Case Summary (G.R. No. 221590)
Key Dates
December 16, 2010 – Notice of Informal Conference issued
January 10, 2011 – Preliminary Assessment Notice (PAN) for P413,378,058.11
August 26, 2011 – Formal Assessment Notice (FAN) for P95,681,988.64
October 16, 2012 – Final Decision on Disputed Assessment (FDDA) for P106,761,025.17
April 2, 2014 – CTA Third Division decision
July 30, 2015 – CTA En Banc decision
November 6, 2015 – CTA En Banc resolution denying reconsideration
February 22, 2017 – Supreme Court decision
Applicable Law
1987 Philippine Constitution (post-1990 decisions)
National Internal Revenue Code (1997), as amended:
• Section 203 – three-year prescriptive period for assessment
• Section 222(A) – ten-year prescriptive period for false, fraudulent or omitted returns
• Section 228 – requirements for assessment notices and taxpayer protest
• Section 248(B) – presumption of false returns upon substantial underdeclaration (>30%)
Factual Background
Asalus filed its December 29, 2010 reply to the informal conference, disputing the audit. The CIR issued a PAN on January 10, 2011 alleging deficiency VAT. After Asalus’ protest was denied, the CIR issued the FAN on August 26, 2011 and the FDDA on October 16, 2012. Asalus protested prescription under Section 203. The CIR denied the protest, prompting a CTA petition.
CTA Third Division Ruling
The Third Division held that neither the FAN nor the FDDA alleged false returns to invoke the ten-year period under Section 222(A). Absent clear and convincing proof of falsity or fraud, the ordinary three-year prescriptive period applied. The deficiency assessment was deemed prescribed and cancelled.
CTA En Banc Ruling
The CTA En Banc affirmed the Third Division. It found no evidence presented at trial to substantiate false returns and noted that the PAN could not substitute for the FAN’s legal basis. Because the FAN and FDDA did not reiterate falsity allegations or the ten-year period, the three-year prescription governed. The CIR’s motions for reconsideration were denied.
Issues for Supreme Court Review
- Whether the FAN and FDDA sufficiently apprised Asalus that Section 222(A)’s ten-year prescriptive period applied.
- Whether Asalus’ omission of membership fees constituted a “false” return under Section 222(A).
- Whether the CIR’s right to assess had prescribed under Section 203.
Petitioner’s Arguments
• The ten-year period under Section 222(A) applied because the PAN clearly stated it and was incorporated by reference in subsequent notices.
• A prima facie presumption of falsity existed under Section 248(B) due to over 30% underdeclaration of sales.
• Asalus’ own witness admitted unreported membership fees, evidencing a false return.
Respondent’s Arguments
• The CTA findings of fact are binding; the CIR failed to prove falsity by clear and convincing evidence.
• Neither the FAN nor the FDDA explicitly invoked Section 222(A), so the ordinary three-year period under Section 203 applied.
• The petition raises questions of fact not subject to Rule 45 certiorari review.
Supreme Court Analysis
- Prescriptive Periods – Section 203 provides a three-year general period; Section 222(A) extends it to ten years for false returns, irrespective of fraudulent intent.
- Presumption of False Return – Under Section 248(
Case Syllabus (G.R. No. 221590)
Antecedents
- On December 16, 2010, Asalus Corporation received a Notice of Informal Conference from RDO No. 47 regarding its 2007 VAT transactions.
- Asalus submitted a Letter-Reply on December 29, 2010, questioning the basis of Revenue Officer BaAares’s VAT computation.
- On January 10, 2011, the CIR issued a Preliminary Assessment Notice (PAN) finding a deficiency VAT of ₱413,378,058.11 (inclusive of surcharge and interest). Asalus protested but was denied.
- On August 26, 2011, a Formal Assessment Notice (FAN) assessed ₱95,681,988.64 (inclusive of surcharge and interest). Asalus protested on September 6, 2011, and filed a supplemental protest invoking prescription under Section 203 of the NIRC.
- On October 16, 2012, the Final Decision on Disputed Assessment (FDDA) showed a deficiency VAT of ₱106,761,025.17 plus a ₱25,000 compromise penalty. Asalus then filed a petition for review with the CTA Third Division.
CTA Division Ruling
- The CTA Third Division (April 2, 2014) held the FAN to have prescribed under the three-year period of Section 203, rendering the assessment invalid.
- It found no allegation or proof of false or fraudulent return in the FAN or FDDA to trigger the ten-year period under Section 222.
- The Division emphasized the need for clear and convincing evidence of falsity before applying the ten-year prescriptive period.
- Disposition: Grant of Asalus’s petition; cancellation and withdrawal of deficiency VAT assessment and compromise penalty on grounds of prescription.
CTA En Banc Ruling
- The CTA En Banc (July 30, 2015) affirmed the Division’s decision and denied the CIR’s petition for review.
- It reiterated that neither FAN nor FDDA referred to a false return or ten-year prescription.
- It stressed that the PAN alone could not sustain an assessment and that the CIR failed to present evidence or file a memorandum proving falsity.
- Disposition: Petition denied and dismissed for lack of merit; subsequent motio