EN BANC [ G.R. Nos. 208310-11, March 28, 2023 ] PEOPLE OF THE PHILIPPINES, PETITIONER, VS. JOEL C. MENDEZ, RESPONDENT.
JOEL C. MENDEZ, PETITIONER, VS. PEOPLE OF THE PHILIPPINES, RESPONDENT.
Is an assessment for deficiency taxes a prerequisite for collection of the taxpayer-accused’s civil liability for unpaid taxes in the criminal prosecution for tax law violations? This is the central issue in these consolidated Petitions for Review[1] assailing the Court of Tax Appeals (CTA) En Banc’s Decision[2] dated December 11, 2012 and Resolution,[3] dated July 8, 2013 in C.T.A. EB Crim. Nos. 014 and 015, which affirmed the CTA Division’s Decision[4] dated January 5, 2011 and Resolution,[5] dated May 27, 2011 in CTA Crim. Case Nos. O-013 and O-015. The assailed issuances found Joel C. Mendez (Joel) guilty beyond reasonable doubt for violating Section 255 of the 1997 National Internal Revenue Code, as amended (Tax Code),[6] for failure to file income tax return (ITR) for the taxable year 2002 and for failure to supply correct and accurate information in the ITR for the taxable year 2003.
ANTECEDENTS In two separate Amended Informations,[7] Joel was charged with the crime of Violation of Section 255 of the Tax Code, as follows: [CRIMINAL CASE NO. O-013 (I.S. No. 2005-204) For: Violation of Section 255, RA No. 8424 Failure to file ITR for taxable year 2002] That on or about the 15th day of April 2003, at Quezon City, and within the jurisdiction of this Honorable Court, the above-named accused, a duly registered taxpayer, and sole proprietor of “Weigh Less Center”, “Mendez Body and Face Salon and Spa”, and “Mendez Body and Face Skin Clinic”, with principal office at No. 31 Roces Avenue, Quezon City, and with several branches in Quezon City, Makati City, San Fernando, Pampanga and Dagupan City, did then and there, willfully, unlawfully and feloniously, fail to file his income tax return (ITR) with the Bureau of Internal Revenue for taxable year 2002, to the damage and prejudice of the Government in the estimated amount of P1,522,152.14, exclusive of penalties, surcharges[,] and interest.
[CRIMINAL CASE NO. O-015 (I.S. No. 2005-204) For: Violation of Section 255, RA No. 8424 Failure to supply correct and accurate information in the ITR for taxable year 2003] That on or about the 15th day of April 2004, at Dagupan City, and within the jurisdiction of this Honorable Court, the above-named accused, a duly registered taxpayer, and sole proprietor of “Weigh Less Center”, “Mendez Body and Face Salon and Spa”, and “Mendez Body and Face Skin Clinic”, with several branches in Quezon City, Makati City, San Fernando, Pampanga and Dagupan City, engaged in the business of cosmetic surgery and dermatology, willfully, unlawfully and feloniously, did then and there, fail to supply correct and accurate information in his income tax return (ITR) for taxable year 2003 filed in the Revenue District of Calasiao, Pangasinan, by making it appear under oath that his income for taxable year 2003 was derived mainly from his branch in Dagupan City, and failing to declare his consolidated income from his other “Weigh Less Center”, “Mendez Body and Face Salon and Spa”, and “Mendez Body and Face Skin Clinic” branches, to the damage and prejudice of the Government in the estimated amount of P2,107,023.65, exclusive of penalties, surcharges and interest.
CONTRARY TO LAW.[9] (Underscoring in the original) When arraigned, Joel pleaded not guilty to the charges. The cases were consolidated upon agreement of the parties. Thereafter, trial ensued.
