[ G.R. No. 213394. April 06, 2016 ] 784 Phil. 220
SECOND DIVISION
[ G.R. No. 213394. April 06, 2016 ]
SPOUSES EMMANUEL D. PACQUIAO AND JINKEE J. PACQUIAO, PETITIONERS, VS. THE COURT OF TAX APPEALS - FIRST DIVISION AND THE COMMISSION OF INTERNAL REVENUE, RESPONDENTS. D E C I S I O N
MENDOZA, J.:
Before this Court is a petition for review on certiorari[1] under Rule 65 of the Rules of Court filed by petitioner spouses, now Congressman Emmanuel D. Pacquiao (Pacquiao) and Vice-Governor Jinkee J. Pacquiao (Jinkee), to set aside and annul the April 22, 2014 Resolution[2] and the July 11, 2014 Resolution[3] of the Court of Tax Appeals (CTA), First Division, in CTA Case No. 8683. Through the assailed issuances, the CTA granted the petitioners’ Urgent Motion to Lift Warrants of Distraint & Levy and Garnishment and for the Issuance of an Order to Suspend the Collection of Tax (with Prayer for the Issuance of a Temporary Restraining Order[4] [Urgent Motion], dated October 18, 2013, but required them, as a condition, to deposit a cash bond in the amount of P3,298,514,894.35-or post a bond of P4,947,772,341.53. The Antecedents The genesis of the foregoing controversy began a few years before the petitioners became elected officials in their own right. Prior to their election as public officers, the petitioners relied heavily on Pacquiao’s claim to fame as a world-class professional boxer. Due to his success, Pacquiao was able to amass income from both the Philippines and the United States of America (US). His income from the US came primarily from the purses he received for the boxing matches he took part under Top Rank, Inc. On the other hand, his income from the Philippines consisted of talent fees received from various Philippine corporations for product endorsements, advertising commercials and television appearances. In compliance with his duty to his home country, Pacquiao filed his 2008 income tax return on April 15, 2009 reporting his Philippine-sourced income.[5] It was subsequently amended to include his US-sourced income.[6] The controversy began on March 25, 2010, when Pacquiao received a Letter of Authority[7] (March LA) from the Regional District Office No. 43 (RDO) of the Bureau of Internal Revenue (BIR) for the examination of his books of accounts and other accounting records for the period covering January 1, 2008 to December 31, 2008. On April 15, 2010, Pacquiao filed his 2009 income tax return,[8] which although reflecting his Philippines-sourced income, failed to include his income derived from his earnings in the US.[9] He also failed to file his Value Added Tax (VAT) returns for the years 2008 and 2009.[10] Finding the need to directly conduct the investigation and determine the tax liabilities of the petitioners, respondent Commissioner on Internal Revenue (CIR) issued another Letter of Authority, dated July 27, 2010 (July LA), authorizing the BIR’s National Investigation Division (NID) to examine the books of accounts and other accounting records of both Pacquiao and Jinkee for the last 15 years, from 1995 to 2009.[11] On September 21, 2010 and September 22, 2010, the CIR replaced the July LA by issuing to both Pacquiao[12] and Jinkee[13] separate electronic versions of the July LA pursuant to Revenue Memorandum Circular (RMC) No. 56-2010.[14] Due to these developments, the petitioners, through counsel, wrote a letter[15] questioning the propriety of the CIR investigation. According to the petitioners, they were already subjected to an earlier investigation by the BIR for the years prior to 2007, and no fraud was ever found to have been committed. They added that pursuant to the March LA issued by the RDO, they were already being investigated for the year 2008. In its letter,[16] dated December 13, 2010, the NID informed the counsel of the petitioners that the July LA issued by the CIR had effectively cancelled and superseded the March LA issued by its RDO. The same letter also stated that:
Although fraud had been established in the instant case as determined by the Commissioner, your clients would still be given the opportunity to present documents as part of their procedural rights to due process with regard to the civil aspect thereof. Moreover, any tax credits and/or payments from the taxable year 2007 & prior years will be properly considered and credited in the current investigation.[17]
[Emphasis Supplied]
