[ G.R. No. 222133. November 04, 2020 ] 889 Phil. 171
THIRD DIVISION
[ G.R. No. 222133. November 04, 2020 ]
AFP GENERAL INSURANCE CORPORATION, PETITIONER, VS. COMMISSIONER OF INTERNAL REVENUE, RESPONDENTS. D E C I S I O N
INTING, J.:
This resolves the Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court filed by AFP General Insurance Corporation (AGIC) assailing the Decision[2] dated January 4, 2016 of the Court of Tax Appeals (CTA) En Banc in CTA EB Case No. 1223 (CTA Case No. 8191). The assailed Decision modified the Amended Decision[3] dated September 1, 2014 of the CTA Third Division (CTA Division) in CTA Case No. 8191 which ordered AGIC to pay deficiency tax assessments, plus surcharge and interests, under respondent Commissioner of Internal Revenue’s (CIR) Formal Letter of Demand (FLD)[4] dated April 6, 2010.
The Antecedents
The CIR, through Deputy CIR Gregorio V. Cabantac, issued Letter of Authority (LOA) No. 00021964[5] dated May 7, 2008, empowering Bureau of Internal Revenue (BIR) Revenue Officers Mercedes J. Espina and Jonas P. Punza to examine AGIC’s books of account and records in relation to taxable year 2006.[6] It contained the following notation: “[t]his [LOA] becomes void if it contains erasures, or if not served to the taxpayer within 30 days from the date hereof, or if dry seal of BIR office is not present.”
As a result of the audit investigation, the CIR issued a Preliminary Assessment Notice[7] (PAN) against AGIC. AGIC responded to the PAN through a Letter[8] dated January 25, 2010 addressed to the CIR.
In turn, the CIR issued a Revised PAN[9] dated February 19, 2010, with attached details of discrepancies,[10] finding AGIC liable for deficiency income tax (IT), documentary stamp tax (DST) on the increase of capital stock, value-added tax (VAT), late remittance of DST on insurance policies, expanded withholding tax (EWT) amounting to P13,158,571.63,[11] P486,833.25,[12] P8,730,457.05,[13] P2,212,705.47,[14] and P785,077.29,[15] respectively, inclusive of penalties,[16] surcharge, and interest.
Subsequently, the CIR issued a Formal Letter of Demand (FLD)[17] dated April 6, 2010, with attached details of discrepancy[18] and assessment notices,[19] requesting AGIC to pay deficiency internal revenue taxes amounting to P25,647,389.04, computed as follows:
Tax Type
Basic Tax
Surcharge
Interest
Compromise Penalty
Subtotal
IT
P8,294,889.09
4,976,933.45
P25,000.00
P13,296,822.54
DST*
250,000.00
62,500.00
162,500.00
16,000.00
491,000.00
VAT
4,092,402.38
2,046,201.19
2,660,061.55
8,798,665.12
DST**
316,237.83
1,114,521.99
710,216.39
77,000.00
2,217,976.21
EWT
470,863.74
306,061.43
16,000.00
792,925.17
Civil Penalty
50,000.00
Total
P25,647,389.04
- DST on the increase of capital stock ** late remittance of DST on insurance policies
AGIC formally protested these assessments on April 22, 2010 (administrative protest).[20]
Due to the CIR’s alleged inaction on its protest, AGIC elevated the assessment case to the CTA docketed as CTA Case No. 8191.[21] In turn, the CIR filed an answer to AGIC’s petition.
Ruling of the CTA Division
Decision[22] dated March 13, 2014.
