Union Cement Corporation vs. Commissioner of Internal Revenue

DECISION

MINDARO-GRULLA, J.:

This is a Petition for Review filed on December 30, 2003 by Union Cement Corporation as petitioner, against the Commissioner of Internal Revenue (CIR) as respondent, for the Court in Division, pursuant to Section 7 (a) (1) of Republic Act (RA) No. 1125, An Act Creating the Court of Tax Appeals, as amended 1, as well as Rule 4, Section 3 (a) (1 ), in<: Sec. 7. Jurisdiction. -The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:

Union Cement Corporation v. CIR relation to Rule 8, Section 4(a), of the Revised Rules of the Court of Tax Appeals (RRCTA) 2 . It involves the cancellation and withdrawal of the assessment against petitioner for deficiency income tax, including the interest and compromise penalty imposed thereon, in the total amount of P97,698, 105.26.'

XXX

XXX

(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds or internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue;

XXX

XXX

Rule 4. Sec. 3. Cases within the jurisdiction of the Court in Division. -The Court in Division shall exercise:

(a) Exclusive original over or appellate jurisdiction to review by appeal the following:

XXX

XXX

(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue;

XXX

XXX

Rule 8. Sec. 4. Where to appeal,· mode of appeal. -

(a) An Appeal from a decision or ruling or the inaction of the Commissioner of Internal Revenue on disputed assessments or claim for refund of internal revenue taxes erroneously or illegally collected; the decision or ruling of the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade & Industry, the Secretary of Agriculture, and the Regional Trial Court in the exercise of their original jurisdiction, shall be taken to the Court by filing before it a petition for review as provided in Rule 42 of the Rules of Court. The Court in Division shall act on the appeal.

Union Cement Corporation v. CIR

Petitioner is a domestic corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines. The principal office of petitioner is located at Phinma Plaza, 39 Plaza Drive, Rockwell Center, Makati City. It is a duly registered taxpayer with the Bureau of Internal Revenue (BIR) with Tax Identification No. 205-927-879. Respondent is the official charged with the duty to assess and collect internal revenue taxes, as well as granted with the power to cancel disputed assessments. She holds office at the BIR National Office Building, Diliman, Quezon City.

Petitioner was involved in a two-step merger. The first merger involved three (3) cement manufacturing companies, namely, Davao Union Cement Corporation (DUCC), Bacnotan Cement Corporation (BCC), and Hi-Cement Corporation (HCC); with the latter as the surviving corporation and using "Union Cement Corporation" as its new corporate name upon the effective date of merger. The second merger involved petitioner Union Cement Corporation and three marketing companies, namely, Atlas Cement Marketing Corporation (ACMC), Davao Union Marketing Corporation (DUMC), and Bacnotan Marketing Corporationc

Union Cement Corporation v. CIR

(BMC). Pursuant to law, petitioner Union Cement Corporation, as the surviving corporation, assumed all the rights and obligations of the merged corporations. The subject of the assessment in the instant case pertains to the business operations of BMC. On January 11 , 2001 , the Securities and Exchange Commission (SEC) approved the Articles and Plan of Merger executed by and among BMC, ACMC, DUMC and petitioner, with petitioner as the surviving corporation. Prior to the effective date of the merger, BMC, as a separate and distinct corporate entity, was engaged in the business of buying, selling, transporting , and warehousing of cement. On March 28, 2003, petitioner received from respondent a Preliminary Assessment Notice (PAN) dated March 12, 2003 pertaining to the business operations of BMC, informing petitioner of BMC's alleged income tax and value-added tax liabilities for the period covering June 1999 to April 22, 2000 in the aggregate amount of P107,439,917.94, broken down as follows:'-

Union Cement Corporation v. CIR

Kind of Tax

Basic Tax plus

Interest and

Compromise Penalty

Income

p 97,698,105.26

Value-added Tax

9,741 ,812.68

Total

P107,439,917.94

Page 5 of 44

Period Covered

June 1999 to December 31 , 1999

January 2000 to April 2000

On April 14, 2003, petitioner protested the said PAN for lack of factual and legal bases. On the same day, petitioner signed a waiver of the defense of prescription under the statute of limitations, extending the period to assess up to June 30, 2003. On the part of respondent, a certain Ms. Flor Mercado signed the waiver for Atty. Edwin R. Abella, Assistant Commissioner-SIR Large Taxpayers Service. On June 30, 2003, petitioner received from respondent a Formal Letter of Demand with the attached "Details of Discrepancies" and Audit Result Assessment Notice with Assessment Number LTDO 122 IT-1999- 0000, all dated June 16, 2003, for deficiency income tax covering the period June 1, 1999 to December 31 , 1999 and signed by Deputy Commissioner Estelita C. Aguirre, Officer-in-Charge (OIC) of the Large Taxpayers Service. The total assessment amounts to P97 ,698, 105.26, inclusive of interest and compromise penalty.(

Union Cement Corporation v. CIR

The assessment purportedly arose from the following:

a. Underdeclaration of salaries and wages in the amount of P2, 104,146.51 based on the salaries and wages declared by BMC in its alpha list, which showed an amount less than that declared by BMC in its financial statements;

b. Undeclared sales of P48,536,4 79.05 based on the total sales recorded by BMC in its general ledger, which showed a sales amount higher than the sales recorded in petitioner's financial statements;

c. Undeclared income by understating income payment to contractors and sub-contractors of P150, 770,101 .00 based on a comparison of BMC's alpha list and financial statements; and

d. Disallowance of professional fees in the amount of P395,711.00 for under-withholding and commission expenses of P541 ,025.00 for non-withholding of taxes.

On July 10, 2003, petitioner filed a protest through its Senior Vice President- Comptroller Rene S. Ong, requesting the withdrawal and cancellation of the said assessment. Subsequent to the filing of the protest, petitioner submitted documents to respondent in support of its protest, as evidenced by a letter dated August 12, 2003. On December 4, 2003, or within one hundred eighty (180) days from the date of filing of the foregoing protest, petitioner received a letter dated October 14, 2003 with the heading "Final Decision on Disputed Assessment" signed by Deputy Commissioner Estelita C. Aguirre, OIC-'

Union Cement Corporation v. CIR

Large Taxpayers Service of the Bureau of Internal Revenue, denying petitioner's protest for allegedly lacking factual and legal bases. Thus, on December 30, 2003, petitioner filed this appeal on the subject Final Decision on Disputed Assessment by way of a Petition for Review.

