G.R. No. 226167 - Marzan vs. People

On June 7, 1999, Aquafresh Seafoods, Inc. (respondent) sold two parcels of land with improvements, covered by Transfer Certificate of Titles Nos. T-21799 and T-21804, located at Barrio Banica, Roxas City, to Philips Seafoods, Inc. for Php 3,100,000.00.
Respondent subsequently filed a Capital Gains Tax Return/Application for Certification Authorizing Registration and remitted Php186,000.00 as CGT and Php46,500.00 as Documentary Stamp Tax (DST).

A report reached the Bureau of Internal Revenue (BIR) that the properties might have been undervalued for taxation purposes.
The Special Investigation Division (SID) of the BIR conducted an occular inspection and determined that the properties were commercial in nature with a zonal value of Php2,000.00 per square meter.

On September 15, 2000, Regional Director Leonardo Q. Sacamos of Revenue Region Iloilo City issued assessment notices to inform respondent of CGT and DST deficiencies amounting to Php1,372,171.46 and Php356,267.62 respectively, basing his assessment on the SID’s finding.
Respondent protested the assessments by sending a letter on October 1, 2000; however, the protest was denied by Director Sacamos on December 1, 2000 due to a lack of legal basis.
Subsequent appeals by respondent were denied with finality on February 13, 2002.

Respondent elevated the issue by filing a petition for review before the Court of Tax Appeals (CTA) on March 19, 2002, seeking reversal of the denial of its protest.
The respondent’s main thrust was that the properties, being located in Barrio Banica, Roxas City, should retain the pre-defined zonal value of Php650.00 per square meter provided in the 1995 Revised Zonal Values of Real Properties, since the properties were classified as “RR” (residential) rather than commercial.

On December 22, 2004, the CTA First Division ruled in favor of the respondent by cancelling the deficiency assessments for both CGT and DST, holding that the existing Revised Zonal Values should prevail.
The CTA emphasized that the Commissioner’s authority to set zonal values under Section 6(E) of the NIRC must be exercised in consultation with competent appraisers from both public and private sectors, and in the absence of a formal revaluation, the pre-existing zonal values remain binding.
The petitioner (Commissioner of Internal Revenue) filed a Motion for Reconsideration, which was denied in a Resolution dated April 4, 2005, and its subsequent appeal to the CTA En Banc was dismissed on November 9, 2005.

The dispute centers on whether the Commissioner's act of unilaterally re-classifying the properties from residential to commercial for tax assessment purposes is legally permissible without following the proper revaluation procedures.
The case involves detailed questions on the application of Section 6(E) of the NIRC, the prescribed guidelines for zonal valuation, and the scope of the Commissioner’s powers under Revenue Memorandum No. 58-69 and the Zonal Valuation Guidelines.

Whether the requirement of consultation with competent appraisers from both the private and public sectors in determining the fair market value of the subject lots is applicable in the case.
Whether the Court of Tax Appeals En Banc committed grave error in applying a fair market value based on the zonal valuation of a residential land classification as the tax base in the computation of the Capital Gains Tax and Documentary Stamp Tax deficiencies against the respondent.