The CIR informed the petitioners that its reinvestigation of years prior to 2007 was justified because the assessment thereof was pursuant to a “fraud investigation” against the petitioners under the “Run After Tax Evaders” (RATE) program of the BIR. On January 5 and 21, 2011, the petitioners submitted various income tax related documents for the years 2007-2009.[18] As for the years 1995 to 2006, the petitioners explained that they could not furnish the bureau with the books of accounts and other, tax related documents as they had already been disposed in accordance with Section 235 of the Tax Code.[19] They added that even if they wanted to, they could no longer find copies of the documents because during those years, their accounting records were then managed by previous counsels, who had since passed away. Finally, the petitioners pointed out that their tax liabilities for the said years had already been fully settled with then CIR Jose Mario Buñag, who after a review, found no fraud against them.[20] On June 21; 2011, on the same day that the petitioners made their last compliance in submitting their tax-related documents, the CIR issued a subpoena duces tecum[21] requiring the petitioners rto submit additional income tax and VAT-related documents for the years 1995-2009. After conducting its own- investigation, the CIR made its initial assessment finding that the petitioners were unable to fully settle their tax liabilities. Thus, the CIR issued its Notice of Initial Assessment-Informal Conference (NIC),[22] dated January 31, 2012, directly addressed to the petitioners, informing them that based on the best evidence obtainable, they were liable for deficiency income taxes in the amount of P714,061,116.30 for 2008 and P1,446,245,864.33 for 2009, inclusive of interests and surcharges. After being informed of this development, the counsel for the petitioners sought to have the conference reset but he never received a response. Then, on “February 20, 2012, the CIR issued the Preliminary Assessment Notice[23] (PAN), informing the petitioners that based on third-party information allowed under Section 5(B)[24] and 6 of the National Internal Revenue Code (NIRC),[25] they found the petitioners liable not only for deficiency income taxes in the amount of P714,061,116.30 for 2008 and P1,446;245,864.33 for 2009, but aiso for their non-payment of their VAT liabilities in the amount P4,104,360.01 for 2008 and P 24,901,276.77 for 2009. The petitioners filed their protest against the PAN.[26] After denying the protest, the BIR issued its Formal Letter Demand[27] (FLD), dated May 2, 2012, finding the petitioners liable for deficiency income tax and VAT amounting to P766,899,530.62 for taxable years 2008 and P1,433,421,214.61 for 2009, inclusive of interests and surcharges. Again, the petitioners questioned the findings of the CIR.[28] On May 14, 2013, the BIR issued its Final Decision on Disputed Assessment (FDDA),[29] addressed to Pacquiao only, informing him that the CIR found him liable for deficiency income tax and VAT for taxable years 2008 and 2009 which, inclusive of interests and surcharges, amounted to a total of P2,261,217,439.92. Seeking to collect the total outstanding tax liabilities of the petitioners, the Accounts Receivable Monitoring Division of the BIR (BIR-ARMD), issued the Preliminary Collection Letter (PCL),[30] dated July 19, 2013, demanding that both Pacquiao and Jinkee pay the amount of P2,261,217,439.92, inclusive of interests and surcharges. Then, on August 7, 2013, the BIR-ARMD sent Pacquiao and Jinkee the Final Notice Before Seizure (FNBS),[31] informing the petitioners of their last opportunity to make the necessary settlement of deficiency income and VAT liabilities before the bureau would proceed against their property. Although they no longer questioned the BIR’s assessment of their deficiency VAT liability, the petitioners requested that they be allowed to pay the same in four (4) quarterly installments. Eventually, through a series of installments, Pacquiao and Jinkee paid a total P32,196,534.40 in satisfaction of their liability for deficiency VAT.[32] Proceedings at the CTA Aggrieved that they were being made liable for deficiency income taxes for the years 2008 and 2009, the petitioners sought redress and filed a petition for review[33] with the CTA. Before the CTA, the petitioners contended that the assessment of the CIR was defective because it was predicated on its mere allegation that they were guilty of fraud.[34] They also questioned the validity of the attempt by the CIR to collect deficiency taxes from Jinkee, arguing that she was denied due process. According to the petitioners, as all previous communications and notices from the CIR were addressed to both petitioners, the FDDA was void because it was only addressed to Pacquiao. Moreover, considering that the PCL and FNBS were based on the FDDA, the same should likewise be declared void.[35] The petitioners added that the CIR assessment, which was not based on actual transaction documents but simply on “best possible sources,” was not sanctioned by the Tax Code. They also argue that the assessment failed to consider not only the taxes paid by Pacquiao to the US authorities for his fights, but also the deductions claimed by him for his expenses.