After trial, the CTA Division partially granted AGIC’s petition.[23] It ruled as follows:
First, the assessment for unremitted DST on insurance policies must be cancelled. It pertains to taxable year 2005; thus, outside the coverage of the subject LOA, which was issued for “the examination of books of accounts and other accounting for the taxable year 2006."[24] Second, the period for assessment for deficiency VAT had already prescribed by the time the CIR issued the FLD on April 6, 2010. Third, in contrast, the CIR timely assessed AGIC for its late remittance of DST on insurance policies pertaining to January, February, and May 2006, as well as deficiency DST on the increase in capital stock. Fourth, AGIC failed “to substantiate its claims of undue disallowance of its legitimate expenses [in relation to IT], erroneous assessment for [EWT], and the correct computation of its deficiency [IT and EWT]."[25] Fifth, the amounts of compromise penalty for each tax type must be cancelled because there is no showing that the parties mutually agreed on the imposition thereof.[26] Sixth, AGIC applied for the tax amnesty program under Republic Act No. (RA) 9480, which covered all unpaid internal revenue taxes for taxable year 2005 and prior years. However, AGIC failed to submit its Statement of Assets, Liabilities and Net worth (SALN), a required attachment to the taxpayer’s application under RA 9480. Failure to fully comply with the documentary requirements of the amnesty law disqualifies AGIC from availing itself of RA 9480’s benefits.[27]
Based on its findings, the CTA Division reduced the total assessment to P12,746,567.80.[28] In addition, it ordered AGIC to pay the following: (a) 20% deficiency interest on the amount of basic deficiency tax (IT, DST on increase of capital stock, and EWT) as prescribed under Section 249(B) of the National Internal Revenue Code of 1997 (Tax Code); (b) 20% delinquency interest on the amount of basic deficiency tax (IT, DST on increase of capital stock, and EWT) plus surcharge, as prescribed under Section 249(C) of the Tax Code; (c) 20% delinquency interest on the incremental amounts resulting from the late remittance of DST on insurance policies, as prescribed under Section 249(C) of the Tax Code; and (d) 20% delinquency interest on the total amount of deficiency interest computed under (a) above, as prescribed under Section 249(C) of the Tax Code.
Both parties moved to reconsider the aforementioned Decision.
For its part, AGIC insisted that the CTA Division failed to resolve the principal issue of the case: LOA No. 00021964’s validity. According to AGIC, the subject LOA is invalid “for failure of the concerned [r]evenue [o]fficer to have the same revalidated after x x x 120 days [i.e., within which the tax authorities must issue an audit investigation report], pursuant to Revenue Memorandum Order No. [RMO] 38-88 dated August 24, 1988, as reiterated in Revenue Memorandum Circular [RMC] No. 40-2006, dated July 13, 2006."[29] The CIR countered that “the non-revalidation of a [LOA] would only warrant a disciplinary action against the concerned [r]evenue [o]fficer, and not render the same invalid or void."[30]
On the other hand, respondent CIR pointed out that “[a]s proven during trial, [AGIC] never filed a return for [DST on] insurance policies for taxable year 2005."[31] Thus, the applicable prescriptive period is 10 years counted from the discovery of the falsity, fraud, or omission (non-filing). Further, the discrepancies between the audited financial statements and the unregistered general ledger resulted in an under-declaration of gross income subject to [VAT].[32]
Amended Decision dated September 1, 2014.
Ruling on the parties’ motions, the CTA Division held as follows: first, the revenue officers’ failure to have the LOA revalidated after the 120-day reglementary period does not nullify the LOA. Under the aforecited tax issuances, such failure gives rise to administrative sanctions/penalties, but does not invalidate the LOA itself.[33] Second, the cancellation of the assessment for unremitted DST on insurance policies for taxable year 2005 was proper inasmuch as the subject LOA only covered taxable year 2006. Third, in the PAN and Memoranda filed before the CTA Division, respondent CIR clearly alleged that the deficiency VAT assessment was grounded on the “substantial [under-declaration] of taxable sales, receipts or income and failure to report sales, receipts or income in an amount exceeding x x x 30% of that declared per return."[34] However, AGIC failed to refute the assessments, including the alleged under-declaration.
Consequently, the CTA reinstated the deficiency tax assessment and ordered AGIC to pay deficiency VAT amounting to P6,138,603.57,[35] inclusive of 50% surcharge and the following interests: 20% deficiency interest on the amount of basic deficiency VAT, as prescribed under Section 249(B) of the Tax Code; (b) 20% delinquency interest on the amount of basic deficiency VAT plus surcharge, as prescribed under Section 249(C) of the Tax Code.[36]
Aggrieved, AGIC brought the case before the CTA En Banc.
