G.R. No. 170389; October 20, 2010
COMMISSION OF INTERNAL REVENUE, Petitioner, vs. AQUAFRESH SEAFOODS, INC., Respondent.

FACTS

Respondent Aquafresh Seafoods, Inc. sold two parcels of land in Barrio Banica, Roxas City, in 1999. It filed a Capital Gains Tax Return and paid taxes based on a consideration of Php 3,100,000.00, and the BIR issued a Certificate Authorizing Registration. Subsequently, the BIR’s Special Investigation Division, after an ocular inspection, concluded the properties were commercial with a zonal value of Php 2,000 per square meter. This led the Regional Director to issue deficiency assessments for Capital Gains Tax and Documentary Stamp Tax, totaling over Php 1.7 million, based on this higher commercial valuation.
Aquafresh protested, asserting the properties were residential and located in Barrio Banica, where the officially prevailing “Revised Zonal Values of Real Properties in the City of Roxas” (1995) prescribed a zonal value of Php 650 per square meter for residential lots. It argued the BIR had no authority to unilaterally reclassify the properties and impose a new zonal value without a formal revision of the existing zonal valuation schedule.

ISSUE

Whether the BIR correctly assessed deficiency taxes based on a unilateral reclassification and valuation of the properties as commercial, or whether the officially prescribed 1995 zonal values for the locality must control.

RULING

The Supreme Court denied the CIR’s petition and affirmed the Court of Tax Appeals. The legal logic centers on the statutory limits of the Commissioner’s power to determine fair market value for tax purposes under Section 6(E) of the National Internal Revenue Code (NIRC). This provision requires the Commissioner to consult with competent appraisers from both the public and private sectors when determining zonal values. The Court held that the existing 1995 Revised Zonal Values, which classified Barrio Banica as residential with a set value, constituted the legally operative valuation at the time of the sale. The BIR failed to prove any duly enacted revision or amendment to this schedule following the required consultative process. The unilateral action of a revenue officer, based on a field inspection, could not override the formally established zonal values. Furthermore, under applicable BIR guidelines, the “predominant use” of properties in the zone governs for valuation, not the actual use of a specific parcel. Since Barrio Banica was zoned as residential, the properties were correctly valued as such. Therefore, the deficiency assessments, based on an unauthorized commercial valuation, were correctly canceled.