On February 23, 2004, respondent filed her Answer with the following special and affirmative defenses: "3.

Petitioner was assessed deficiency income tax in the total amount of P97_698,205.27for the taxable period from June to December of 1999 and VAT in the amount of P9,741,812.68 for the period covering January to April of 2000. The deficiency income tax assessment arose from the findings of discrepancy as ·a result of reconciliation of petitioner's sales per ledger as against its financial statement and its salaries and wages per Alpha List vis-a-vis Financial Statement and disallowance of Professional Fees and Commission expenses as well as for under-withholding and no-withholding of taxes; 3.a Sales per general ledger as against Financial Statement uncovered understatement of sales in the amount of P48,536,479.05as shown below:

Sales per General Ledger

Sales per Financial Statement

Discrepancy

P1 ,097,976,326.05 P1 ,049,439,847.00 p 48,536,479.05 3.b Salaries and wages per Financial Statement as against Alpha List showed discrepancy in the amount of P2,104,146.51 , as shown below:

Per Alpha List

Sales per Financial Statement

Discrepancy

P15,31 0,956.97 P13,206,81 0.46 p 2,104,146.51 t..

Union Cement Corporation v. CIR

3.c Furthermore, reconciliation of

Income

payment to Contractor/sub-contractor showed discrepancy in the amount of P 150,255,252.56 to wit:

Per Alpha List

Sales per Financial Statement

Discrepancy

p 151 ,770,101 .00 p 1,514,491 .00 p 150,255,252.56 3.d Disallowance of Professional Fees and Commission Expenses in the amounts of P395,711.40 and P541 ,025.00 respectively for under-withholding and non-withholding of taxes thereon; 4.

Likewise, the deficiency VAT assessment in the amount of P9,741,812.68 arose from understatement of sales in the amount P59,898,980.90 from the reconciliation of Sales per General ledger as against petitioner's VAT Returns; 5.

Petitioner assails the validity of the Waiver of the Defense of Prescription for alleged failure to comply with the requisites of a valid waiver under Revenue Delegation Authority Order (RDAO) No. 05-2001 .

We disagree. Under RDAO No. 05- 2001 , for cases in the Large Taxpayers District Office (L TOO), the Chief of the L TOO shall sign and accept the waiver for cases pending investigation/action in his possession. The waiver in question was signed and accepted by Flor M. Mercado, the Acting Chief of the L TOO. Furthermore, what is surprising is the fact that petitioner did not raise in the administrative level the issue regarding the validity of the waiver executed. Neither in its protest against the Preliminary Assessment Notice (PAN) nor in its protest against the Formal Assessment Notice (FAN), did it question the waiver. It was only in this instant Petition for Review that petitioner opted to assail or contest the validity of the waiver for alleged failure to comply with the above RDAO. Such being the case, petitioner is now barred from questioning or assailing the validity of the waiver for the first time on appeal; 6.

The assessments were issued within the period agreed upon between petitioner and respondent;

7.

The assessments were issued in accordance with law and regulations.

8.

Finally, it is a well-settled rule in taxation that assessments are prima facie presumed correct and made in good faith. The taxpayer has the duty of proving otherwise. In the absence ofC

Union Cement Corporation v. CIR proof of any irregularities in the performance of official duties, an assessment will not be disturbed." Thereafter, on April 16, 2004, the case was set for pre-trial conference. Petitioner filed its Pre-trial Brief on April 13, 2004; while respondent filed her Pre-trial Brief on April 15, 2004. On May 12, 2004, the parties filed with this Court their Joint Stipulation of Facts and Issues, which was later approved in a Resolution dated June 10, 2004. In the same Resolution, the pre-trial conference was deemed terminated.

Upon motion, Ms. Leticia C. Tagle was commissioned as the Independent Certified Public Accountant (ICPA) to conduct the actual examination, evaluation and audit of the voluminous documents to be offered and presented by petitioner in the instant case. Thereafter, trial proceeded, during which petitioner presented three

(3) witnesses, namely: Randy B. Pineda, Leticia C. Tagle, and Atty. Victoria T. Tomelden.

On May 11 , 2007, petitioner filed its Formal Offer of Evidence with Motion for Re-Marking of Exhibits.[

Union Cement Corporation v. CIR

Petitioner's documentary evidence which were formally offered and admitted are as follows:

Exhibit

A

B

c

D

E

F

G

H

1-1 1-2 1-3

Description

Articles and Plan of Merger dated 1 0 April 2000 between Petitioner Atlas Cement Marketing Corporation,

Davao

Union

Marketing

Corporation

and

Bacnotan

Marketing

Corporation ("BMC")

Preliminary Assessment Notice dated 12 March 2003, with attached Details of Discrepancies

Petitioner's

reply dated 11

April

2003 addressed to the Deputy Commissioner of the Large Taxpayers Service (4 pages)

Waiver of the Statute of Limitations Under the

National Internal Revenue Code dated 14 April 2003 Formal Letter of Demand dated 16 June 2003, with attached Details of Discrepancy and

Assessment Notices

Petitioner's

protest dated 10

July

2003 addressed to the Deputy Commissioner of the

Large Taxpayers Service

Petitioner's Letter dated

12 August 2003

addressed to the Deputy Commissioner of the

Large Taxpayers Service

Final Decision on Disputed Assessment dated

14 October 2003

Abatement Program Payment Form (Pursuant

to RR Nos. 12-2002 and 17 -2002) dated 9 June 2003 for P64,634.81 BIR Tax Payment Deposit Slip evidencing

Petitioner's

payment of P64,631 .81 for deficiency EWT on professional fees and commission expenses

Schedule

entitled:

"Bacnotan

Marketing

Corporation: Analysis of EWT Deficiency for(

Union Cement Corporation v. CIR

J

J-1

J-2

J-3

K and K-1

K-2 to K-6

K-14

L

L-a

L-1

L-1-a

L-2

L-2-a

L-3

the period January, 1999 to April 2000" attached to Exhibit "1-1 "

Annual Income Tax Return of Petitioner (BMC)

for the year ended 31 December 1999 with attached Account Information Form Signature over the name "Antonio B. Alvarez" on page 3 of Exhibit "J" Signature over the name "Mario B. Casupanan" on page 3 of Exhibit "J" Portion of Exhibit "J" (at page 3) - Salaries and Alllowances/Others - 10,907,201 Portion of BMC's General Ledger for 1 to 31

August 1999

Portion of BMC's Subsidiary Ledger for 1

January to 31 December 1999 (5 pages) Journal Voucher No. 9908-011 for the month of August 1999 appearing on Exhibit "K-1"