Ruling of the CTA En Banc
In its assailed Decision, the CTA En Banc modified the CTA Division ruling to reduce the amount of deficiency VAT assessment to P5,912,622.72, inclusive of 50% surcharge, plus applicable interests.[37]
The court a quo ruled as follows: first, when the concerned revenue officers failed to submit their report within 120 days after service of the LOA, they likewise failed to submit the subject LOA for revalidation. However, their failure to do so did not affect the LOA’s validity. RMO 38-88 and RMC 40-06 do not treat an LOA as void once it is not revalidated within the said period.[38] Second, verily, Revenue Audit Memorandum Order No. (RAMO) 01-00 invalidates an LOA that: (a) remains unserved 30 days after its issuance, and (b) is not submitted for revalidation. However, there is proof that AGIC received the LOA dated May 7, 2008 on May 13, 2008 or within 30 days from its issuance.[39] Third, AGIC did not present its DST returns for taxable year 2006. “Having failed to do so, [AGIC] failed to prove that the subject deficiency DST assessment is already barred by prescription x x x."[40] Fourth, AGIC failed to establish that it withheld the proper taxes on its expenses. “[T]he consequence of non-withholding of taxes is the disallowance of the related expense as deduction from gross income, resulting in an increase in taxable income and consequently to the income tax due."[41] Fifth, the tax authorities alleged that, for VAT purposes, AGIC failed to report gross receipts for VAT purposes by 38.88%.[42] This under-declaration is prima facie evidence of a false return, which allowed the BIR 10 years, instead of the usual three, to assess. Likewise, AGIC failed to dispute the output VAT it allegedly did not remit.[43] Thus, AGIC was properly assessed therefor.
After evaluation, the CTA En Banc upheld the assessments for IT, EWT, and DST, amounting to P12,746,567.80,[44] as computed in the CTA Division Decision dated March 13, 2014. In addition, it ordered AGIC to pay deficiency VAT amounting to P5,912,622.72,[45] which brought the total assessment to P18,659,190.52 computed as follows:
Tax Type
Basic Tax
Surcharge Sec. 248(A)(3)
20% Interest Sec. 249
Subtotal
IT
8,294,889.09
2,073,722.27
10,368,611.36
DST*
250,000.00
62,500.00
312,500.00
EWT
470,863.74
117,715.94
588,579.68
DST**
___-
1,035,462.53
441,414.23
1,476,876.76
CTA Division***
9,015,752.83
P3,289,400.47
P441,414.23
P12,746,567.80
VAT****
3,941,748.48
1,970,874.24
5,912,622.72
Total
12,957,501.31
P5,260,274.98
P441,414.23
P18,659,190.52
- on increase of capital stock ** late remittance of DST on insurance policies *** CTA Division Decision dated March 13, 2014 **** as modified by the CTA En Banc
Hence, AGIC filed the present petition.
AGIC insists that the CTA En Banc erred in upholding the assessments for the following reasons: first, the subject LOA was invalid because it remained “un-revalidated”[46] despite (a) belated service thereof,[47] and (b) the non-submission of a report within the reglementary 120-day period.[48] Second, AGIC admits that it was liable for deficiency EWT and withholding tax on compensation (WTC).[49] However, it was not liable for deficiency IT because: (a) the assessments amount to double taxation,[50] and (b) the CIR already recognized that the expenses in question were legitimate.[51] Thus, it was estopped from questioning its deductibility for income tax purposes. Third, it was not liable for deficiency DST and VAT because (a) the CIR’s authority to assess these taxes have already prescribed,[52] (b) the assessments amount to double taxation,[53] and (c) AGIC’s availment of tax amnesty extinguished its liabilities therefor.[54]
Issues
In order to ascertain AGIC’s liability for deficiency taxes, the Court shall resolve the following issues:
(1)
Was the subject LOA invalid?;
(2)
Had the CIR’s power to assess AGIC for deficiency VAT and DST already prescribed by the time it issued the FLD dated April 6, 2010?;
(3)
Did the deficiency IT and VAT assessments amount to double taxation?; and
(4)
Did AGIC’s application for tax amnesty under RA 9480 extinguish its liabilities for the deficiency DST and VAT?