The evidence for the prosecution revealed that acting on a confidential letter-complaint against Joel for alleged non-issuance of official receipts for services rendered, the Bureau of Internal Revenue (BIR) issued a Letter of Authority[10] (LoA) to examine Joel’s books of accounts and other accounting records for taxable years 2001, 2002, and 2003. Joel’s failure to comply with the First Letter-Notice,[11] the Second Letter-Notice,[12] and the Final Request[13] to produce records and documents prompted the BIR to resort to third-party information and best obtainable evidence.
The investigation showed that Joel is a single proprietor doing business under several trade names and addresses.[14] Further, the prosecution found that Joel was engaged in the practice of profession through Weigh Less Center, Co., a partnership registered with the Securities and Exchange Commission on September 23, 1996, for the purpose of conducting a medical program aimed at assisting clients in losing weight and in maintaining their ideal body weight afterward. In addition, Joel had several businesses registered under his name before the Department of Trade and Industry (DTI). He spent large sums of money advertising his clinics and paying rent, purchased various vehicles since 1996, and had frequent travels abroad.[15]
Verification of tax records from the BIR Integrated Tax System (BIR-ITS) revealed that Joel did not file his Annual ITR for 2001 and 2002. For 2003, Joel filed his Annual ITR with the Revenue District Office (RDO) of Calasiao, Pangasinan.[16] The BIR-ITS, however, showed that Joel’s registered principal place of business is No. 31-B Roces Avenue, Quezon City.[17]
The prosecution used the net worth and expenditures method and determined that Joel had unreported income of P1,089,439.08 for 2001 and P1,522,152.14 for 2002. For 2003, the prosecution considered the filing of the ITR with RDO-Calasiao irregular. Joel should have filed a consolidated ITR with RDO-South Quezon City and reported his income from all sources or business operations in and outside Metro Manila. Instead, he declared a net loss of P38,893.91.[18]
For the defense, Joel testified that he is a doctor by profession and runs several clinics under the banner of Mendez Medical Group. He contended that he did not personally receive the LoA and became aware of its existence in February 2005 when BIR representatives came to his office asking for records and documents. Joel claimed that his accountant Richard Bianan (Richard) deliberately concealed the notices from him. Furthermore, the clinics became operational only in March 2003.[19]
The Ruling of the Court of Tax Appeals In its Decision[20] dated January 5, 2011, the CTA Division found Joel guilty of all the charges. The CTA Division held that the notices were deemed received by Joel since he authorized his accountant to receive documents and notices on his behalf. Even if Richard concealed the notices from him, the BIR is authorized to investigate and assess Joel for deficiency taxes based on third-party information and best obtainable evidence.[21]
The CTA Division considered the totality of evidence submitted by the prosecution sufficient to establish Joel’s guilt beyond reasonable doubt for violating Section 255 of the Tax Code.[22]
In CTA Crim. Case No. O-013, the CTA Division found that, first, Joel is the sole proprietor of Mendez Body and Face Salon and Spa. In 2002, Joel spent large sums of money on rent, advertisements, foreign travel, and purchased many vehicles. The CTA Division concluded that the amount Joel used for such purchases and expenditures came from his income earned from the practice of his profession through the operation of his clinics. Thus, Joel must file ITR and report his income made during the taxable year 2002. Second, Joel’s registered principal place of business is at No. 31-B Roces Avenue, Quezon City, which is within the jurisdiction of RDO-South Quezon City. The prosecution proved no record of ITR filed for the taxable year 2002 with RDO-South Quezon City. Third, Joel’s denial of earning substantial income despite his purchases and expenditures signified the attempt to conceal his income by not filing his ITR. Also, Joel’s habitual failure to file his ITR for taxable years 2001 and 2002 showed his willfulness not to file a return. Accordingly, Joel is guilty of willful failure to file or make a return for the taxable year 2002, violating Section 255 of the Tax Code.[23]