Voluntary Assessment and Abatement Program

Application Form (BIR Form 2111V) dated 6 June 2003 in the amount of P6,627,900.59 Signature over the name Joseph R. San Juan

on Exhibit "L"

Computation Sheet for VAAP Availment for

P56,204.18, with attached schedule entitle: "Bacnotan Marketing Corporation: Analysis of Deficiency VAT for the period January, 1999 to April 2000" attached to Exhibit "L-1 " Signature over the name Joseph R. San Juan

on Exhibit "L-1"

Voluntary Assessment Abatement Program

Payment Form (BIR Form No. 0611) for P9, 718,490.23 Signature over the name Joseph R. San Juan

on Exhibit "L-2"

BIR Tax Payment Deposit Slip evidencing Petitioner's payment of P9,718,490.23(

Union Cement Corporation v. CIR

L-4

Check No. 0000001230 dated 9 June 2003 for P9,718,490.23

M to M11

General Ledger -

Sales (June to December

1999)

N to N28

Subsidiary Ledger - Sales (June to December

1999) 0 to 0 7

General Ledger - Accounts Receivable (June to December 1999)

P to P21

Subsidiary Ledger -

Accounts Receivable

(June to December 1999)

Q and Q2

General Ledger - Arrastre & Freight Payable

(June to December 1999)

R to R65

Subsidiary Ledger - Arrastre & Freight Payable

(June to December 1999)

S to S3

Respondent's Schedule of Cash/Account Sales

(June to December 1999)

T-1 to T-11

BMC's Analysis of AIR Trade - Debit (June to

December 1999)

T-2 to T-2 7

BMC's

Reconciliation of Sales

(June

to

December 1999)

U-1 to U-20128

Journal Vouchers (June to December 1999)

U92 to U930

Various Journal Vouchers for the period June

1999 to December 1999

U-131 to U-138 Various Journal Vouchers for the period June 1999 to December 1999 substantiating Other

Deductions to Sales

U-161 to U-1612 Various Journal Vouchers for the period June 1999 to December 1999 substantiating

Reclassification to Sales Discounts

V-1 6 to V-1 318

Debit Memos (June 1999) -

Baguio (with

attached Schedule) V-2 1 to V-2314 Debit Memos (July 1999) Baguio (with attached

Schedule)(

Union Cement Corporation v. CIR

V-31 to V-3292

Debit Memos (August 1999) Baguio (with

attached Schedule) V-41 to V-4296 Debit Memos (September 1999) Baguio (with attached Schedule) V-51 to V-5292

Debit Memos (October 1999) Baguio (with

attached Schedule) V-67 to V-6317

Debit Memos (November 1999) Baguio (with

attached Schedule) V-71 to V-7305 Debit Memos (December 1999) Baguio (with attached Schedule) W-1 4 to W-1142 Debit Memos (June 1999) Pangasinan (with attached Schedule)

W-21 to W-242

Debit Memos (July 1999) Pangasinan (with

attached Schedule)

W-31 to W-383

Debit Memos (August 1999) Pangasinan

(with attached Schedule)

W-41 to W-4112

Debit

Memos

(September

1999) Pangasinan (with attached Schedule)

W-51 to W-595

Debit Memos (October 1999) Pangasinan

(with attached Schedule)

W-61 to W-6138

Debit Memos (November 1999) Pangasinan

(with attached Schedule)

W-71 to W-751

Debit Memos (December 1999) Pangasinan

(with attached Schedule) X-11toX-1 7 Debit Memos (June 1999) lsabela (with attached Schedule)

X-22 to X-213

Debit Memos (July 1999) lsabela (with attached Schedule)

X-32 to X-310

Debit Memos (August 1999) lsabela (with attached Schedule)

X-42 to X-423

Debit Memos (September 1999) lsabela (with attached Schedule)

X-52 to X-534

Debit Memos (October 1999) lsabela (with attached Schedule)(

Union Cement Corporation v. CIR

X-63 to X-687

Debit Memos (November 1999) lsabela (with attached Schedule)

Y-1 2 to Y-1 48

Debit Memos (June 1999) La Union (with

attached Schedule)

Y-21 to Y-231

Debit Memos (July 1999) La Union (with

attached Schedule)

Y-31 to Y-330

Debit Memos (August 1999) La Union (with

attached Schedule)

Y-41 to Y-459

Debit Memos (September 1999) La Union

(with attached Schedule)

Y-51 to Y-544

Debit Memos (October 1999) La Union

(with attached Schedule)

Y -62 to Y -653

Debit Memos (November 1999) La Union

(with attached Schedule)

Y-71 to Y-731

Debit Memos (December 1999) La Union

(with attached Schedule) Z-11toZ-157

Debit Memos (June 1999) Laoag (with

attached Schedule) z-22 to Z-261

Debit Memos (July 1999) Laoag (with

attached Schedule)

Z-31 to Z-3127

Debit Memos (August 1999) Laoag (with

attached Schedule)

Z-4 to Z-4105

Debit Memos (September 1999) Laoag

(with attached Schedule)

Z-52 to Z-585

Debit Memos (October 1999) Laoag (with

attached Schedule)

Z-61 to Z-672

Debit Memos (November 1999) Laoag (with

attached Schedule) Z-71 to Z-71oo

Debit Memos (December 1999) Laoag (with

attached Schedule)

AA-1 2 to AA-175

Debit Memos (June 1999) Tugegarao (with

attached Schedule)(

Union Cement Corporation v. CIR

AA-21 to AA-266

Debit Memos (July 1999) Tugegarao (with

attached Schedule) AA-42 to AA-44o

Debit Memos (August 1999) Tugegarao

(with attached Schedule)

AA-52 to AA-543

Debit Memos (October 1999) Tugegarao

(with attached Schedule)

AA-63 to AA-684

Debit Memos (November 1999) Tugegarao

(with attached Schedule)

AA-71 to AA-756

Debit Memos (December 1999) Tugegarao

(with attached Schedule)

BB-1 1 to BB-1 36

Debit Memos (June 1999) Vigan (with

attached Schedule)

BB-21 to BB-263

Debit Memos (July 1999) Vigan (with

attached Schedule)

BB-31 to BB-379

Debit Memos (August 1999) Vigan (with

attached Schedule)