Notably, only the deficiency IT, VAT, and DST assessments remain at issue, taking into account AGIC’s admission of its liability for deficiency EWT.[55]
The Court’s Ruling
The petition has no merit.
It is settled that tax assessments are prima facie correct. At the same time, tax authorities enjoy the presumption of regularity in the performance of their duties in relation to tax investigation and assessment.[56] Thus, in denying deficiency tax liability, it is incumbent upon a taxpayer to show clearly that the assessment is void or erroneous, or that the tax authorities had been remiss in issuing the same.[57]
After a judicious review of the case records, the Court finds that AGIC failed to discharge this burden.
I
Validity of LOA No. 00021964
The power to assess and the power to audit a taxpayer.
The power to assess necessarily includes the authority to examine any taxpayer for purposes of determining the correct amount of tax due from him.[58] Verily, the law vests the BIR with general powers in relation to the “assessment and collection of all national internal revenue taxes."[59] However, certainly, not all BIR personnel may motu proprio proceed to audit a taxpayer. Only “the CIR or his duly authorized representative may authorize the examination of any taxpayer”[60] and issue an assessment against him.[61]
That a representative has in fact been authorized to audit a taxpayer is evidenced by the LOA, which “empowers a designated [r]evenue [o]fficer to examine, verity, and scrutinize a taxpayer’s books and records in relation to his internal revenue tax liabilities for a particular period."[62]
In cases where the BIR conducts an audit without a valid LOA, or in excess of the authority duly provided therefor, the resulting assessment shall be void and ineffectual.[63] In the present case, AGIC uses this principle to invalidate the deficiency tax assessments in the present case.
Petitioner AGIC insists that the subject LOA is defective because it was not revalidated: (a) upon the expiration of the 30-day period of service and (b) upon the expiration of the 120-day period, as required by RMO No. 38-88 and RMC No. 40-06.
In other words, AGIC relies on defects allegedly arising from non-compliance with the LOA revalidation requirements. At this juncture, We must distinguish between the requirement of revalidating an LOA that is unserved, as opposed to revalidating it after service, due to the lapse of the reglementary period mentioned in RMO No. 38-88.
Revalidating an unserved LOA.
The LOA commences the audit process and informs the taxpayer that he shall be investigated for possible deficiency tax assessment.[64] RAMO 1-00 dated March 17, 2000 prescribes the use of the Updated Handbook on Audit Procedures and Techniques, defines an LOA, and describes its function and the manner by which it shall be served, to wit:
- Serving of Letter of Authority
2.1 On the first opportunity of the Revenue Officer to have personal contact with the taxpayer, he should present the Letter of Authority (LA) together with a copy of the Taxpayer’s Bill of Rights. The LA should be served by the Revenue Officer assigned to the case and no one else. He should have the proper identification card and should be in proper attire.
2.2 A Letter of Authority authorizes or empowers a designated Revenue Officer to examine, verify and scrutinize a taxpayer’s books and records in relation to his internal revenue tax liabilities for a particular period.
2.3 A Letter of Authority must be served or presented to the taxpayer within 30 days from its date of issue; otherwise, it becomes null and void unless revalidated. The taxpayer has all the right to refuse its service if presented beyond the 30-day period depending on the policy set by top management. Revalidation is done by issuing a new Letter of Authority or by just simply stamping the words “Revalidated on ____________ “on the face of the copy of the Letter of Authority issued. (Italics supplied.)
LOA No. 00021964 echoes Subparagraph 2.3 above, viz.:
IMPORTANT:
Please address any communication on this matter to the authorized officer(s) of the National Investigation Division x x x This Letter of Authority becomes void if it contains erasures, or if not service to the taxpayer within 30 days from the date hereof, or if dry seal of BIR is not present. (Italics supplied.)
The foregoing rule invalidates a previously issued LOA, which has remained unserved for more than 30 days past its issuance date, unless the same is revalidated.
