or criminal action, and states that either or both remedies may be pursued simultaneously in the discretion of the authorities charged with collection. Applied to hold that the civil and criminal aspects of the case may be pursued simultaneously and that no prior assessment is required before a criminal charge.
• Section 222, National Internal Revenue Code — Provides exceptions to the period of limitation for assessment and collection; 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, within ten years after discovery. Applied to hold that a criminal complaint for tax evasion may be filed without a prior assessment.
• Section 203, National Internal Revenue Code — Provides that internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return, and no proceeding in court without assessment for collection shall be begun after expiration of such period. Cited to show that issuance of an assessment is vital in determining the period of limitation.
• Section 228, National Internal Revenue Code — Governs the protesting of assessments, requiring that the taxpayer be informed in writing of the law and the facts on which the assessment is made, and allowing protest within thirty days from receipt. Cited to show that the taxpayer must be certain that a specific document constitutes an assessment.
• Section 249(b), National Internal Revenue Code — Provides for interest of 20 percent per annum, or such higher rates as may be prescribed by rules and regulations, to be collected from the date prescribed for payment until full payment. Cited to show that an assessment signals the accrual of interest and penalties.
• Section 255, National Internal Revenue Code — Penalizes failure to file a return, supply correct and accurate information, pay tax, withhold and remit tax, and refund excess taxes withheld on compensation. Respondents invoked it in relation to Section 222; the Court held that Section 222 still allows a criminal charge without a prior assessment.
• Revenue Regulation 12-85 — Governs the protest of assessments. Cited to note that neither the NIRC nor the regulations provide a specific definition or form of an assessment, although the effects of an assessment show that it must be sent to the taxpayer and must demand payment.
• Republic Act No. 1125 — Provides the Court of Tax Appeals with exclusive appellate jurisdiction over decisions of the Commissioner of Internal Revenue on disputed assessments and other matters arising under the National Internal Revenue Code. Applied to hold that absent a valid assessment, there was no disputed assessment over which the CTA could exercise jurisdiction.

Vitug, Purisima, and Gonzaga-Reyes, JJ., concurred. Romero, J., was abroad on official business.