As regards CTA Crim. Case No. O-015, the CTA Division found that Joel willfully failed to supply correct and accurate information in his ITR for the taxable year 2003. The prosecution established that Joel had several clinics under the trade names Weigh Less Center, Mendez Body and Face Salon and Spa, and Mendez Body and Face Skin Clinic, and he had businesses registered with the DTI. However, only the income earned from his clinic in Calasiao, Pangasinan, was declared in his ITR for the taxable year 2003. Joel even indicated that he suffered a net loss that year. The CTA Division ruled that Joel knew he had an obligation to declare and file his ITR. In fact, Joel filed an ITR with the RDO-Calasiao, but he did not report his income earned from other clinics. Joel cannot blame his accountant Richard, who allegedly embezzled the money intended as payment for his tax obligations. The CTA Division noted that Richard took clinic inventories, business and mayor’s permit fees, and withholding tax remittances for the year 2004, but there was no proof that Richard misappropriated or misused the supposed income tax payments for 2003. Besides, Joel’s failure to inquire from his accountant about the filing of ITR for his other branches is “willful blindness."[24]
In so far as Joel’s civil liability for deficiency taxes for the taxable years 2002 and 2003 is concerned, the CTA Division held that the prosecution’s computation using the net worth method and the expenditures method could not be the basis for Joel’s liability. While an assessment for deficiency tax is not necessary before there can be a criminal prosecution for violation of tax laws, there must first be a final assessment issued by the Commissioner of Internal Revenue (CIR) under Section 205[25] of the Tax Code before the taxpayer can be held civilly liable for deficiency taxes. Lastly, the CTA Division imposed a fine of P10,000.00 for each criminal violation.[26]
The dispositive portion of the Decision reads: WHEREFORE, premises considered, judgment is hereby rendered: In Criminal Case No. O-013, finding the accused Joel Cortez Mendez GUILTY beyond reasonable doubt for violation of Section 255 of the National Internal Revenue Code of 1997, as amended, and is hereby SENTENCED to suffer an indeterminate penalty of one (1) year, as minimum, to two (2) years, as maximum, and is ORDERED TO PAY a fine in the amount of [P]10,000.00, with subsidiary imprisonment in case accused has no property with which to meet such fine, pursuant to Section 280 of the NIRC of 1997, as amended; and
In Criminal Case No. O-015, finding the accused Joel Cortez Mendez GUILTY beyond reasonable doubt for violation of Section 255 of the National Internal Revenue Code of 1997, as amended, and is hereby SENTENCED to suffer an indeterminate penalty of one (1) year, as minimum, to two (2) years, as maximum, and is ORDERED TO PAY a fine in the amount of [P]10,000.00, with subsidiary imprisonment in case accused has no property with which to meet such fine, pursuant to Section 280 of the NIRC of 1997, as amended.SO ORDERED.[27] (Emphasis in the original) Associate Justice Caesar A. Casanova dissented,[28] opining that the CTA does not have jurisdiction over the criminal cases because the amounts of the taxes alleged in the Amended Informations are mere estimates. Accordingly, it cannot be determined with certainty which court will have jurisdiction. Even assuming that the CTA has jurisdiction, the prosecution failed to prove Joel’s guilt beyond reasonable doubt.[29]
Both parties sought reconsideration of the January 5, 2011 Decision.
Joel raised for the first time in his Motion for Reconsideration[30] the lack of jurisdiction of the CTA. He averred that the Amended Informations did not clearly state the amount of deficiency taxes. For its part, the prosecution argued that an assessment is unnecessary before civil liability for unpaid taxes may be imposed. Section 222 (a) of the Tax Code allows a proceeding in court for the collection of deficiency tax even without prior assessment in case the return filed is false or fraudulent or in case there is a failure to file a return. Joel failed to file his ITR for 2002 and filed a fraudulent return for 2003.[31]
The CTA Division denied the parties’ Motions for Reconsideration on May 27, 2011,[32] The CTA held that the Amended Informations sufficiently alleged the amount due from the accused. Besides, Joel is already estopped from assailing the CTA’s jurisdiction. He participated in all proceedings without questioning the court’s jurisdiction. The CTA reiterated that although an assessment is not required to prosecute the criminal case, the CIR’s final determination on the accused’s tax liability is necessary for the tax court to rule on the civil liability. Thus: WHEREFORE, finding no reversible error committed by this Court in the assailed Decision promulgated on January 5, 2011, the accused’s Motion for Reconsideration and plaintiff’s Motion for Partial Reconsideration are hereby DENIED for lack of merit.