BB-41 to BB-478

Debit Memos (September 1999) Vigan (with

attached Schedule) BB-51 to BB-5102 Debit Memos (October 1999) Vigan (with attached Schedule) BB-61 to BB-699 Debit Memos (November 1999) Vigan (with attached Schedule) BB-71 to BB-7108 Debit Memos (December 1999) Vigan (with attached Schedule) CC-1 2 to CC-1 95 Credit Memos (June 1999) (with attached List of Credit Memos and other supporting documents) CC-21 to CC-2132 Credit Memos (July 1999) (with attached List of Credit Memos and other supporting documents) CC-3 to CC-3246 Credit Memos (August 1999) (with attached List of Credit Memos and other supporting documents)(

Union Cement Corporation v. CIR

CC-4 to CC-4196

Credit Memos (September 1999) (with

attached List of Credit Memos and other supporting documents) CC-51 to CC-5453 Credit Memos (October 1999) (with attached List of Credit Memos and other supporting documents)

CC-61 to CC-6609 Credit Memos (November 1999) (with

attached List of Credit Memos and other supporting documents)

CC-72 to CC-7476 Credit Memos (December1999) (with

attached List of Credit Memos and other supporting documents) DD-2614 to DD-2785 List of Check Vouchers (June 1999) (with attached

Check

Vouchers

and other supporting documents) DD-3 to DD-3895 List of Check Vouchers (July 1999) (with attached

Check

Vouchers

and other supporting documents) DD-4 to DD-4385 List of Check Vouchers (August 1999) (with attached

Check

Vouchers

and other supporting documents) DD-5123 to DD-5818 List of Check Vouchers (September 1999) (with attached Check Vouchers and other supporting documents) DD-6 and DD-670 List of Check Vouchers (October 1999)

to DD-6357

(with attached Check Vouchers and other supporting documents) DD-71 to DD-71468 List of Check Vouchers (November 1999) (with attached Check Vouchers and other supporting documents) DD-8, DD-814

List of Check Vouchers (December 1999) to DD-8250

(with attached Check Vouchers and other supporting documents)

EE-1 to EE-1192

List of No Documents Attached (June to

December 1999) (with attached Check

Vouchers){

Union Cement Corporation v. CIR

FF-11 to FF-1 840

List of Check Vouchers (January 2000)

(with attached Check Vouchers and other supporting documents)

FF-2 to FF-292

List of Check Vouchers (February 2000)

(with attached Check Vouchers and other supporting documents)

GG to GG307

DM/CM Rebates Sales Adjustment Book

(June to December 1999)

HH

Auditor's Analysis of AJR & Reconciliation of

Sales (June to December 1999)

II to 11 10

Petitioner's (BMC's) Financial Statement for

the year ended December 31 , 1999

JJ to JJ8

Petitioner's (BMC's) Annual Income Tax

Return for the period June to December 1999

KK

00 pp

PP-1

QQ

QQ-1

RR

RR-1

Independent

CPA

Report

dated 13

February 2006

Page 2687 of BIR Docket, Reconciliation of Income Payment Subject to EWT perFS vs. Alpha List, prepared by the BIR Page 2536 of BIR Docket, Schedule of

Administrative Expenses of BMC for CY

1999 prepared by BIR

Repairs

and

Maintenance

Expenses-

P601 , 105.87 Page 2537 of BIR Docket, Schedule of

Selling Expenses of BMC for CY 1999

prepared by BIR

Repairs and

Maintenance Expenses -

P372,717.57

BMC's Summary Schedule of Operating

Expenses for CY 1999

Subsidiary

Ledger

for

BMC's

Selling

Expenses

from

January

1, 1999 to December 31 , 1999(

Union Cement Corporation v. CIR

RR-2

Subsidiary Ledger for BMC's Administrative

Expenses

from

January

1, 1999 to December 31 , 1999

SS

Schedule

of

Monthly

Payments

for

Expanded

Withholding

Taxes

paid by

Bacnotan

Marketing

Corporation

from January, 1999 to December, 1999

TT

Monthly Remittance Return of Income

Taxes Withheld for January 1999 filed by

BMC (La Union Office) on 10 February

1999, with attached Debit Advice from

Pilipinas Bank

TT-1

Signature of Mr. lliseo I. Labatorio, for Mr. Manuel C. Gaerlan, Jr.

UU

Monthly Remittance Return of Income

Taxes Withheld for February 1999 filed by BMC (La Union Office) on 10 March 1999, with attached Debit Advice from Pilipinas

Bank

UU-1

Signature of Mr. lliseo I. Labatorio, for Mr. ManueiC.Gaerlan , J~

VV

Monthly Remittance Return of Income

Taxes Withheld for March 1999 filed by BMC (La Union Office) on 12 April 1999, with attached Debit Advice from Pilipinas

Bank

VV-1

Signature of Mr. lliseo I. Labatorio, for Mr. Manuel C. Gaerlan, Jr.

WW

Monthly Remittance Return of Income

Taxes Withheld for April 1999, filed by BMC (La Union Office), with attached Debit Advice from Pilipinas Bank dated 10 May 1999

XX

Monthly Remittance Return of Income

Taxes Withheld for May 1999, filed by BMC (La Union Office) on 10 June 1999, with attached Debit Advice from Pilipinas Bank

XX-1

Signature of Mr. lliseo I. Labatorio, for Mr. Manuel C. Gaerlan, Jr.(

Union Cement Corporation v. CIR

YY

Monthly Remittance

Return of Income

Taxes Withheld for June 1999, filed by BMC (La Union Office) with attached Debit Advice from Pilipinas Bank dated 12 July 1999

YY-1

Signature of Mr. lliseo I. Labatorio, for Mr. Manuel C. Gaerlan, Jr.

ZZ

Monthly Remittance Return of Income

Taxes Withheld for July 1999 filed by BMC (La Union Office) on 10 August 1999, with attached Debit Advice from Pilipinas Bank

ZZ-1

Signature of Mr. lliseo I. Labatorio, for Mr. Manuel C. Gaerlan, Jr.

AAA

Monthly Remittance Return of Income

Taxes Withheld for August 1999 filed by

BMC (La Union Office) in September 1999

AAA-1

Signature of Mr. lliseo I. Labatorio, for Mr. Manuel C. Gaerlan, Jr.

BBB

Monthly Remittance Return of Income

Taxes Withheld for September 1999 filed by BMC (La Union Office) on 11 October 1999, with attached Debit Advice from Pilipinas

Bank

BBB-1

Signature of Mr. lliseo I. Labatorio, for Mr. Manuel C. Gaerlan, Jr.