[36] Pending the resolution by the CTA of their appeal, the petitioners sought the suspension of the issuance of warrants of distraint and/or levy and warrants of garnishment.[37] Meanwhile, in a letter,[38] dated October 14, 2013, the BIR-ARMD informed the petitioners that they were denying their request to defer the collection enforcement action for lack of legal basis. The same letter also informed the petitioners that despite their initial payment, the amount to be collected from both of them still amounted to P3,259,643,792.24, for deficiency income tax for taxable years 2008 and 2009, and P46,920,235.74 for deficiency VAT for the same period. A warrant of distraint and/or levy[39] against Pacquiao and Jinkee was included in the letter. Aggrieved, the petitioners filed the subject Urgent Motion for the CTA to lift the warrants of distraint, levy and garnishments issued by the CIR against their .assets and to enjoin the CIR from collecting the assessed deficiency taxes pending the resolution of their appeal. As for- the cash deposit and bond requirement under Section 11 of Republic Act (R.A.) No. 1125, the petitioners question the necessity thereof, arguing that the CIR’s assessment of their tax liabilities was highly questionable. At the same time, the petitioners manifested that they were willing to file a bond for such reasonable amount to be fixed by the tax court. On April 22, 2014, the CTA issued the first assailed resolution granting the petitioner’s Urgent Motion, ordering the CIR to desist from collecting on the deficiency tax assessments against the petitioners. In its resolution, the CTA noted that the amount sought to be collected was way beyond the petitioners’ net worth, which, based on Pacquiao’s Statement of Assets, Liabilities and Net Worth (SALN), only amounted to P1,185,984,697.00. Considering that the petitioners still needed to cover the costs of their daily subsistence, the CTA opined that the collection of the total amount of P3,298,514,894.35 from the petitioners would be highly prejudicial to their interests and should, thus, be suspended pursuant to Section 11 of R.A. No. 1125, as amended. The CTA, however, saw no justification that the petitioners should deposit less than the disputed amount. They were, thus, required to deposit the amount of P3,298,514,894.35 or post a bond in the amount of P4,947,772,341.53. The petitioners sought partial reconsideration of the April 22, 2014 CTA resolution, praying for the reduction of the amount of the bond required or an extension of 30 days to file the same. On July 11, 2014, the CTA issued the second assailed resolution[40] denying the petitioner’s motion to reduce the required cash deposit or bond, but allowed them an extension of thirty (30) days within which to file the same. Hence, this petition, raising the following
GROUNDS A.
Respondent Court acted with grave abuse of discretion amounting to lack or excess of jurisdiction in presuming the correctness of a fraud assessment without evidentiary support other than the issuance of the fraud assessments themselves, thereby violating Petitioner’s constitutional right to due process.
B.
Respondent Court acted with grave abuse of discretion amounting to lack or excess of jurisdiction when it required the Petitioners to post a bond even if the tax collection processes employed by Respondent Commissioner against Petitioners was patently in violation of law thereby blatantly breaching Petitioners’ constitutional right to due process, to wit: Respondent Commissioner commenced tax collection process against Jinkee without issuing or serving an FDDA against her. Respondent Commissioner failed to comply with the procedural due process requirements for summary tax collection remedies under Sections 207(A) and (B) of the Tax Code when she commenced summary collection remedies before the expiration of the period for Petitioners to pay the assessed deficiency taxes. Respondent Commissioner failed to comply with the procedural due process requirements for summary tax collection remedies under Section 208 of the Tax Code when she failed to serve Petitioners with warrants of garnishment against their bank accounts. The Chief of the ARMD, without any authority from Respondent Commissioner, increased the aggregate amount of deficiency income tax and VAT assessed against Petitioners from P2,261,217,439.92 to P3,298,514,894.35 after the filing of the Petition for Review with the Court of Tax Appeals. Respondent Commissioner arbitrarily refused to admit that Petitioners had already paid the deficiency VAT assessments for the years 2008 and 2009.
