G.R. No. 197590 November 24, 2014
BUREAU OF INTERNAL REVENUE, as represented by the COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. COURT OF APPEALS, SPOUSES ANTONIO VILLAN MANLY, and RUBY ONG MANLY, Respondents.

FACTS

Respondent Antonio Villan Manly is a stockholder and Executive Vice-President of Standard Realty Corporation and is engaged in the rental business. His spouse, Ruby Ong Manly, is a housewife. The Bureau of Internal Revenue (BIR) issued a Letter of Authority to investigate the spouses’ tax liabilities for 2003 and prior years. The BIR required the spouses to submit documents to substantiate their cash purchase of a log cabin in Tagaytay City worth ₱17,511,010.00, but they failed to comply. Revenue officers executed a Joint Affidavit alleging that Antonio’s declared annual income from 1998-2003 totaled ₱2,104,571.58, yet the spouses purchased in cash a vacation house (₱17,511,010.00 in 2000), a Toyota RAV4 (₱1,350,000.00 in 2001), and a Toyota Prado (₱2,000,000.00 in 2003). The BIR concluded that the spouses underdeclared their income in their Income Tax Returns for 2000, 2001, and 2003, and since the underdeclaration exceeded 30%, it constituted prima facie evidence of fraud. The revenue officers recommended filing criminal cases for violations of Sections 254 (Attempt to Evade or Defeat Tax) and 255 (Failure to Supply Correct and Accurate Information) of the National Internal Revenue Code. The State Prosecutor recommended the filing of charges. However, the Acting Secretary of Justice reversed this, finding no willful failure to pay or attempt to evade tax, noting the BIR’s failure to specify the exact tax due and the likely source of income, and the lack of a deficiency tax assessment. The Court of Appeals dismissed the BIR’s Petition for Certiorari, agreeing that there was no probable cause as the BIR failed to state the exact tax liability and show sufficient proof of the likely source of income, though it clarified that an assessment is not a prerequisite for a criminal tax evasion case.

ISSUE

Whether the Court of Appeals committed grave abuse of discretion in affirming the dismissal of the criminal cases for tax evasion against the respondent spouses.

RULING

Yes. The Supreme Court granted the Petition, finding the Court of Appeals committed grave abuse of discretion. The Court held that in tax evasion cases, a precise computation of the tax due is not a prerequisite for prosecution. The crime is complete upon the willful filing of a fraudulent return with intent to evade tax. The BIR properly used the expenditure method to reconstruct income, which showed a gross disproportion between the spouses’ declared income and their cash expenditures, establishing prima facie evidence of fraud under the NIRC. The BIR sufficiently indicated the likely source of the undeclared income—Antonio’s rental business—based on the investigation. The requirement for a “likely source” does not demand absolute certainty but only a reasonable indication. The spouses’ defense of using lifetime savings was properly considered but did not negate the existence of probable cause for indictment. The absence of a formal deficiency assessment does not preclude the filing of a criminal complaint for tax evasion. Probable cause for the crimes charged existed based on the facts presented. The case was remanded to the Department of Justice for the filing of the appropriate criminal informations.