CCC

Monthly Remittance

Return of Income

Taxes Withheld for October 1999 filed by

BMC (La Union Office) on 11 November

1999, with attached Debit Advice from

Pilipinas Bank

CCC-1

Signature of Mr. lliseo I. Labatorio, for Mr. Manuel C. Gaerlan, Jr.

ODD

Monthly Remittance Return of Income

Taxes Withheld for November 1999 filed by

BMC (La Union Office) on 10 December

1999, with attached Debit Advice from

Pilipinas Bank

DDD-1

Signature of Mr. Manuel C. Gaerlan, Jr.(

Union Cement Corporation v. CIR

EEE

Monthly Remittance Return of Income

Taxes Withheld for December 1999 filed by BMC (La Union Office) on 10 January 1999, with attached Debit Advice from Pilipinas

Bank

EEE-1

Signature of Mr. lliseo I. Labatorio, for Mr. Manuel C. Gaerlan, Jr.

FFF

Monthly Remittance

Return of Income

Taxes Withheld for January 1999 filed by

BMC (Makati Office) on 10 February 1999

FFF-1

Signature of Rizalina Andrada, for Mr. Ricardo G. De Guzman

GGG

Monthly Remittance Return of Income

Taxes Withheld for February 1999 filed by

BMC (Makati Office) on 10 March 1999

GGG-1

Signature of Mr. Ricardo G. De Guzman

HHH

Monthly Remittance Return of Income

Taxes Withheld for March 1999 filed by

BMC (Makati Office) on 8 April 1999

HHH-1

Signature of Mr. Ricardo G. De Guzman

Ill

Monthly Remittance

Return of Income

Taxes Withheld for April 1999 filed by BMC

(Makati Office) on 10 May 1999

111-1 Signature of Ricardo G. De Guzman

JJJ

Monthly Remittance Return of Income

Taxes Withheld for May 1999 filed by BMC

(Makati Office) on 10 June 1999

JJJ-1

Signature of Ms. Rizalina Andrada, for Mr. Ricardo G. De Guzman

KKK

Monthly Remittance Return of Income

Taxes Withheld for June 1999 filed by BMC

(Makati Office) on 12 July 1999

KKK-1

Signature of Ms. Cecil Arenillo, for Mr. Ricardo G. De Guzmanc

Union Cement Corporation v. CIR

LLL

Monthly Remittance Return of Income

Taxes Withheld for July 1999 filed by BMC

(Makati Office) on 10 August 1999

LLL-1

Signature of Mr. Ricardo G. De Guzman

MMM

Monthly Remittance Return of Income

Taxes Withheld for August 1999 filed by

BMC (Makati Office) on 10 September 1999

MMM-1

Signature of Mr. Ricardo G. De Guzman

NNN

Monthly Remittance Return of Income

Taxes Withheld for September 1999 filed by

BMC (Makati Office) on 11 October 1999

NNN-1

Signature of Ms. Rizalina Andrada, for Mr. Ricardo G. De Guzman 000

Monthly Remittance

Return of Income

Taxes Withheld for October 1999 filed by

BMC (Makati Office) on 10 November 1999

000-1 Signature of Mr. Arturo Mendizabel

PPP

Monthly Remittance Return of Income

Taxes Withheld for November 1999 filed by

BMC (Makati Office) on 10 December 1999

PPP-1

Signature of Mr. Arturo Mendizabel

QQQ

Monthly Remittance Return of Income

Taxes Withheld for December 1999 filed by

BMC (Makati Office) on 3 March 2000

QQQ-1

Signature of Rizalina Andrada, for Mr. Rene S. Ong

RRR

Mr. Benito B. Wong's Letter dated 13 July 2006

SSS

Sworn Statement of Mr. Randy Pineda dated 4 August 2006

SSS-1

Signature over the name "Randy B. Pineda" on page 9 of Exh. "SSS"

SSS-2

Amended Sworn Statement of Mr. Randy Pineda dated 13 September 2006'

Union Cement Corporation v. CIR

SSS-3

Signature over the name "Randy B. Pineda" on page 8 of Exh. "SSS-2"

TTT

Subsidiary Ledger for BMC's Withholding

Tax Payable from 1 January 1999 to 31

December 1999

UUU

Amended Sworn Statement of Ms. Leticia C. Tagle dated 15 February 2007

UUU-1

Signature over the name "Leticia C. Tagle" on page 8 of Exhibit "UUU"

VW

Sworn

Statement of Atty. Victoria T.

Tomelden dated 14 September 2006

VW-1

Signature over the name "Victoria T.

Tomelden" on page 13 of Exhibit "WV"

WWW

Supplemental Sworn Statement of Atty. Victoria T. Tomelden dated 15 February 2007

WWW-1

Signature over the name "Victoria T.

Tomelden" on page 3 of Exhibit "WWW"

XXX

Final Amended Report of the Independent

CPA dated 13 February 2007

XXX-1

Signature over the name "Leticia C. Tagle" on page 13 of Exhibit "XXX"

YYY

Supplemental Sworn Statement of Ms. Leticia C. Tagle dated January 19, 2010

YYY-1

Signature over the name "Leticia C. Tagle" on page 3 of Exhibit "YYY"

AAAA

Supplemental Sworn Statement of Ms. Leticia C. Tagle dated 18 March 2011

AAAA-1

Signature of Ms. Leticia C. Tagle appearing on page 14 of Exh. "BBBB"

BBBB

Supplemental Sworn Statement of Atty. Victoria T. Tomelden dated 18 March 2011

BBBB-1

Signature of Atty. Victoria T. Tomelden appearing on page 2 of Exh. "AAAA"[

Union Cement Corporation v. CIR

Respondent presented only one (1) witness in the person of Rufo B. Ranario.

On August 4, 2009, respondent filed the Formal Offer of Documentary Evidence, to which petitioner filed its Comment on September 1, 2009.

The documentary evidence formally offered by respondent, and which were all admitted are as follows:

Exhibit

1 2

2-A

3

6-A

8 9

9-A

10

Description

Memorandum Report dated September 1, 2000 approved by Flor M. Mercado, Acting L T

District

Formal Letter of Demand dated June 16, 2003 Date of receipt of the aforesaid FLO by Eduard Padilla, petitioner's authorized representative Assessment Notice dated June 16, 2003 Date of receipt of the Final Decision on

Disputed

Assessment

by

Randy

Pineda, petitioner's authorized representative Preliminary Assessment Notice together with

Details

of

Discrepancies

and

Audit

Result/Assessment Notice

Supplemental Judicial Affidavit of Rufo B. Ranario dated April 20, 2010 Signature of Rufo B. Ranario Letter of Authority No. 00061677 dated March 14, 2002 for taxable year Jan. 1, 1999 to April 27, 2000 issued to Revenue Officer R. Ranarioc

Union Cement Corporation v. CIR et. al. of the Large Taxpayers District Office-

Makati

1 0-A

Date of receipt of the Letter of Authority No. 00061677 on March 25, 2002 duly received by V.L.