SO ORDERED.[33] (Emphasis in the original) Unsatisfied with the denial of their motions, both parties filed their respective Petitions for Review before the CTA En Banc.
On December 11, 2012, the CTA En Banc rendered the assailed Decision[34] that affirmed Joel’s conviction for violation of Section 255 of the Tax Code and the non-imposition of deficiency taxes against the accused, to wit: WHEREFORE, premises considered, both Petitions for Review, docketed as C.T.A. EB Crim. Nos. 014 and 015, are hereby DISMISSED for lack of merit. Accordingly, the assailed Decision, dated January 5, 2011 and Resolution, dated May 27, 2011 of the Second Division are hereby AFFIRMED without pronouncement as to costs.
SO ORDERED.[35] (Emphasis in the original) The CTA En Banc denied the parties’ Motions for Reconsideration on July 8, 2013.[36]
Hence, the present Petitions for Review before this Court.
The Present Petitions In G.R. Nos. 208310-11, the Office of the Solicitor General (OSG), on behalf of the People, argues that the computation of deficiency taxes by the Revenue Officer pursuant to an LoA may be the basis for the imposition of civil liability upon the taxpayer. In the present case, the BIR Revenue Officers computed Joel’s liability for deficiency income tax in the amounts of P1,522,152.14 and P2,107,023.65 for 2002 and 2003, respectively.
In his Comment,[37] Joel counter-argues that consistent with Section 205 of the Tax Code, the assessment procedures must be complied with before being held liable for deficiency taxes. The OSG filed a Reply[38] reiterating the arguments raised in its Petition.
In G.R. No. 208662, Joel essentially reiterated the issues and arguments raised in his Petition for Review before the CTA En Banc.[39] He insists that the tax court had no jurisdiction over the criminal cases because the amounts stated in the Amended Informations are mere estimates. The CTA has original jurisdiction over a criminal case only when the principal amount of tax is at least P1,000,000.00; otherwise, the original jurisdiction is with the regular courts, and the jurisdiction of the CTA shall be appellate. Also, subpoena duces tecum is mandatory before the BIR may resort to third-party information and best obtainable evidence to afford the accused due process. Lastly, the prosecution failed to prove his guilt beyond reasonable doubt. He did not willfully evade to file his ITR, supply correct and accurate information in his ITR, and pay his tax obligations.
In its Comment,[40] the OSG posits that Joel is barred by estoppel in raising the defense of lack of jurisdiction for the first time on appeal. At any rate, the allegations in the Complaint sufficiently show that the amount claimed is at least P1,000,000.00, and therefore, the CTA had jurisdiction. Moreover, the issuance of subpoena duces tecum is not a prerequisite under the law. Lastly, the prosecution proved Joel’s guilt for violating Section 255 of the Tax Code beyond reasonable doubt.
In his Reply,[41] Joel insists that he did not willfully fail to file his ITR for the year 2002 and merely relied on his accountant to file his tax returns. Joel proffers that he “will be in a better position to contribute something good to the country if he is allowed to pay a fine only (no imprisonment) in case of conviction. It is definitely not good to mix him with the hardened criminals in prison especially since the alleged crimes are not as atrocious as those in the Revised Penal Code."[42] Besides, the BIR encourages taxpayers to settle their civil liabilities out of court.
Whether the CTA has jurisdiction over the criminal cases against the accused Joel?
