SC upholds tax court decision rejecting BIR case vs Inquirer

Supreme Court facade (Photo from Philippine Daily Inquirer)

The Supreme Court has affirmed the decision of the Court of Tax Appeals (CTA) in canceling the demand letter and assessment issued by the Bureau of Internal Revenue (BIR) against the Philippine Daily Inquirer (PDI).

In a 24-page decision written by Senior Associate Justice Antonio Carpio, the high court’s second division affirmed the findings of the CTA that the period to assess or collect taxes and the assessments was void because it has been issued beyond the three-year prescriptive period.

The case stemmed from an Aug. 10, 2006 letter from the BIR’s Large Taxpayers’ Service stating that PDI underdeclared P317,705,610.52 in its VAT returns for taxable year 2004. BIR said PDI was liable to pay P3,154,775.56 and P1,524,299.99 representing deficiency VAT and income tax for taxable year 2004.

PDI filed a protest and took the case to the CTA after the BIR failed to act within the 180-day period set under the National Internal Revenue Code (NIRC).

PDI insisted that the period to assess and collect taxes has lapsed because it was issued beyond the three-year period set under the law.

BIR, however, said what was applicable was Section 222 of the NIRC, which provides for an exception to the three-year period rule where it involves false or fraudulent income tax return. BIR insisted that PDI submitted a false return.

The CTA first division said PDI was able to present proof that the BIR’s computation was not correct and the BIR “failed to disprove the findings submitted by the Independent Certified Public Accountant (ICPA) that supported PDI’s assertions.

Even without the false or fraudulent declaration of returns, the exception could still be applied if there was a waiver. In this case, however, the CTA ruled that while there were waivers issued, only two of the three have managed to comply with the law. The third waiver signed by both PDI and BIR remained attached to the docket case and received by a revenue officer without authority.

“Due to the defects in the waivers, the three-year period within which to assess PDI was not extended,” the CTA first division said, the ruling of which was affirmed by its en banc.

The BIR then took the case to the Supreme Court who took note of the CTA’s expertise with regards to dealing with tax-related cases.

It also noted the CTA’s findings on the defects of the waiver.

Concurring with Justice Carpio were Associate Justices Diosdado M. Peralta, Jose Catral Mendoza, Marvic V.F. Leonen and Samuel Martires.