C.
Respondent Court acted with grave abuse of discretion amounting to lack or excess of jurisdiction in requiring Petitioners to post a cash bond in the amount of P3,298,514,894.35 or a surety bond in the amount of P4,947,772,341.53, which is effectively an impossible condition given that their undisputed net worth is only P1,185,984,697.00.
D.
Respondent Court acted with grave abuse of discretion amounting to lack or excess of jurisdiction when it imposed a bond requirement which will effectively prevent Petitioners from continuing the prosecution of its appeal from the arbitrary and bloated assessments issued by Respondent Commissioner.[41]
Arguments of the Petitioners Contending that the CTA En Bane has no certiorari jurisdiction over interlocutory orders issued by its division, the petitioners come before the Court, asking it to 1] direct the CTA to dispense with the bond requirement imposed under Section 11 of R.A. No. 1125, as amended; and 2] direct the CIR to suspend the collection of the deficiency income tax and VAT for the years 2008 and 2009. The petitioners also pray that a temporary restraining order (TRO) be issued seeking a similar relief pending the disposition of the subject petition. In support of their position, the petitioners assert that the CTA acted with grave abuse of discretion amounting to lack or excess of jurisdiction in requiring them to provide security required under Section 11 of R.A. No. 1125. Under the circumstances, they claim that they should not be required to make a cash deposit or post a bond to stay the collection of the questioned deficiency taxes considering that the assessment and collection efforts of the BIR was marred by both procedural and substantive errors. They are synthesized as follows: First. The CTA erred when it required them to make a cash deposit or post a bond on the basis of the fraud assessment by the CIR. Similar to the argument they raised in their petition for review with the CTA, they insist that the fraud assessment by the CIR could not serve as basis for security because the amount assessed by the CIR was made without evidentiary basis,[42] but just grounded on the “best possible sources,” without any detail. Second… The BIR failed to accord them procedural due process when it initiated summary collection remedies even before the expiration of the period allowed for them to pay the assessed deficiency taxes.[43] They also claimed that they were not served with warrants of garnishment and that the warrants of garnishment served on their banks of account were made even before they received the FDDA and PCL.[44] Third. The BIR only served the FDDA to Pacquiao. There was no similar notice to Jinkee. Considering such failure, the CIR effectively did not find Jinkee liable for deficiency taxes. The collection of deficiency taxes against Jinkee was improper as it violated her right to due process of law.[45] Accordingly, the petitioners question the propriety of the CIR’s attempt to collect deficiency taxes from Jinkee. Fourth. The amount assessed by the BIR as deficiency taxes included the deficiency VAT for the years 2008 and 2009 which they had already paid, albeit in installments. Fifth. The posting of the required security is effectively an impossible condition given that their undisputed net worth is only P1,185,984,697.00 Considering the issues raised, it is the position of the petitioners that the circumstances of the case warrant the application of the exception provided under Section 11 of R.A. No. 1125 as affirmed by the ruling of the Court in Collector of Internal Revenue v. Avelino[46] (Avelino) and Collector of Internal Revenue v. Zulueta,[47] (Zulueta) and that they should have been exempted from posting the required security as a prerequisite to suspend the collection of deficiency taxes from them. On August 18, 2014, the Court resolved to grant the petitioners’ prayer for the issuance of a TRO and to require the CIR to file its comment.[48] Arguments of the CIR For its part,- the CIR asserts that the CTA was correct in insisting that the petitioners post the required cash deposit or bond as a condition to suspend the collection of deficiency taxes. According to. the tax administrator, Section 11 of R.A. No. 1125, as amended, is without exception when it states that notwithstanding an appeal to the CTA, a taxpayer, in order to suspend the payment of his tax liabilities, is required to deposit the amount claimed by the CIR or to file a surety bond for not more than double the amount due.[49] As for the Court’s rulings in Avelino and Zulueta invoked by the petitioners, the CIR argues that they are inapplicable considering that in the said cases, it was ruled that the requirement of posting a bond to suspend the collection of taxes could be dispensed with only if the methods employed by the CIR in the tax collection were clearly null and void and prejudicial to the taxpayer.[50] The CIR points out that, in this case, the CTA itself made, no finding that its collection by summary methods was void and even ruled that “the alleged illegality of the methods employed by the respondent (CIR) to effect the collection of tax [is] not at all patent or evident xxx” and could only be determined after a full-blown trial.[51] The CIR even suggests that the Court revisit its ruling in Avelino and Zulueta as Section 11 of R.A. No. 1125, as amended, gives the CTA no discretion to allow the dispensation of the required bond as a condition to suspend the collection of taxes. Finally, the CIR adds that whether the assessment and collection of the petitioners’ tax liabilities were proper as to justify the application of Avelino and Zulueta is a question of fact which is not proper in a petition for certiorari under Rule 65, considering that the rule is only confined to issues of jurisdiction.[52]