In the exercise of the power to assess and collect taxes,[65] the BIR has the commensurate duty to uphold a taxpayer’s fundamental right to due process. Thus, its authority must be understood to take effect only after the CIR or his duly authorized representative issues an LOA and the designated revenue officer serves it upon the intended taxpayer. That a LOA remains unserved signifies that the tax authorities have yet to formally apprise the taxpayer and, consequently, have not commenced actual audit.
Read in these lights, the rules clearly impose a 30-day expiration period for service. Upon expiration, the LOA becomes wholly unenforceable, inasmuch as it cannot be served without revalidation upon the taxpayer who, in turn, has the right to refuse the same.
The revalidation requirement involving an unserved LOA is imposed on the revenue officer because he/she exclusively derives authority therefrom. It is intended to reconfirm his/her designation as the BIR personnel duly authorized (by the CIR) to examine the taxpayer’s books and extend the period of service. Otherwise, his/her subsequent presence in a taxpayer’s premises for a supposed tax audit shall be illegitimate.
In the case at bar, the CIR issued LOA No. 00021964 on May 8, 2008, the 30th day therefrom fell on June 6, 2008. However, AGIC claimed to have received the subject LOA only on June 13, 2008. By that time, without revalidation, the LOA had already become null and void.[66]
The argument has no merit.
First, whether or not the tax authorities actually served the subject LOA within 30 days from issuance is a factual question, which is outside the scope of the Court’s review sought through a Rule 45 petition.[67] The Court is not a trier of facts. The Court shall not reexamine or reevaluate “the truthfulness or falsity of the allegations of the parties”.[68]
Second, the CTA En Banc found that AGIC received the LOA dated May 7, 2008 on May 13, 2008 or well within the 30-day reglementary period of service. The Court gives utmost respect to the findings of the tax court as the Court recognizes its expertise on tax matters.[69] The Court shall uphold these findings as long as there is no showing of grave abuse of discretion[70] and its ruling is supported by substantial evidence.[71]
Third, even if the Court brushes aside these recognized principles and follows AGIC’s reasoning, it is clear that they would have had the legal right to refuse service of an LOA it believed was defective due to lack of revalidation.[72] However, it is undisputed that AGIC did not contest the LOA upon receipt and allowed the tax authorities to proceed with and complete the audit.
Moreover, AGIC did not question the timeliness of the LOA’s service in any of the following: reply[73] to the PAN, two-page formal administrative protest to the FLD,[74] Petition for Review,[75] and Motion for Reconsideration[76] before the CTA Division. AGIC raised this argument only on appeal (to the CTA En Banc).
To the Court’s mind, AGIC’s failure to exercise its right to refuse the service of an allegedly defective LOA shows that they had acquiesced to the tax authorities’ investigation. That it waited until after the issuance of the PAN, FLD, as well as the CTA Division’s adverse decision before objecting to this irregularity could only be interpreted as a mere afterthought to resist possible tax liability.
Revalidating a served LOA in connection with the “120-day rule.”
Alternatively, AGIC argues that the subject LOA also became null and void when it was not submitted for revalidation after the lapse of a supposed “120-day period."[77]
AGIC relies on RMC 40-06,[78] which imposes a “120-day rule” in connection with LOA re-validation. The circular refers to RMO 38-88, which provides as follows:
This Order aims to set the guidelines on the revalidation of Letters of Authority (LAs) for a more effective and efficient investigation and reporting on cases:
The following are henceforth prescribed:
Revalidation of Letters of Authority shall be limited to only once in the regional offices and twice in the National Office after issuance of the original LA.
A revalidation shall be covered by the issuance of a new Letter of Authority under the name(s) of the same investigating officer(s), and the superseded LA(s) shall be attached to the new LA issued.
Requests for revalidation shall be supported with a progress report on the case and a justification for said revalidation.
The Division Chief/RDO shall indorse the request for revalidation which shall be duly approved or disapproved by the Assistant Commissioner (SOS)/Regional Director.
The Division Chief/RDO shall be responsible for the monthly monitoring of LAs issued to ensure that reports are rendered within the reglementary 120-day period. The Division Chief/RDO shall be jointly responsible with the REOs for cases with LAs pending beyond the 120-day period.
