G.R. No. 263794 , April 02, 2025
COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. MARILY DEVELOPMENT CORPORATION, RESPONDENT.

FACTS

The Commissioner of Internal Revenue (CIR) issued a Formal Assessment Notice (FAN) on June 8, 2011, assessing Marily Development Corporation (MDC) for various deficiency taxes for the calendar year 2006. MDC protested and, upon receiving a Preliminary Collection Letter in December 2017, filed a Petition for Review before the Court of Tax Appeals (CTA). During trial, the CIR manifested it would not present any evidence or witnesses. The CTA Division cancelled the assessment, ruling it was void due to the CIR’s failure to prove the issuance of a requisite Letter of Authority (LoA) authorizing the audit. It also held the assessment had prescribed under the ordinary three-year period.
The CIR moved for reconsideration, arguing the LoA’s validity was never raised as an issue by MDC and attaching a copy of the LoA to its motion. It also contended the ten-year prescriptive period should apply due to alleged fraud. The CTA Division denied the motion, noting the CIR had waived its right to present evidence and that the proffered LoA was not part of the records. The CTA En Banc affirmed the Division’s ruling.

ISSUE

Whether the CTA correctly cancelled the deficiency tax assessments against MDC.

RULING

Yes. The Supreme Court affirmed the CTA’s decision. On the procedural issue, the CTA possesses the authority to rule on matters not raised by the parties if essential for an orderly disposition, provided it does not require new evidence and relies solely on the record. The validity of a LoA is intrinsic to an assessment’s legality; thus, the CTA properly considered its absence even if not expressly pleaded by MDC. The CIR, having waived its right to present evidence, cannot later introduce the LoA via a motion for reconsideration, as this would violate due process and the rule that new evidence is generally inadmissible at that stage.
On the substantive issue of prescription, the burden to prove the applicability of an extended period rests on the CIR. The ordinary three-year period under Section 203 of the Tax Code applies unless the CIR proves fraud, falsity, or failure to file a return to invoke the ten-year period under Section 222. The CIR presented no evidence of fraud or that MDC failed to file its returns. Mere allegations are insufficient. Consequently, the assessment, issued beyond the three-year period from the 2006 filing deadline, had prescribed. The CIR’s failure to substantiate the basic fact of a valid LoA also negated the presumptions of regularity and correctness of the assessment.