The Court’s Ruling
Appeal will not suspend the collection of tax; Exception Section 11 of R.A. No. 1125, as amended by R.A. No. 9282,[53] embodies the rule that an appeal to the CTA from the decision of the CIR will not suspend the payment, levy, distraint, and/or sale of any property of the taxpayer for the satisfaction of his tax liability as provided by existing law. When, in the view of the CTA, the collection may jeopardize the interest of the Government and/or the taxpayer, it may suspend the said collection and require the taxpayer either to deposit the amount claimed or to file a surety bond. The application of the exception to the rule is the crux of the subject controversy. Specifically, Section 11 provides:
SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. - Any party adversely affected by a decision, ruling or inaction of the Commissioner of Internal Revenue, the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry or the Secretary of Agriculture or the Central Board of Assessment Appeals or the Regional Trial Courts may file an appeal with the CTA within thirty (30) days after the receipt of such decision or ruling or after the expiration of the period fixed by law for action as referred to in Section 7(a)(2) herein.
x x x x
No appeal taken to the CTA from the decision of the Commissioner of Internal Revenue or the Commissioner of Customs or the Regional Trial Court, provincial, city or municipal treasurer or the Secretary of Finance, the Secretary of Trade and Industry and Secretary of Agriculture, as the case may be shall suspend the payment, levy, distraint, and/or sale of any property of the taxpayer for the satisfaction of his tax liability as provided by existing law: Provided, however, That when in the opinion of the Court the collection by the aforementioned government agencies may jeopardize the interest of the Government and/or the taxpayer, the Court at any stage of the proceeding may suspend the said collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount with the Court.
xxxx
[Emphasis Supplied]
Essentially, the petitioners ascribe grave abuse of discretion on the part of the CTA when it issued the subject resolutions requiring them to deposit-the amount of P3,298,514,894.35 or post a bond in the amount of P4,947,772,341.53 as a condition for its order enjoining the CIR from collecting the taxes from them. The petitioners anchor their contention on the premise that the assessment and collection processes employed by the CIR in exacting their tax liabilities were in patent violation of their constitutional right to due process of law. They, thus, posit that pursuant to Avelino and Zulueta, the tax court should have not only ordered the CIR to suspend the collection efforts it was pursuing in satisfaction of their tax liability, but also dispensed with the requirement of depositing a cash or filing a surety bond. To recall, the Court in Avelino upheld the decision of the CTA to declare the warrants of garnishment, distraint and levy and the notice of sale of the properties of Jose Avelino null and void and ordered the CIR to desist from collecting the deficiency income taxes which were assessed for the years 1946 to 1948 through summary administrative methods. The Court therein found that the demand of the then CIR was made without authority of law because it was made five (5) years and thirty-five (35) days after the last two returns of Jose Avelino were filed - clearly beyond the three (3)-year prescriptive period provided under what was then Section 51(d) of the National Internal Revenue Code. Dismissing the contention of the CIR that the deposit of the amount claimed or the filing of a bond as required by law was a requisite before relief was granted, the Court therein concurred with the opinion of the CTA that the courts were clothed with authority to dispense with the requirement “if the method employed by the Collector of Internal Revenue in the collection of tax is not sanctioned by law."[54] In Zulueta, the Court likewise dismissed the argument that the CTA erred in issuing the injunction without requiring the taxpayer either to deposit the amount claimed or to file a surety bond for an amount not more than double the tax sought to be collected. The Court cited Collector of Internal Revenue v. Aurelio P. Reyes and the Court of Tax Appeals[55] where it was written:
Xxx. At first blush it might be as contended by the Solicitor General, but a careful analysis of the second paragraph of said Section 11 will lead Us to the conclusion that the requirement of the bond as a condition precedent to the issuance of a writ of injunction applies only in cases where the processes by which the collection sought to be made by means thereof are carried out in consonance with law for such cases provided and not when said processes are obviously in violation of the law to the extreme that they have to be SUSPENDED for jeopardizing the interests of the taxpayer.[56]
