GR 193100; (December, 2014) (Digest)
G.R. No. 193100 , December 10, 2014
SAMAR-I ELECTRIC COOPERATIVE, Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent.
FACTS
Petitioner Samar-I Electric Cooperative, Inc. (SAMELCO-I) is an electric cooperative registered under Presidential Decree No. 269 and the Cooperative Code of the Philippines ( Republic Act No. 6938 ). The Commissioner of Internal Revenue (CIR) issued a Letter of Authority on November 13, 2000, authorizing an examination of SAMELCO-I’s books for income and withholding taxes for the years 1997 to 1999. After an audit, the CIR issued a Preliminary Assessment Notice (PAN) on February 28, 2002, followed by Final Assessment Notices (FAN) on September 15, 2002, demanding payment of deficiency withholding tax on compensation and deficiency income tax for the said years. SAMELCO-I protested the assessments. The CIR denied the protest, leading SAMELCO-I to file a petition for review with the Court of Tax Appeals (CTA). The CTA First Division partially granted the petition, holding SAMELCO-I liable only for deficiency withholding tax on compensation. Both parties sought reconsideration. The CTA First Division issued an Amended Decision, which was affirmed by the CTA En Banc. SAMELCO-I elevated the case to the Supreme Court, raising issues on prescription and due process in the issuance of the assessments.
ISSUE
1. Whether the 1997 and 1998 assessments on withholding tax on compensation were issued within the prescriptive period.
2. Whether the assessments were issued in accordance with Section 228 of the National Internal Revenue Code of 1997, requiring the taxpayer to be informed in writing of the factual and legal bases of the assessment.
RULING
1. On the prescriptive period: The Supreme Court held that the 1997 and 1998 assessments were not barred by prescription. The ordinary three-year prescriptive period for assessment under Section 203 of the NIRC was inapplicable because SAMELCO-I filed false withholding tax returns for 1997 and 1998, as it underdeclared its tax liabilities by more than 30%. Under Section 222(a) of the NIRC, a ten-year prescriptive period applies when a false return is filed. The Waiver of the Defense of Prescription executed by SAMELCO-I, which extended the period only until March 29, 2002, did not preclude the CIR from invoking the ten-year period. The assessments issued on September 15, 2002, were within the ten-year period from the filing of the returns in 1998 and 1999, respectively.
2. On due process and compliance with Section 228 of the NIRC: The Court ruled that the CIR substantially complied with the requirement to inform the taxpayer of the factual and legal bases of the assessment. Although the FAN and demand letter did not contain a detailed written explanation, the records showed that SAMELCO-I was informed of the bases through the Notice of Informal Conference, PAN, and subsequent correspondence, including the CIR’s detailed explanation in its letter dated April 10, 2003, which responded to SAMELCO-I’s protest. This enabled SAMELCO-I to file an effective protest, satisfying due process. The Court distinguished this case from Commissioner of Internal Revenue v. Enron Subic Power Corp., where the taxpayer was not informed at all of the bases.
DISPOSITIVE PORTION:
The petition was DENIED. The Decision and Resolution of the CTA En Banc dated March 11, 2010 and July 28, 2010, respectively, were AFFIRMED. SAMELCO-I was ordered to pay the deficiency withholding tax on compensation, plus interest.