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COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. ARTURO E. VILLANUEVA, JR., RESPONDENT.
FACTS
For taxable year 2006, respondent Arturo E. Villanueva, Jr., engaged in hauling services, filed his Annual Income Tax Return and Quarterly VAT Returns. On July 11, 2008, he received a Letter Notice, followed by subsequent communications including a Letter of Authority on June 15, 2009. In 2011, he received a 1st Call-up and a Final Notice Before Seizure for deficiency income tax and VAT. Respondent sought clarification and reinvestigation. On October 29, 2012, he received a Collection Notice, and his request for its revocation was denied. After his request for reconsideration was denied on October 31, 2014, he filed a Petition for Review with the Court of Tax Appeals (CTA) First Division on November 25, 2014. During pre-trial, it was admitted that the Final Assessment Notice (FAN) was issued only in 2011 and that no Waiver of the Statute of Limitations was executed for 2006. The CIR argued the prescriptive period was ten years due to alleged substantial under-declaration/fraud. The CTA Division, after trial, found the CIR established proper issuance and service of the Preliminary Assessment Notice (PAN) and FAN via registered mail. However, it cancelled the assessments, ruling the CIR failed to clearly establish substantial under-declaration or fraud; thus, the three-year prescriptive period under Section 203 of the National Internal Revenue Code (NIRC) applied and had lapsed when the FAN was issued in 2011. The CTA En Banc affirmed, noting the CIR’s registry receipts were unauthenticated and no other evidence proved actual receipt. It also upheld the finding that the CIR failed to establish a false or fraudulent return to warrant the ten-year prescriptive period.
ISSUE
1. Whether the PAN and FAN were validly served upon respondent.
2. Whether the BIR’s right to assess respondent for deficiency taxes for taxable year 2006 has already prescribed.
RULING
The Petition is denied. The Supreme Court affirmed the CTA En Banc’s decision.
1. On the issue of service, the Court upheld the CTA’s finding that the CIR failed to prove proper service and receipt of the assessment notices. The mere presentation of unauthenticated registry receipts, without other evidence of actual receipt by the respondent or his authorized representative, is insufficient.
2. On the issue of prescription, the Court ruled the three-year prescriptive period under Section 203 of the NIRC applies. The ten-year period under Section 222(a) applies only when a false or fraudulent return is filed with intent to evade tax, or there is a failure to file a return. The CIR’s argument of substantial under-declaration (based on an alleged unreported gross income) to invoke fraud and the ten-year period was rejected. The Court found the CIR failed to present clear and convincing evidence of respondent’s fraudulent intent to evade tax. The mere under-declaration, without proof of fraudulent intent, does not constitute a false return under Section 222(a). Since the last day for filing the 2006 return was April 15, 2007, the three-year period to assess ended on April 15, 2010. The FAN issued in January 2011 was therefore issued beyond the prescriptive period. Consequently, the right to assess had prescribed.