[Italics included]
The Court went on to explain the reason for empowering the courts to issue such injunctive writs. It wrote:
“Section 11 of Republic Act No. 1125 is therefore premised on the assumption that the collection by summary proceedings is by itself in accordance with existing laws; and then what is suspended is the act of collecting, whereas, in the case at bar what the respondent Court suspended was the use of the method employed to verify the collection which was evidently illegal after the lapse of the three-year limitation period. The respondent Court issued the injunction in question on the basis of its findings that the means intended to be used by petitioner in the collection of the alleged deficiency taxes were in violation of law. It would certainly be an absurdity on the part of the Court of Tax Appeals to declare that the collection by the summary methods of distraint and levy was violative of the law, and then, on the same breath require the petitioner to deposit or file a bond as a prerequisite of the issuance of a writ of injunction. Let us suppose, for the sake of argument, that the Court a quo would have required the petitioner to post the bond in question and that the taxpayer would refuse or fail to furnish said bond, would the Court a quo be obliged to authorize or allow the Collector of Internal Revenue to proceed with the collection from the petitioner of the taxes due by a means it previously declared to be contrary to law?"[57]
[Italics included. Emphases and Underlining Supplied]
Thus, despite the amendments to the law, the Court still holds that the CTA has ample authority to issue injunctive writs to restrain the collection of tax and to even dispense with the deposit of the amount claimed or the filing of the required bond, whenever the method employed by the CIR in the collection of. tax jeopardizes the interests of a taxpayer for being patently in violation of the law. Such authority emanates from the jurisdiction conferred to it not only by Section 11 of R.A. No. 1125, but also by Section 7 of the same law, which, as amended provides:
Sec. 7. Jurisdiction. - The Court of Tax Appeals shall exercise: a. Exclusive appellate jurisdiction to review by appeal, as herein provided: l. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue; x x x x
[Emphasis Supplied]
From all the foregoing, it is clear that the authority of the courts to issue injunctive writs to restrain the collection of tax and to dispense with the deposit of the amount claimed or the filing of the required bond is not simply confined to cases where prescription has set in. As explained by the Court in those cases, whenever it is determined by the courts that the method employed by the Collector of Internal Revenue in the collection of tax is not sanctioned by law, the bond requirement under Section 11 of R.A. No. 1125 should be dispensed with. The purpose of the rule is not only to prevent jeopardizing the interest of the taxpayer, but more importantly, to prevent the absurd situation wherein the court would declare “that the collection by the summary methods of distraint and levy was violative of law, and then, in the same breath require the petitioner to deposit or file a bond as a prerequisite for the issuance of a writ of injunction."[58] The determination of whether the petitioners.’ case falls within the exception provided under Section 11, R.A No. 1125 cannot be determined at this point Applying the foregoing precepts to the subject controversy, the Court finds no sufficient basis in the records for the Court to determine whether the dispensation of the required cash deposit or bond provided under Section 11, R.A No. 1125 is appropriate. It should first be highlighted that in rendering the assailed resolution, the CTA, without stating the facts and law, made a determination that the illegality of the methods employed by the CIR to effect the collection of tax was not patent. To quote the CTA:
In this case, the alleged illegality of the methods employed by respondent to effect the collection of tax is not at all patent or evident as in the foregoing cases. At this early stage of the proceedings, it is premature for this Court to rule on the issues of whether or not the warrants were defectively issued; or whether the service thereof was done in violation of the rules; or whether or not respondent’s assessments were valid. These matters are evidentiary in nature, the resolution of which can only be made after a full blown trial. Apropos, the Court finds no legal basis to apply Avelino and Zulueta to the instant case and exempt petitioners from depositing a cash bond or filing a surety bond before a suspension order may be effected.[59]