Nievera, petitioner's authorized representatives 11

Checklist

of

Mandatory

Requirements

addressed to petitioner

11-A

Date of receipt of the aforesaid Checklist March 25, 2002 duly received by V.I.

Nievera, petitioner's authorized representative 12

Second Request for the Presentation of Books of Accounts and Other Accounting Records

dated April 23, 2002 by ROO Flor M. Mercado

12-A

Date of receipt of the aforesaid Second Request on April 23, 2002 duly received by petitioner's authorized representative 13 Letter dated June 8, 2002 addressed to petitioner re:

Schedule of Investigation of

books of accounts in their plant at Bacnotan Steel, San Fernando, La Union

13-A

Date of receipt of the aforesaid letter on June 10, 2002 by Joseph R. San Juan, petitioner's authorized representative 14

Request

for

Informal

Conference

dated September 28, 2002 signed by E.R. Abella,

Assistant

Commissioner,

Large

Taxpayers

Service

14-A

Date of receipt of the aforesaid Notice on November 22, 2002 by Joseph R. San Juan, petitioner's authorized representative 15 Waiver of Statute of Limitation executed on

April

14, 2003 by Rene S. Ong, SVP-

Comptroller

17 Memorandum for CIR re: Recommendation for Final Assessment Notice dated June 16, 2003 by Nelson Boongaling & Rufo B. Ranario(

Union Cement Corporation v. CIR

18 Memorandum for CIR re: Recommendation for the issuance of FDD Signed by R. Ranario et. al.

19 Supplemental Judicial Affidavit of Rufo B. Ranario dated July 5, 2010

19-A

Signature of Rufo B. Ranario Petitioner submitted its Memorandum on June 27, 2011 ; while respondent filed her Memorandum (for Respondent) on July 7, 2011. On July 8, 2011 , the instant case was deemed submitted for decision.

The parties submitted the following issues for this Court's disposition: "1 . Whether or not petitioner underdeclared its salaries and wages in the amount of P2,104,146.51 per Alpha list vis-a-vis Financial Statement.

1.1 Whether or not the alleged 'underdeclared salaries and wages' amounting to P2, 104,146.51 actually represent salaries and wages paid to petitioner's delivery drivers. 1.2 Whether or not petitioner actually charged the above salaries and wages as part of its direct costs. 1.3 Whether or not petitioner's alleged failure to declare the above- stated amount as part of its deductible expenses resulted to an underdeclaration of its net taxable income, and consequently, to lower income tax liability.

2. Whether or not the deficiency assessment ansmg from the findings of discrepancy as a result of the reconciliation of petitioner's sales in the amount of P48,536,479.05 per ledger as against its financial statement is proper._,

Union Cement Corporation v. CIR

2.1 Whether or not the alleged 'underdeclared sales' amounting to P48,536,479.05 actually represent freight or hauling charges which petitioner paid on behalf of its customers.

2.2 Whether or not the freight and hauling charges should be considered part of petitioner's gross sales. 2.3 Assuming that the freight and hauling charges should be considered part of petitioner's gross sales, whether or not petitioner is entitled to deduct therefrom the amount disbursed by petitioner to the cement haulers corresponding to the latter's freight and hauling charges. 2.4 Whether or not petitioner's alleged failure to declare the above-stated amount as part of its gross sales resulted to an underdeclaration of its net taxable income, and consequently, to lower income tax liability.

3. Whether or not petitioner understated its income payment to contractors and sub-contractors in the amount of P150, 770,101 .00 3.1 Whether or not the alleged 'underdeclared income' amounting to P150,255,252.56 actually represents petitioner's income payments to various contractors for pier, stevedoring and hauling services. 3.2 Whether or not the above income payments to various contractors should be considered part of petitioner's gross income.

3.3 Assuming that the income payment to various contractors should form part of petitioner's gross income, whether or not petitioner is entitled to deduct therefrom the amount disbursed by petitioner to such contractors corresponding to the latter's pier, stevedoring and hauling services.

3.4 Whether or not petitioner's alleged failure to declare the above-stated amount as part of its gross income resulted to an underdeclaration of its net taxable~

Union Cement Corporation v. CIR income, and consequently, to lower income tax liability.

4. Whether or not the disallowance of professional fees, for under-withholding and commission expenses, for non- withholding of taxes, is proper.

4.1 Whether or not petitioner actually availed of the

Voluntary Assessment and Abatement Program (VAAP)

relative to its deficiency expanded withholding taxes (EWT) on professional fees amounting to P395,711 and commission expenses amounting to P541 ,025. 4.2 Whether or not petitioner is allowed to deduct as expenses the professional fees and commission expenses above-stated, following it availment of the V AAP relative to the said fees.

5. Whether or not the deficiency VAT Assessment as a result of the alleged understatement of sales in the amount of P59,898,980.00 from the reconciliation of sales per General ledger as against its VAT returns in the total amount of P9,741 ,812.68, is proper.

5.1 Whether or not petitioner is liable for any deficiency VAT Assessment in the total amount of P9,741 ,812.68, despite the absence of any such assessment in the Formal Letter of

Demand and Audit Result Assessment Notice Number

LTDO 122 IT-1999-0000, dated June 16, 2003.

6. Whether or not the assessment was issued within the prescriptive period.

6.1 Whether or not the Waiver of the Defense of Prescription complies with the requisites of a valid waiver under Revenue Delegation Authority (RDAO) No. 05-01 .

6.2 Whether or not petitioner can assail the validity of the waiver of the Defense of Prescription for the first time on appeal.'(

Union Cement Corporation v. CIR

Based on the foregoing stipulated issues, the basic question that arises is whether the assessment was issued within the prescriptive period.

Section 203 of the National Internal Revenue Code (NIRC) of 1997, as amended, provides for the period within which assessment can be validly made, to wit:

"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."