Whether the prosecution proved Joel’s guilt for violating Section 255 of the Tax Code beyond reasonable doubt?
Whether Joel is liable for deficiency income tax for taxable years 2002 and 2003?
RULING We deny Joel’s Petition in G.R. No. 208662 for lack of merit. His contentions are a mere rehash of the arguments which were raised and already considered by the CTA. Accordingly, we affirm Joel’s conviction for violating Section 255 of the Tax Code, for his failure to file ITR for the year 2002 and supply correct and accurate information in the ITR for the year 2003.
On the other hand, we find the OSG’s Petition in G.R. Nos. 208310-11 partly meritorious.
At the onset, we hold that Joel may question the jurisdiction of the CTA over the two criminal cases. Contrary to the finding of the CTA Division,[43] the “unquestionably accepted” rule that the issue of jurisdiction may be raised at any stage of the proceedings, even on appeal, and is not lost by waiver or silence applies.[44] In Figueroa v. People,[45] the Court clarified that the principle of estoppel espoused in Tijam v. Sibonghanoy[46] should be “applied rarely – only from necessity, and only in extraordinary circumstances[;]” otherwise, “the doctrine of estoppel may be a most effective weapon for the accomplishment of injustice."[47] Thus: True, delay alone, though unreasonable, will not sustain the defense of “estoppel by laches” unless it further appears that the party, knowing his rights, has not sought to enforce them until the condition of the party pleading laches has in good faith become so changed that he cannot be restored to his former state, if the rights be then enforced, due to loss of evidence, change of title, intervention of equities, and other causes.[48] (Italics in the original) Joel cannot be considered estopped in assailing the jurisdiction of the CTA. He timely raised the issue of jurisdiction in his Motion for Reconsideration of the CTA Division’s Decision. No extraordinary long period of time had yet elapsed for laches to attach.
The CTA has jurisdiction over the twocriminal cases.
Before Republic Act (RA) No. 9282,[49] the CTA, a court of special jurisdiction, only exercised appellate jurisdiction over tax cases.[50] The tax court had no jurisdiction to hear and decide criminal cases for tax law violations. Criminal prosecution for such offenses was then within the cognizance of the regular courts.[51] But on April 23, 2004,[52] RA No. 9282 conferred original and appellate jurisdiction over criminal cases to the CTA Division as follows: Sec. 7. Jurisdiction. — The CTA shall exercise:
b. Jurisdiction over eases involving criminal offenses as herein provided:
Exclusive original jurisdiction over all criminal offenses arising from violations of the National Internal Revenue Code or Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue or the Bureau of Customs: Provided, however, That offenses or felonies mentioned in this paragraph where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is less than One million pesos ([P]1,000,000.00) or where there is no specified amount claimed shall be tried by the regular Courts and the jurisdiction of the CTA shall be appellate. Any provision of law or the Rules of Court to the contrary notwithstanding, the criminal action and the corresponding civil action for the recovery of civil liability for taxes and penalties shall at all times be simultaneously instituted with, and jointly determined in the same proceeding by the CTA, the filing of the criminal action being deemed to necessarily carry with it the filing of the civil action, and no right to reserve the filling of such civil action separately from the criminal action will be recognized.
Exclusive appellate jurisdiction in criminal offenses:
Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax cases originally decided by them, in their [respective] territorial jurisdiction.
Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the exercise of their appellate jurisdiction over tax cases originally decided by the Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in their respective jurisdiction. (Emphasis supplied) A reading of the foregoing provision shows that criminal offenses arising from violations of tax laws may involve an underlying tax claim or none at all. Notably, when a tax claim is involved, the law requires that “the criminal action and the corresponding civil action for the recovery of civil liability for taxes and penalties shall at all times be simultaneously instituted with, and jointly determined in the same proceeding[s] by the CTA, the filing of the criminal action being deemed to necessarily carry with it the filing of the civil action, and no right to reserve the filing of such civil action separately from the criminal action will be recognized."[53]
Thus, for criminal offenses with an attendant claim amounting to P1,000,000.00 or more, exclusive original jurisdiction is vested with the CTA Division. Whereas, when the tax claim is below P1,000,000.00 or there is no specified amount or no attendant claim, as when the offense is only punishable by a fine and/or imprisonment,[54] original jurisdiction is vested with the regular courts. In this regard, Batas Pambansa (BP) Blg. 129 vests Metropolitan Trial Courts, Municipal Trial Courts in Cities, Municipal Trial Courts, and Municipal Circuit Trial Courts (first-level courts) with jurisdiction over claims which do not exceed P300,000.00 for those filed outside Metro Manila or P400,000.00 for those filed within Metro Manila.[55] On the other hand, Regional Trial Courts (RTC) are vested with jurisdiction over claims that exceed P300,000.00 for those filed outside Metro Manila or P400,000.00 for those filed within Metro Manila.[56] In these cases, the CTA merely exercises appellate jurisdiction.[57]
Conflict, however, arose as regards the jurisdiction of the CTA and the regular courts with the advent of RA No. 11576,[58] which increased the threshold values for civil cases falling within the exclusive original jurisdiction of the first and second level courts. Particularly, upon the effectivity of RA No. 11576 on August 21, 2021,[59] exclusive original jurisdiction over civil actions involving claims amounting to P2,000,000.00 and below shall be with the first-level courts.[60] Those with claims amounting to more than P2,000,000.00 shall be with the RTCs.[61]
It would now appear, considering the pertinent provisions of RA No. 9282,[62] that both the CTA and the regular courts have exclusive and original jurisdiction over criminal offenses entailing tax claims amounting to P1,000,000.00 and above[63] and purely tax collection cases where the principal amount of claim is also P1,000,000.00 and above.[64] The apparent conflicting provisions of RA No. 9282 and BP Blg. 129, as amended by RA No. 11576, are reconciled as follows: (a) Exclusive original jurisdiction over tax collection cases involving P1,000,000.00 or more remains with the CTA; (b) Exclusive original jurisdiction over tax collection cases involving less than P1,000,000.00 shall be exercised by the proper first-level courts; (c) Exclusive appellate jurisdiction over tax collection cases originally decided by the first-level courts shall be exercised by the RTC; (d) Exclusive original jurisdiction over criminal offenses or felonies where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is P1,000,000.00 or more remains with the CTA; (e) Exclusive original jurisdiction over criminal offenses or felonies where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is less than P1,000,000.00 shall be exercised by the proper first-level courts; and (f) Exclusive appellate jurisdiction over criminal offenses or felonies originally decided by the first-level courts remains with the RTC. It must be emphasized, however, that the foregoing clarification shall apply to cases filed upon the effectivity of RA No. 11576 on August 21, 2021 since jurisdiction over the subject matter in criminal cases is determined by the statute in force at the time of commencement of the action.[65]
Here, the criminal cases involved violations of the Tax Code for failure to file ITR for the year 2002 and for failure to supply correct and accurate information in the return for the year 2003. The Informations (Crim. Case No. 0-013 and Crim. Case No. 0-015) were first filed on November 25, 2005, and the CTA approved the Amended Informations on August 11 and 8, 2006, respectively.[66] The Amended Informations stated that Joel’s potential liability for deficiency taxes is P1,522,152.14 in Crim. Case No. O-013 and P2,107,023.65 in Crim. Case No. O-015, i.e., more than P1,000,000.00 in both cases. Clearly, pursuant to RA No. 9282, the statute in force when the criminal actions at bar were instituted,[67] jurisdiction over the cases is with the CTA Division.
The amount in the two Informations sufficiently vest jurisdiction to the CTA.
Joel argues that the amount alleged in the Amended Informations is merely “estimate;” therefore, it is as if there is no specified amount claimed. Hence, the original jurisdiction belonged to the regular courts. Thus, the CTA erroneously took cognizance of the criminal cases against him.