Though it may be true that it would have been premature for the CTA to immediately determine whether the assessment made against the petitioners was valid or whether the warrants were properly issued and served, still, it behooved upon the CTA to properly determine, at least preliminarily, whether the CIR, in its assessment of the tax liability of the petitioners, and its effort of collecting the same, complied with the law and the pertinent issuances of the BIR itself. The CTA should have conducted a preliminary hearing and received evidence so it could have properly determined whether the requirement of providing the required security under Section 11, R.A. No. 1125 could be reduced or dispensed with pendente lite. The Court cannot make a preliminary determination on whether the CIR used methods not sanctioned by law Absent any evidence and preliminary determination by the CTA, the Court cannot make any factual finding and settle the issue of whether the petitioners should comply with the security requirement under Section 11, R.A. No. 1125. The determination of whether the methods, employed by the CIR in its assessment, jeopardized the interests of a taxpayer for being patently in violation of the law is a question of fact that calls for the reception of evidence which would serve as basis. In this regard, the CTA is in a better position to initiate this given its time and resources. The remand of the “case to the CTA on this question is, therefore, more sensible and proper. For the Court to make any finding of fact on this point would be premature. As stated earlier, there is no evidentiary basis. All the arguments are mere allegations from both sides. Moreover, any finding by the Court would pre-empt the CTA from properly exercising its jurisdiction and settle the main issues presented before it, that is, whether the petitioners were afforded due process; whether the CIR has valid basis for its assessment; and whether the petitioners should be held liable for the deficiency taxes. Petition to be remanded to the CTA; CTA to conduct preliminary hearing As the CTA is in a better, position to make such a preliminary determination, a remand to the CTA is in order. To resolve the issue of whether the petitioners should be required to post the security bond under Section 11 of R.A. No. 1125, and, if so, in what, amount, the CTA must take into account, among others, the following: First. Whether the requirement of a Notice of Informal Conference was complied with - The petitioners contend that the BIR issued the PAN without first sending a NIC to petitioners. One of the first requirements of Section 3 of Revenue Regulation (R.R.) No. 12-99,[60] the then prevailing regulation on the due process requirement in tax audits and/or investigation,[61] is that a NIC be first accorded to the taxpayer. The use of the word “shall” in subsection 3.1.1 describes the mandatory nature of the service of a NIC. As with the other notices required under the regulation, the purpose of sending a NIC is but part of the “due process requirement in the issuance of a deficiency tax assessment,” the absence of which renders nugatory any assessment made by the tax authorities.[62] Second. Whether the 15-year period subject of the CIR’s investigation is arbitrary and excessive. - Section 203[63] of the Tax Code provides a 3-year limit for the assessment. of internal revenue taxes. While the prescriptive period to assess deficiency taxes may be extended to 10 years in cases where there is false, fraudulent, or non-filing of a tax return - the fraud contemplated by law must be actual. It must be intentional, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some right.[64] Third. Whether fraud was duly established. - In its letter, dated December 13, 2010, the NID had been conducting a fraud investigation against the petitioners under its RATE program and that it found that “fraud had been established in the instant case as determined by the Commissioner.” Under Revenue Memorandum Order (RMO) No. 27-10, it is required that a preliminary investigation must first be conducted before a LA is issued.[65] Fourth. Whether the FLD issued against the petitioners was irregular. - The FLD issued against the petitioners allegedly stated that the amounts therein were “estimates based on best possible sources.” A taxpayer should be informed in writing of the law and the facts on which the assessment is made, otherwise, the assessment is void.[66] An assessment, in order to stand judicial scrutiny, must be based on facts. The presumption of the correctness of an assessment, being a mere presumption, cannot be made to rest on another presumption.[67] To stress, the petitioners had asserted that the assessment of the CIR was not based on actual transactions but on “estimates based on best possible sources.” This assertion has not been satisfactorily addressed by the CIR in detail. Thus, there is a need for the CTA to conduct a preliminary hearing. Fifth. Whether the FDDA, the PCL, the FNBS, and the Warrants of Distraint and/or Levy were validly issued. In its hearing, the CTA must also determine if the following allegations of the petitioners have merit:,
a. The FDDA and PCL were issued against petitioner Pacquiao only. The Warrant of Distraint and/or Levy/Garnishment issued by the CIR, however, were made against the assets of both petitioners; b. The warrants of garnishment had been served on the banks of both petitioners even before the petitioners received the FDDA and PCL; c. The Warrant of Distraint and/or Levy/Garnishment against the petitioners was allegedly made prior to the expiration of the period allowed for the petitioners to pay the assessed deficiency taxes; d. The Warrant of Distraint and/or Levy/Garnishment against petitioners failed to take into consideration that the deficiency VAT was already paid in full; and e. Petitioners were not given a copy of the Warrants. Sections 207[68] and 208[69] of the Tax Code require the Warrant of Distraint and/or Levy/Garnishment be served upon the taxpayer.