It shall be the duty of the Division Chief/RDO to report immediately to the inspection Service any tax case for which no report of investigation has been rendered 120 days after the issuance of an LA. (Italics supplied.)
The foregoing issuance refers to the “120-day period” as the time within which an investigation report shall be rendered.
AGIC claims that LOA No. 00021964 was nullified due to the assigned revenue officers’ failure to: (1) render the investigation report within this period, and (2) submit the LOA for revalidation. Thus, the resulting tax assessments are also void.[79]
Notably, the above-cited issuances mention a “120-day period/rule,” but do not provide a complete context within which the rule was established. Thus, to evaluate the theory, the Court must look into other related tax issuances to determine the nature and intended effect of the reglementary period adverted to by AGIC.
An early tax issuance[80] mentions both 30 and 120-day reglementary periods in imposing an LOA revalidation requirement, viz.:
REVENUE MEMORANDUM ORDER NO. 43-64
SUBJECT: Period of Limitation for Action on Cases Received
TO : All Department Heads, Regional Directors, Division Chiefs, Chief Revenue Officers and Others Concerned
In order to expedite the flow of papers assigned for action to each and every employee of the Bureau, the following guidelines are hereby promulgated for the compliance of all concerned:
All income tax, business tax, estate and inheritance tax, amusement tax and other kinds of tax returns assigned to fieldmen for investigation or reinvestigation should be accompanied by an authority to investigate. For this purpose dockets received from any branch in the region or any division in the National Office shall likewise be subject to the issuance of the corresponding authority to investigate.
Fieldmen are hereby enjoined to serve the authority to investigate within thirty (30) days from the date of the issuance and to conduct the investigation and submit the report thereon within one hundred twenty (120) days from the date of the issuance of the authority. Any authority to investigate which has not been reported within the above-mentioned period is considered void and the examiner concerned is prohibited from further investigation or contact with the taxpayer after the said period unless the authority is revalidated.
Any examiner who believes that he may not be able to submit the report of investigation within the required period should prepare a memorandum to his superior officer detailing the progress of the investigation and the reasons why he needs an additional period within which to terminate the investigation. The said memorandum should be reviewed by the superior official who will make the corresponding recommendation for the issuance of a revalidated authority or to issue a revalidated authority for the said case if he is the officer authorized to do so. (Italics supplied.)
RMO 43-64, read together with RMO 38-88, discredits AGIC’s claim.
The issuance confirms that a revenue officer assigned to an audit is duty-bound to render an investigation report within 120 days from the LOA’s issuance. The 120-day period for rendering an investigation report was intended as an internal efficiency measure: to expedite the conduct of audits and ensure that BIR examiners regularly report open investigations and their progress.
Nonetheless, the revenue officer may validly request for LOA revalidation, which shall be supported by a progress report and an enumeration of reasons to justify his request.[81]
The superior officer or the Division Chief/Revenue District Officer (RDO) shall review the request. If justified, he/she shall recommend the LOA’s revalidation and endorse the request to the CIR/his duly authorized representative for the latter’s approval.
Without revalidation, the LOA shall be considered void and the assigned revenue officer is “prohibited from further investigation and contact with the taxpayer.” The revalidation requirement here is aimed at reconfirming the revenue officer’s authority and extending the period of audit. It contemplates a served LOA and an on-going audit investigation. Stated differently, the revenue officer was already authorized to commence an audit only that he was unable to conclude it within 120 days.
Given this context, it is clear that failure to comply with the 120-day rule does not void LOA ab initio. The expiration of the 120-day period merely renders an LOA unenforceable, inasmuch as the revenue officer must first seek ratification of his expired authority to audit to be able to validly continue investigation beyond the first 120 days.
That the revenue officer is unable to conduct further investigation does not invalidate his/her authority during the first 120 days or the procedures he/she had already performed within that period. He/she may instead render a report based on the results of his/her initial investigation from which an assessment may be legitimately issued.
