Case Summary (G.R. No. 227544)
Letter of Authority and Initial Examination
On April 28, 2006, TOPI received Letter of Authority No. 00098746 (dated March 23, 2006), signed by OIC-Regional Director Pangcog, authorizing Revenue Officers Santos and Visaya to examine TOPI’s books for taxable year 2004.
First and Second Waivers of Prescription
On October 9, 2007, TOPI and the BIR allegedly executed a waiver extending the prescriptive period to June 20, 2008. On June 2, 2008, they purportedly executed a second waiver extending it further to November 30, 2008. Both waivers were signed by Abad and RDO Myrna S. Leonida but lacked notarized authority for the taxpayer’s representative and showed no dates of BIR acceptance or TOPI receipt.
Issuance of PAN, FAN, and Formal Letter of Demand
On November 11, 2008, Director Santiago issued a Preliminary Assessment Notice (PAN) for deficiency taxes. TOPI filed a protest on November 26, 2008. On November 28, 2008, Director Santiago issued a Final Assessment Notice (FAN) and Formal Letter of Demand (FLD) totaling P19,701,849.68. TOPI protested the FAN on December 8, 2008, arguing prescription and a misstatement of the return period.
Final Decision on Disputed Assessment
On January 24, 2012, Regional Director Jose N. Tan promulgated the Final Decision on the Disputed Assessment, holding TOPI liable for deficiency income tax (P3,153,371.04), VAT (P1,231,393.47), expanded withholding tax (P175,339.51), and final taxes on royalty and interest (P15,141,745.66), totaling P19,701,849.68.
Petition to the Court of Tax Appeals
TOPI filed a Petition for Review on March 16, 2012, challenging the assessment as prescribed and the waivers as invalid. The CIR, in its Answer, contended that the waivers validly extended the prescriptive period and that the FAN and FLD were timely mailed despite a special holiday delay.
CTA First Division Decision
On September 1, 2014, the CTA First Division declared both waivers defective and void for non-compliance with RMO No. 20-90 and RDAO No. 05-01, and held the FAN and FLD issued beyond even the extended prescriptive period, ordering cancellation of the assessments. Its November 7, 2014 Resolution denied the CIR’s motion for reconsideration.
CTA En Banc Affirmation
On June 7, 2016, the CTA En Banc affirmed the First Division’s decision and, on September 26, 2016, denied the CIR’s motion for reconsideration. A concurring opinion invoked estoppel against TOPI for not challenging the waivers at the earliest opportunity.
Issues for Supreme Court Resolution
- Were the October 9, 2007 and June 2, 2008 waivers valid under NIRC Sections 203 and 222 and applicable BIR rules?
- Had the assessment of TOPI’s 2004 deficiency taxes prescribed?
Legal Framework on Prescription
Under NIRC Section 203, the CIR has three years from filing of a return to assess taxes. Section 222(b) allows extension by written waiver executed before the three-year period expires; extensions may be further lengthened by subsequent waivers.
Defects in the Waivers
Both waivers lacked:
• Notarized written authority appointing the taxpayer’s representative;
• Indication of the Revenue District Office’s date of acceptance;
• Evidence of the taxpayer’s receipt of BIR acceptance—requirements mandated by RMO No. 20-90 and RDAO No. 05-01.
Doctrine of Estoppel
Estoppel precludes a party from asserting a right inconsistent with prior conduct that induced another to act. In CIR v. Next Mobile, Inc., the Court held that a taxpayer who benefited from waivers and delayed assessment could not later challenge them.
Application of Estoppel in This Case
TOPI did not question the waivers in its PAN or FAN protests and, in fact, acknowledged the second waiver’s November 30, 2008 expiry in its December 8, 2008 protest. TOPI repeatedly failed to comply with BIR audit requirements, necessitating the waivers. Having accepted the benefits of extended examination, TOPI is estopped from attacking th
Case Syllabus (G.R. No. 227544)
Facts of the Case
- On April 28, 2006, Transitions Optical Philippines, Inc. (hereafter “Transitions Optical”) received Letter of Authority No. 00098746 (dated March 23, 2006), authorizing a BIR audit of its 2004 books of accounts.
- The Letter of Authority was signed by OIC-Regional Director Corazon C. Pangcog and named Revenue Officers Jocelyn Santos and Levi Visaya as auditors.
- Transitions Optical allegedly executed two waivers of the defense of prescription to extend the BIR’s three-year assessment period:
- First Waiver (October 9, 2007): extended the prescriptive period to June 20, 2008, and was signed by Finance Manager Pamela Theresa D. Abad and RDO Officer Myrna S. Leonida.
- Second Waiver (June 2, 2008): extended the prescriptive period further to November 30, 2008.
Issuance of Assessment Notices
- On November 11, 2008, BIR, through Regional Director Jaime B. Santiago, issued a Preliminary Assessment Notice (PAN) for alleged 2004 deficiencies.
- Transitions Optical filed a written protest on November 26, 2008.
- On November 28, 2008, BIR (still through Director Santiago) issued a Final Assessment Notice (FAN) and a Formal Letter of Demand (FLD), demanding payment of ₱19,701,849.68 covering income tax, VAT, expanded withholding tax, and final taxes.
Protests and Administrative Proceedings
- In a December 8, 2008 Protest Letter against the FAN, Transitions Optical argued:
- The tax demand had prescribed by the time the FAN was mailed (asserting they received it on December 5, 2008, five days after the waiver’s November 30, 2008 expiry).
- The FAN erroneously indicated “2006” as the return period, whereas the assessment was for 2004.
- On January 24, 2012, Regional Director Jose N. Tan issued the Final Decision on Disputed Assessment, upholding the ₱19,701,849.68 deficiency.
Petition before the Court of Tax Appeals
- Transitions Optical filed a Petition for Review with the Court of Tax Appeals (CTA) on March 16, 2012.
- BIR answered, defending the validity of the waivers and alleging mailing delays were due t