Section 222(b) of the NIRC of 1997 provides however that the three-year prescriptive period may be extended upon agreement in writing by both the Commissioner of Internal Revenue and the taxpayer. Section 222(b) states as follows:

"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(

Union Cement Corporation v. CIR 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." In the instant case, while there appears to be a Waiver of the Statute of Limitations 3 executed by petitioner which may extend the prescriptive period provided under Section 203 of the NIRC of 1997, as amended, petitioner claims that the said waiver is defective.

Respondent

maintains that petitioner is now barred from questioning the validity of the said waiver considering that the same is being raised for the first time on appeal. One of the cases invoked by respondent is the case of Salvador A. Fernandez vs. Cristina D. Amagna, 4 wherein the Supreme Court held that: "Points of law, theories, issues and arguments not brought to the attention of the lower court need not be, and ordinarily will not be, considered by a reviewing court, as these cannot be raised for the first time on appeal. Basic considerations of fair play, justice and due process underlie the rule.

It would be unfair to the adverse party who would have no opportunity to present evidence in contra to the new theory, which it could have done had it been aware of it at the time of the hearing before the trial court." (Emphasis supplied) This Court cannot subscribe to respondent's assertion.(

3 Exhibit "D"

4 G.R. No. 152614, September 30, 2009, citing the case of Ulep vs. Court of Appeals, G. R. No. 125254, October 11, 2005

Union Cement Corporation v. CIR

In the case of Boston Bank of the Philippines, (formerly Bank of Commerce) vs. Perla P. Manalo and Carlos Manalo, Jr. ,5 the Supreme Court held that the Court may consider an issue not raised during the trial when there is plain error. Although a factual issue was not raised in the trial court, such issue may still be considered and resolved by the Court in the interest of substantial justice, if it finds that to do so is necessary to arrive at a just decision, or when an issue is closely related to an issue raised in the trial court and the Court of Appeals and is necessary for a just and complete resolution of the case. When the trial court decides a case in favor of a party on certain grounds, the Court may base its decision upon some other points, which the trial court or appellate court ignored or erroneously decided in favor of a party. Likewise, in the case of Robert Dina vs. Maria Luisa Judai-Loot et a!., 6 it was held that the Court is clothed with ample authority to entertain issues or matters not raised in the lower courts in the interest of(

Union Cement Corporation v. CIR substantial justice 7, further citing the case of Casa F!lipina Realty Corporation vs. Office of the President, et al. 8, which said: "[T]he trend in modern-day procedure is to accord the courts broad discretionary power such that the appellate court may consider matters bearing on the issues submitted for resolution which the parties failed to raise or which the lower court ignored. Since rules of procedure are mere tools designed to facilitate the attainment of justice, their strict and rigid application which would result in technicalities that tend to frustrate rather than promote substantial justice, must always be avoided. Technicality should not be allowed to stand in the way of equitably and completely resolving the rights and obligations of the parties." (Emphasis supplied) Consequently, the principle relied upon by respondent is not without exception.

It must be emphasized that Section 8 of Republic Act No. 1125 (An Act Creating the Court of Tax Appeals) provides categorically that the Court of Tax Appeals shall be a court of record and as such it is required to conduct a formal trial (trial de novo) where the parties must present their evidence accordingly if they desire the Court to take such evidence into consideration.;[

Union Cement Corporation v. CIR

Clearly, respondent had the opportunity to present evidence to contradict petitioner's assertion and to prove that the waiver was validly executed. Besides, the validity issue of the waiver was included in the parties' Joint Stipulation of Facts and Issues. In other words, respondent will not be prejudiced if this Court will address and determine the validity of the subject waiver.

Thus, this Court may resolve the issue of prescription even if the same was not raised in the administrative protest filed by petitioner.

The next question is whether the subject waiver complied with the requisites provided under Revenue Memorandum Order (RMO) No. 20-90. The pertinent portions of the said RMO read: "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 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[

Union Cement Corporation v. CIR

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.

7. In the National Office

XXX

3. Commissioner B.

In the Regional Offices

XXX

XXX

For tax cases involving more than P1 M 8.

The Revenue District Officer with respect to tax cases still pending investigation and the period to assess is about to prescribe regardless of amount.{.

Union Cement Corporation v. CIR

9.

The Regional Director, the Assistant Regional Director, the Chief, Assessment Branch or the Chief, Legal Branch with respect to cases still pending review and the period to assess/collect is about to prescribe, regardless of amount. 3.

The Regional Director, the Assistant Regional Director, the Chief, Collection Branch or the Chief, Legal Branch with respect to cases still pending collection and the period to assess/collect is about to prescribe regardless of amount.

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." (Emphasis supplied) In relation thereto, Revenue Delegation Authority Order (RDAO) No. 05-01 further provides:

"REVENUE DELEGATION AUTHORITY ORDER NO. 05-01

XXX

XXX

XXX

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:

10. For National Office cases (

Union Cement Corporation v. CIR

Designated Revenue Official

XXX

2. ACIR, Large

Taxpayers Service

XXX

XXX

XXX

XXX

For large taxpayers cases other than those cases falling under Subsection B hereof

XXX

B.

For cases in the Large Taxpayers District Office

(LTDO)

The Chief of the L TOO shall sign and accept the waiver for cases pending investigation/action in his possession.

C.

For Regional cases

Designated Revenue Official

1. Revenue

District Officer

2. Regional

Director

Cases pending investigation/ verification/reinvestigation in

the Revenue District Offices

Cases pending in the Divisions in the Regional Office, including cases pending approval by the Regional

Director"

(Emphasis supplied) Considering the requisites provided under the afore-quoted BIR issuances, there are infirmities in the execution of the subject waiver, which are as follows:

1. The waiver was signed by Ms. Flor Mercado for then Assistant Commissioner of the BIR Large Taxpayers Service, Atty. Edwin R. Abella;.(

Union Cement Corporation v. CIR

2. The original copy of the waiver does not indicate the fact of receipt by the taxpayer of his/her file copy of the waiver; and

3. The subject waiver failed to indicate the specific kind of tax and the amount of tax due.

As to the authority of Ms. Flor Mercado to sign the subject waiver, a perusal of the records of the instant case would show that respondent failed to present documentary evidence to support her claim that Ms. Mercado, under the circumstances, was authorized to sign the waiver. Even assuming, arguendo, that Ms. Flor Mercado had the authority to sign the subject waiver, there are other infirmities on the said waiver, particularly, the lack of date of receipt by petitioner of its copy of the approved waiver and failure to state the specific kind of tax and the amount of tax due.