Jurisdiction over the subject matter is conferred by law and determined by the allegations in the Complaint or Information.[68] If the facts set out therein are sufficient to show that the court in which the Complaint or Information is filed has jurisdiction, then the court may validly take cognizance of the case.[69]
A plain reading of the Amended Informations reveals that the prosecution alleged with sufficient clarity that the principal amount of deficiency taxes claimed against the accused is at least P1,000,000.00 and that the amount is without penalties, surcharges, and interest, as follows: CRIMINAL CASE NO. O-013 For: Violation of Section 255, RA No. 8424 [Failure to file ITR for taxable year 2002]That on or about the 15th day of April 2003, at Quezon City, and within the jurisdiction of this Honorable Court, the above-named accused, a duly registered taxpayer, and sole proprietor of “Weigh Less Center”, “Mendez Body and Face Salon and Spa”, and “Mendez Body and Face Skin Clinic”, with principal office at No. 31 Roces Avenue, Quezon City, and with several branches in Quezon City, Makati City, San Fernando, Pampanga and Dagupan City, did then and there, willfully, unlawfully and feloniously, fail to file his [ITR] with the [BIR] for the taxable year 2002, to the damage and prejudice of the Government in the estimated amount of P1,522,152.14, exclusive of penalties, surcharges and interest.
CONTRARY TO LAW.[70] (Boldfacing supplied; underscoring in the original)
CRIMINAL CASE NO. O-015 For: Violation of Section 255, RA No. 8424 [Failure to supply correct and accurate information in the ITR for taxable year 2003] That on or about the 15th day of April 2004, at Dagupan City, and within the jurisdiction of this Honorable Court, the above-named accused, a duly registered taxpayer, and sole proprietor of “Weigh Less Center”, “Mendez Body and Face Salon and Spa”, and “Mendez Body and Face Skin Clinic”, with several branches in Quezon City, Makati City, San Fernando, Pampanga and Dagupan City, engaged in the business of cosmetic surgery and dermatology, willfully, unlawfully and feloniously, did then and there, fail to supply correct and accurate information in his [ITR] for taxable year 2003 filed in the Revenue District of Calasiao, Pangasinan, by making it appear under oath that his income for taxable year 2003 was derived mainly from his branch in Dagupan City, and failing to declare his consolidated income from his other “Weigh Less Center”, “Mendez Body and Face Salon and Spa”, and “Mendez Body and Face Skin Clinic” branches, to the damage and prejudice of the Government in the estimated amount of P2,107,023.65, exclusive of penalties, surcharges and interest.
CONTRARY TO LAW.[71] (Boldfacing supplied; underscoring in the original) The employment of the term “estimated” in the Amended Informations did not divest the CTA of jurisdiction.
In the first place, Joel was indicted for criminal violation of Section 255 of the Tax Code. As a matter of course, a finding of probable cause is required to file criminal Information for violation of the Tax Code.[72] Probable cause is defined as such facts that are sufficient to engender a well-founded belief that a crime has been committed, that the accused is probably guilty thereof and that he should be held for trial. The determination of probable cause does not require actual or absolute certainty or clear and convincing evidence of guilt. Instead, it needs only to rest on reasonable belief or probability that, more likely than not, a crime has been committed by the accused.[73] In other words, probable cause to indict a taxpayer for a criminal offense under tax laws does not mean that the complaint or information states with particularity the exact amount or precise computation of deficiency tax. In fact, a formal assessment is not required before the institution of the criminal complaint.[74] It is enough that the prosecution was able to show that a tax is due from him.[75] The reason is that a criminal complaint is instituted not to demand deficiency payment but to penalize the taxpayer for violation of the Tax Code.[76] In Bureau of Internal Revenue v. Court of Appeals:[77] The CA, however, found no probable cause to indict respondent spouses for tax evasion. It agreed with Acting Justice Secretary Devanadera that petitioner failed to make “a categorical finding of the exact amount of tax due from [respondent spouses]” and “to show sufficient proof of a likely source of [respondent spouses’] income that enabled them to purchase the real and personal properties adverted to x x x.”