In any case, AGIC does not even allege facts showing that the assigned revenue officers continued with their audit investigation beyond the first 120 days after issuance/service of the LOA. Failure to revalidate the LOA in accordance with the 120-day rule shall only be an issue in cases where tax authorities proceeded with an extended audit without first seeking the requisite revalidation. Furthermore, even if the Court assumes that the BIR illegally extended their investigation, AGIC could have also resisted further investigation as early as the 121st day after the LOA’s issuance/service if it truly believed that the assigned revenue officers no longer possessed the requisite authority. That it kept silent about the supposed violation and complained only when it was already found liable for deficiency taxes, once again, only show that it acquiesced to the BIR’s extended audit, if any.
Based on the foregoing, absent any showing that the failure to revalidate resulted in a violation of AGIC’s right to due process, the Court upholds the subject LOA’s validity.
II
Prescription of the CIR’s Power to Assess Deficiency VAT and DST
Prescriptive period of the power to assess.
In general, the CIR may issue a tax assessment within a three year prescriptive period counted from: (a) the statutory deadline to file a return for the specific tax type, or (b) if filed beyond the deadline, the date of actual filing of the tax return, whichever is later.[82] However, by exception, this prescriptive period may be extended to ten years, in case of a false or fraudulent return with intent to evade tax or of failure to file a return.[83]
AGIC argues that the CIR’s assessments for unremitted DST on insurance policies and deficiency VAT were issued beyond the three-year prescriptive period.
Unremitted DST on insurance policies.
In the assailed Decision, the CTA upheld the timeliness of the unremitted DST assessment after finding that AGIC failed to present in evidence its 2006 DST returns, which would have shown the actual date on which these were filed.
The CTA’s ruling is supported by law and jurisprudence.
Prescription is a matter of defense. The taxpayer has the burden of proving that the prescriptive period has lapsed, including positively identifying when the prescriptive period began to run and exactly when it expired.[84] Consequently, AGIC cannot avail itself of the defense of prescription inasmuch as they failed to present proof of actual filing of their DST returns.
Deficiency VAT.
On the other hand, the court a quo upheld the timeliness of the issuance of the deficiency VAT assessment after applying the 10-year prescription period, instead of the general rule of three years.
A careful reading of the petition reveals that AGIC assails this ruling by relying heavily on the claim that the three-year prescriptive period had already expired. AGIC did not even allege facts or present proof to dispute the correctness of applying the 10-year prescriptive period. Certainly, AGIC’s argument must be stricken down for being unresponsive and unsubstantiated.
In any case, the court a quo’s application of the 10-year period was justified by its finding that AGIC had under-declared their 2006 gross receipts subject to VAT by 38.88%.[85]
Under the Tax Code, failure to report sales, receipts, or income of at least 30% of the amount declared in the return constitutes prima facie evidence of a false or fraudulent return.[86] This presumption shall stand as AGIC did not present proof to dispute the finding of under-declaration. There being an undisputed case of a false or fraudulent return, an exception to the general rule, the CTA En Banc correctly applied the 10-year prescriptive period under Section 222(a), instead of the three-year period under Section 203 of the Tax Code.
III
Deficiency IT and VAT assessments vis-á-vis double taxation
There is double taxation if there are two taxes imposed “on the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period, and the taxes must be of the same kind or character."[87]
According to AGIC, the CIR’s deficiency IT and VAT assessments amount to double taxation.
Deficiency IT due to disallowed expenses.
The CIR assessed AGIC for deficiency EWT for failure to withhold required taxes on its expenses. At the same time, the CIR disallowed those expenses from being claimed as deductions from taxable income, resulting in a deficiency IT assessment. In other words, both the deficiency EWT and IT assessments were grounded on the fact of non-withholding.
AGIC admits its liability for deficiency EWT as a result of its failure to withhold taxes from expense payments. However, it theorizes that the CIR cannot simultaneously assess them for deficiency IT arising from the disallowance of the very same expenses.[88]
The Court disagrees with AGIC’s contention. That the above mentioned assessments both arose from AGIC’s failure to withhold the required taxes does not in itself amount to double taxation.
