G.R. No. 222133, November 04, 2020
AFP GENERAL INSURANCE CORPORATION, PETITIONER, VS. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

FACTS

The Commissioner of Internal Revenue (CIR) issued a Letter of Authority (LOA) to examine AFP General Insurance Corporation’s (AGIC) books for taxable year 2006. Following an audit, the CIR issued deficiency tax assessments for income tax, documentary stamp tax (DST) on increased capital stock, value-added tax (VAT), late remittance of DST on insurance policies, and expanded withholding tax. AGIC protested and, due to alleged inaction, filed a petition with the Court of Tax Appeals (CTA). The CTA Division partially granted AGIC’s petition, cancelling some assessments but upholding others, and modified the total liability. AGIC moved for reconsideration, primarily arguing the LOA was invalid for failure of the revenue officers to have it revalidated after 120 days as per BIR regulations.
The CTA Division, in its Amended Decision, and later the CTA En Banc, rejected AGIC’s argument on LOA validity. The CTA En Banc modified the Division’s decision, reinstating the assessment for deficiency VAT. It ruled the three-year prescriptive period for assessment did not apply because AGIC’s failure to register its general ledger constituted a fraudulent return, warranting a ten-year prescriptive period. AGIC elevated the case to the Supreme Court via a Petition for Review on Certiorari.

ISSUE

The core issues were: (1) whether the LOA was invalid due to non-revalidation after 120 days; and (2) whether the assessment for deficiency VAT had prescribed.

RULING

The Supreme Court denied the petition and affirmed the CTA En Banc’s Decision. On the first issue, the Court held that the failure to revalidate an LOA within 120 days does not automatically invalidate the assessment proceedings. Citing precedent, the Court ruled such a lapse is a procedural infirmity that may subject the erring revenue officers to administrative discipline, but it does not render the LOA void or deprive the BIR of its authority to assess taxes. The validity of an assessment rests on whether it is based on actual findings from an authorized audit, not solely on strict compliance with internal revalidation rules.
On the second issue, the Court upheld the finding that the prescriptive period for assessing deficiency VAT was ten years, not three. The Court agreed with the CTA En Banc that AGIC committed fraud by maintaining an unregistered general ledger, which contained entries different from its audited financial statements submitted to the BIR. This act of concealing records from the tax authorities constituted a fraudulent return with intent to evade tax. Under the National Internal Revenue Code, the prescriptive period for assessment in cases of a fraudulent return or failure to file a return is ten years from the discovery of the fraud. The CIR’s assessment was issued within this extended period. Consequently, the reinstated VAT assessment was valid.