Additional Factors In case the CTA finds that the petitioners should provide the necessary security under Section 11 of R.A. 1125, a recomputation of the amount thereof is in order.- If there would be a need for a bond or to reduce the same, the CTA should take note that the Court, in A.M. No. 15-92-01-CTA, resolved to approve the CTA En Banc Resolution No. 02-2015, where the phrase “amount claimed” stated in Section 11 of R.A. No. 1125 was construed to refer to the principal amount of the deficiency taxes, excluding penalties, interests and surcharges. Moreover, the CTA should.also consider the claim of the petitioners that they already paid a total of P32,196,534.40 deficiency VAT assessed against’ them.. Despite said payment, the CIR still assessed them the total amount of P3,298,514,894.35, including the amount assessed as VAT deficiency, plus surcharges, penalties and interest. If so, these should also be deducted from the.amount of the bond to be computed and required. In the conduct of its preliminary hearing, the CTA must balance the scale between the inherent power of the State to tax and its right to prosecute perceived transgressors of the law, on one side; and the constitutional rights of petitioners to due process of law and the equal protection of the laws, on the other. In case of doubt, the tax court must remember that as in all tax cases, such scale should favor the taxpayer, for a citizen’s right to due process and equal protection of the law is amply protected by the Bill of Rights under the Constitution.[70] In view of all the foregoing, the April 22, 2014 and July 11, 2014 Resolutions of the CTA, in so far as it required the petitioners to deposit first a cash bond in the amount of P3,298,514,894.35 or post a bond of P4,947,772,341.53, should be further enjoined until the issues aforementioned are settled in a preliminary hearing to be conducted by it. Thereafter, it should make a determination if the posting of a bond would still be required and, if so, compute it taking into account the CTA En Banc Resolution, which was approved by the Court in A.M. No. 15-02-01-CTA, and the claimed payment of P32,196,534.40, among others. WHEREFORE, the petition is PARTIALLY GRANTED. Let a Writ of Preliminary Injunction be issued, enjoining the implementation of the April 22, 2014 and July 11, 2014 Resolutions of the Court of Tax Appeals, First Division, in CTA Case No. 8683, requiring the petitioners to first deposit a cash bond in the amount of P3,298,514,894.35 or post a bond of P4,947,772,341.53, as a condition to restrain the collection of the deficiency taxes assessed against them. The writ shall remain in effect until the issues aforementioned are settled in a preliminary hearing to be conducted by the Court of Tax Appeals, First Division. Accordingly, the case is hereby REMANDED to the Court of Tax Appeals, First Division, which is ordered to conduct a preliminary hearing to determine whether the dispensation or reduction of the required cash deposit or bond provided under Section 11, Republic Act No. 1125 is proper to restrain the collection of deficiency taxes assessed against the petitioners. If required, the Court of Tax Appeals, First Division, shall proceed to compute the amount of the bond in accordance with the guidelines aforestated, particularly the provisions of A.M. No. 15-02-01-CTA. It should also take into account the amounts already paid by the petitioners. After the posting of the required bond, or if the Court of Tax Appeals, First Division, determines that no bond is necessary, it shall proceed to hear and resolve the petition for review pending before it. SO ORDERED. Carpio, (Chairperson), Brion, Reyes,* and Leonen, JJ., concur.