Title
Asian Transmission Corp. vs. Commissioner of Internal Revenue
Case
G.R. No. 230861
Decision Date
Feb 14, 2022
ATC executed defective tax waivers, benefiting from extended BIR assessment periods, then challenged their validity; SC ruled estoppel applied, upholding tax liability.
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Case Digest (G.R. No. 230861)

Facts:

Background of the Case

Asian Transmission Corporation (ATC) was audited by the Bureau of Internal Revenue (BIR) for taxable year 2002 based on a Letter of Authority (LOA) dated August 9, 2004. The audit covered ATC's Annual Information Returns filed in 2003. The Commissioner of Internal Revenue's (CIR) right to assess taxes for 2002 was set to prescribe in the first quarter of 2006.

Waivers of the Defense of Prescription

ATC executed eight successive Waivers of the Defense of Prescription under the Statute of Limitations (Waivers) from 2004 to 2008, extending the BIR's investigation and assessment period until December 31, 2008. These Waivers allowed the CIR to issue a Formal Letter of Demand (FLD) on July 15, 2008, assessing ATC for deficiency withholding taxes.

ATC's Administrative Protest

ATC protested the FLD, arguing that the BIR violated its right to due process by failing to provide sufficient details in the Preliminary Assessment Notice (PAN) and that the FLD's computations were erroneous. The CIR denied ATC's protest and subsequent request for reconsideration.

Judicial Protest and CTA Proceedings

ATC filed a judicial protest before the Court of Tax Appeals (CTA), raising new arguments: (1) the LOA was invalid due to lack of revalidation, and (2) the first three Waivers were defective and did not validly extend the assessment period. The CTA Second Division ruled in favor of ATC, canceling the assessments due to prescription. However, the CTA En Banc reversed this decision, reinstating the assessments and remanding the case for further proceedings.

Supreme Court's Main Decision

The Supreme Court affirmed the CTA En Banc's decision, finding that both ATC and the BIR were at fault for the Waivers' defects. The Court applied the principles of in pari delicto, unclean hands, and estoppel, ruling that ATC benefited from the Waivers and was estopped from challenging their validity.

Issue:

  1. Whether the Waivers of the Defense of Prescription were valid despite defects attributable to both ATC and the BIR.
  2. Whether the principles of in pari delicto, unclean hands, and estoppel apply to prevent ATC from challenging the Waivers' validity.
  3. Whether the defects in the Waivers rendered them ineffective to extend the assessment period.

Ruling:

The Supreme Court denied ATC's Motion for Reconsideration, upholding its earlier decision. The Court ruled that:

  1. The Waivers, despite their defects, were effective because both ATC and the BIR contributed to the flaws.
  2. ATC's belated challenge to the Waivers' validity, after benefiting from them, gave rise to estoppel.
  3. The number of defects attributable to one party does not determine the Waivers' validity; instead, the taxpayer's contributory fault and estoppel principles are decisive.

Ratio:

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