The CIR issued a deficiency EWT assessment against AGIC in its capacity as a withholding agent. Enterprises such as AGIC are legally obliged under Section 57[89] of the Tax Code to deduct in advance a percentage of tax from his payment to a third party and remit the same to the government. The third party, from whom the taxpayer purchased a good/service, is the actual income earner in the transaction. Although acting merely as an agent of the government in the collection of taxes, a withholding entity who fails to deduct and remit as required shall be liable for deficiency withholding tax, such as EWT.[90]
On the other hand, the deficiency IT assessment was issued against AGIC in its capacity as a domestic corporation liable for tax on its own taxable income as provided under Section 27[91] of the Tax Code. In computing taxable income, the law allows a corporate income taxpayer to claim deductions from its gross income (e.g., business expenses),[92] provided that the tax required to be withheld from these items has been remitted to the BIR.[93] Otherwise, these will be disallowed, just as in AGIC’s case.
It is not contested that both deficiency EWT and IT assessment were consequences of AGIC’s failure to withhold. However, the deficiency IT arising from the disallowance of items claimed as deductions should not be confused with deficiency EWT imposed on a withholding agent for its failure to withhold.[94] To be sure, that an individual or corporation is simultaneously a withholding agent and income taxpayer is not a rare and obnoxious incident that would give rise to double taxation.
Deficiency VAT.
AGIC asserts that the CIR included gross receipts already subjected to VAT in 2005 in computing the VAT due for 2006. Thus, the deficiency VAT assessment is arbitrary and amounts to double taxation.[95]
AGIC is mistaken.
The CTA En Banc already found that there was nothing in the computation of deficiency VAT that pertained to 2005 gross receipts. It explained:
Even though 2005 figures are involved, respondent is not assessing petitioner for deficiency VAT for 2005, rather respondent is questioning the discrepancy of P93,259.52 between the amount of input tax carried over from the 4th quarter of 2005 declared per return (P226,002.97) and per general ledger (P132,743.45). The input tax carried over from the 4th quarter of 2005 will have an effect on the total allowable input tax for 2006 (and consequently on the VAT payable for 2006) since the Tax Code allows the excess input tax in a given quarter to be carried over to the succeeding quarter/s. Hence, petitioner should account for the alleged discrepancy, unfortunately, petitioner failed to do so.
Respondent also made an adjustment of P15,359.11, alleging that this amount was claimed as creditable input VAT for 2006 but pertains to 2005, hence, was deducted from the input VAT claimed, which has the effect of increasing the output VAT due. Hence, petitioner should prove that this amount is not “out-of-period” input taxes. Again, petitioner failed to do so.[96]
While the allegation of double taxation is a legal question, the matter of the 2005 gross receipts inclusion in the 2006 VAT computation is a factual one. The Court shall not brush aside the tax court’s findings as long as supported by substantial evidence and not tainted by grave abuse.[97]
IV
AGIC’s Availment of Tax Amnesty
Finally, AGIC insists that the assessments for deficiency VAT and late remittance of DST on insurance policies were extinguished by their availment of tax amnesty under RA 9480.
The CIR counters that while AGIC applied for tax amnesty, it failed to comply with the requirements under the tax amnesty law. More specifically, it did not submit its SALN as of December 31, 2005, which RA 9480 required to be attached to its application.
The Court agrees with the CIR.
The mere filing of an application for tax amnesty will not extinguish the taxpayer’s tax liabilities. The taxpayer-applicant shall be immune from taxes specified under a tax amnesty law only upon completion of the requirements set forth under the law itself and applicable tax issuances.[98]
In the present case, the CTA Division found that while AGIC lodged an application, they did not submit a SALN, a required attachment under RA 9480.[99] Aside from their bare claims that they in fact availed of tax amnesty, AGIC does not offer proof showing that they have fully complied with the requirements under RA 9480, particularly the requirement to submit a SALN. Thus, the Court shall no longer disturb the findings of the court below.
WHEREFORE, the instant petition is DENIED. The Decision dated January 4, 2016 of the Court of Tax Appeals En Banc in CTA EB Case No. 1223 (CTA Case No. 8191) is AFFIRMED.
SO ORDERED.
Leonen (Chairperson), Hernando, Delos Santos, and Rosario, JJ., concur.