Paragraph 4 of RMO No. 20-90 specifically provides that 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. It is further provided that the fact<

Union Cement Corporation v. CIR of receipt by the taxpayer of his/her file copy must be indicated in the original copy. 10 In the instant case, there is nothing in the waiver submitted to this Court which would show that petitioner was furnished with a copy of the approved and accepted waiver. This is admitted by respondent's witness during the hearing held on August 2, 2010, the significant portions of which state:

"ATTY. IBAZETA Okay.

Q

So, this is for taxable year 1999. You stated that petitioner gave you a Waiver of the Statute of Limitations for the year 1999, covering this period, which you marked as Exhibit '15' MR. RANARIO

A

Yes.

XXX

XXX

XXX

ATTY. IBAZETA Okay.

Q

But, is it not true that this document has no receiving stamp of the taxpayer?

MR. RANARIO

A

It has no receiving stamp but the fact that you are ...

(Interrupted)(

Union Cement Corporation v. CIR

ATTY. IBAZETA

Thank you, Mr. Witness. That's fine, please. So, the answer is, 'No, there is no receiving stamp.'

Q

And in fact there is no, unlike the other documents, there is no sign received by any member of petitioner? There is none, correct?

MR. RANARIO

A

There is no record that it was received." 11 (Emphasis supplied) Suffice it to say that there is compliance with the provision of RMO No. 20-90 only if the taxpayer received a copy of the waiver accepted by the BIR.

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 of the acceptance by the BIR and the perfection of the agreement. 12 Moreover, the absence of proof that the taxpayer was furnished a copy of the approved and accepted waiver cannot be remedied by the fact that at the time of the Court proceedings, the taxpayer was able to bring before the Court its own copy of the waiver. 13 There being no indication~~

Union Cement Corporation v. CIR the subject waiver that the same was received by petitioner, the said waiver shall be considered defective. Further, the waiver failed to state the specific kind of tax and the amount of tax due.

In the cases entitled Scandinavian Motors Corporation vs. The Commissioner of Internal Revenue 14 and Dole Philippines Inc. vs.

Commissioner of Internal Revenue 15, this Court explained the reason for the requirement that a waiver must specify the type of tax and the amount of tax due, thus:

"The purpose of stating the specific kind of tax and the amount of tax due is for the petitioner to pinpoint which among the proposed tax assessments may subsequently be issued without the petitioner invoking the defense of prescription (Pfizer, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 6135, April 21, 2003). If the amount and kind of tax were not indicated in the said waiver, logically, there was no agreement to speak of (Solid Cement Corporation vs. Liwayway Vinzons-Chato, in her capacity as the Commissioner of Internal Revenue, CTA Case No. 5420, May 27, 1999). It should be emphasized that RMO No. 20-90 requires specific information. Hence, to substitute the same with general statements is a departure from RMO No. 20-90." As regards respondent's averment that petitioner is already estopped from questioning the validity of the subject waiver, it is worthy to( 14 CT A Case No. 7269, March 26, 2008

Union Cement Corporation v. CIR emphasize that the doctrine of estoppel cannot be applied in the instant 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. The doctrine of estoppel is predicated on, and has its origin in, equity which, broadly defined, is justice according to natural law and right. Hence, the doctrine of estoppel cannot give validity to an act that is prohibited by law or one that is against public policy. 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.

Simply put, the doctrine of estoppel must be sparingly applied. 16 Moreover, the BIR cannot hide behind the doctrine of estoppel to cover its failure to comply with RMO No. 20-90 and RDAO No. 05-01 , which the BIR itself issued.

Having caused the defects in the waiver, the BIR must bear the consequence. It cannot shift the blame to the taxpayer.(

Union Cement Corporation v. CIR

Needless to say, 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 and must therefore be carefully and strictly construed. The waiver of the statute of limitations 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. The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal.

For the purpose of safeguarding taxpayers from any unreasonable examination, investigation or assessment, our tax law provides a statute of limitations in the collection of taxes. Thus, the law on prescription, being a remedial measure, should be liberally construed in order to afford such protection. Corollarily, the exceptions to the law on prescription should perforce be strictly construed. 17 Considering all the defects in the subject waiver of the statute of limitation, the three-year prescriptive period was not tolled or extended.l

Union Cement Corporation v. CIR

Pursuant to the afore-cited Section 203 of the NIRC of 1997, the three-year period to assess commences from the date of actual filing of the return or from the last date prescribed by law for the filing of such return, whichever comes later. In the case of petitioner's income tax, the return is required to be filed and the payment must be made on or before the fifteenth (151h) day of April following the close of the taxable year 1999. 18 In other words, if the return was filed earlier than the last day allowed by law, the period to assess shall still be counted from the last day prescribed for filing of the return. However, if the return was filed beyond the period prescribed by law, the three-year period shall be counted from the day the return was filed. Thus, counting from April 17, 2000, the date when petitioner filed its Annual Income Tax Return for the taxable year 199919, respondent had until April 17, 2003 within which to assess petitioner for deficiency income tax for the period covering June 1 to December 31 of the taxable year 1999. However, the Formal Letter of Demand and Assessment Notice No. L TOO 122 IT -1999-0000 dated June< 18 1n accordance with Section 77(B) of the NIRC of 1997, as amended

Union Cement Corporation v. CIR

16, 2003 was received by petitioner on June 30, 2003.20 Evidently, the assessment was made beyond the 3-year prescriptive period provided by law and thus, is considered void.

Since the assessment subject of the instant Petition for Review is now deemed null and void for having been issued beyond the prescriptive period, the resolution of the remaining stipulated issues is now considered moot.

WHEREFORE, premises considered, the instant Petition for Review is hereby GRANTED. Accordingly, Assessment Notice No. L TOO 122 IT- 1999-0000 covering deficiency 1ncome tax in the amount of P97,698, 105.26 for the taxable period June 1, 1999 to December 31, 1999 is hereby CANCELLED and SET ASIDE.

WE CONCUR:

~~C - ~~~­

JlfANITO C. CASTANEDA, JR.

Associate Justice

l\ oJ:t N. Ma...~-G~ CiEUTO N. MINDARO-GRULLA

Associate Justice

__@_ CAESAR A. CASANOVA

Associate Justice

2o Exhibits "E" and "2"; Par. 6, Facts, JSFI, Docket, p. 105

Union Cement Corporation v. CIR

ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division.

~;4 C.(l;T-~).9r I JUANITO C. CASTANEDK, JR.

Associate Justice

Chairperson

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairperson's Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. Q.___ C}......-- 'v.

ERNESTO D. ACOSTA

Presiding Justice