G.R. No. 136975 ; March 31, 2005
COMMISSION OF INTERNAL REVENUE, Petitioner, vs. HANTEX TRADING CO., INC., Respondent.

FACTS

Respondent Hantex Trading Co., Inc., a corporation engaged in selling plastic products, imports synthetic resin. In 1989, the Economic Intelligence and Investigation Bureau (EIIB) received information that Hantex’s 1987 importations were underdeclared. The EIIB initiated an investigation and issued a subpoena duces tecum for Hantex’s 1987 books and records. Hantex refused to comply, citing prior Bureau of Internal Revenue (BIR) investigations. The EIIB proceeded using certified Profit and Loss Statements from the Securities and Exchange Commission and machine copies of Consumption Entries from an informer. The Bureau of Customs could not provide originals, certifying only that certain entries were filed and released.
Based on these documents, the EIIB computed a substantial deficiency in Hantex’s 1987 income and sales taxes. The BIR, upon the EIIB’s recommendation, issued a formal assessment. Hantex protested, and upon the BIR’s inaction, appealed to the Court of Tax Appeals (CTA). The CTA upheld the assessment. Hantex then appealed to the Court of Appeals (CA), which reversed the CTA, leading the CIR to elevate the case to the Supreme Court.

ISSUE

Whether the deficiency tax assessments against Hantex, based primarily on the EIIB’s investigation and the machine copies of Consumption Entries, are valid and supported by sufficient evidence.

RULING

No. The Supreme Court denied the CIR’s petition and affirmed the CA decision, ruling the assessments invalid. The legal logic rests on the foundational principle that tax assessments must be based on competent evidence. The BIR’s case relied heavily on unauthenticated machine copies of Consumption Entries supplied by an informer. These documents were not officially certified by the Bureau of Customs as true copies of the originals; the certifications from Customs officials merely confirmed that certain entry numbers were processed, not that the contents of the informer’s copies were accurate. Consequently, these machine copies were inadmissible as evidence, being mere hearsay.
Without these inadmissible documents, the remaining evidence—primarily the SEC Profit and Loss Statements—was insufficient to establish underdeclaration. The BIR failed to discharge its burden of proving the factual basis for the assessment. The Court emphasized that while tax assessments are presumed correct, this presumption arises only when grounded on sufficient factual foundation. Here, the assessment was based on incompetent evidence, rendering the presumption inoperative. The CIR’s failure to present the best evidence available, especially after Hantex’s refusal to cooperate, did not justify reliance on inadmissible substitutes. Therefore, the deficiency assessments were correctly nullified for lack of legal basis.