The amount of tax due from respondent spouses was specifically alleged in the Complaint-Affidavit. The computation, as well as the method used in determining the tax liability, was also clearly explained. The revenue officers likewise showed that the underdeclaration exceeded 30% of the reported or declared income.
The revenue officers also identified the likely source of the unreported or undeclared income in their Reply-Affidavit x x x:
In view of the foregoing, we are convinced that there is probable cause to indict respondent spouses for tax evasion as petitioner was able to show that a tax is due from them. Probable cause, for purposes of filing a criminal information, is defined as such facts that are sufficient to engender a well-founded belief that a crime has been committed, that the accused is probably guilty thereof, and that he should be held for trial. It bears stressing that the determination of probable cause does not require actual or absolute certainty, nor clear and convincing evidence of guilt; it only requires reasonable belief or probability that more likely than not a crime has been committed by the accused.[78] (Emphasis supplied; citations omitted) Secondly, the use of estimates sprung from Joel’s noncompliance with the First Letter-Notice,[79] the Second Letter-Notice,[80] and the Final Request[81] from the BIR to produce records and documents. Since the prosecution could not determine exactly the amount of Joel’s liability for deficiency taxes, “best efforts [were] made to get as close as possible to the exact amount."[82] They resorted to third-party information and best obtainable evidence, which use is sanctioned under Section 6 (B)[83] of the Tax Code.[84] Associate Justice Rodil V. Zalameda points out that the “use of estimates or approximations is founded on necessity. If [w]e disallow the use of estimates, [w]e would effectively be rewarding the very same taxpayers who suppressed evidence or otherwise forced the hand of the government to use estimates in the first place."[85]
Thirdly, and most importantly, Joel was sufficiently informed of the charge against him including the amount of deficiency taxes that enabled him to prepare for his defense and evidence based on the information. We emphasize, [t]he test in determining whether the [I]nformation validly charges an offense is whether the material facts alleged in the [C]omplaint or [I]nformation will establish the essential elements of the offense charged as defined in the law. In this examination, matters aliunde are not considered. To repeat, the purpose of the law in requiring this is to enable the accused to suitably prepare his defense, as he is presumed to have no independent knowledge of the facts that constitute the offense.[86] (Citations omitted) To iterate, the Amended Informations stated that Joel’s potential liability for deficiency taxes is P1,522,152.14 in 2002 and P2,107,023.65 in 2003. The prosecution determined the amounts based on original and/or certified true copies of contracts, receipts, and certifications from third parties showing the expenses he incurred for 2002 and 2003.[87] The Amended Informations have the factual averments that constitute the elements of the crimes as well as the amounts that vest jurisdiction to the CTA.
Considering the court’s jurisdiction, therefore, it is of no consequence that the amount of taxes later proved to be due from Joel is less or more, than that alleged in the Information. The court will not be deprived of its acquired jurisdiction. In this regard, Associate Justice Alfredo Benjamin S. Caguioa stresses that “[o]nce jurisdiction is vested by the material allegations in the Information, it remains vested irrespective of whether the plaintiff is entitled to recover all or some of the claims asserted therein."[88] Chief Justice Alexander G. Gesmundo adds: “as long as the allegations in the information constitute the elements of the offense charged, then the court shall have jurisdiction over the offense, even if it was subsequently determined during trial that the [sic] some of the allegations were not established. This is the embodiment of the doctrine of adherence of jurisdiction, which reinforces the principle that the jurisdiction of a court, whether in criminal or civil cases, once attached cannot be ousted by subsequent happenings or events, although of a character that would have prevented jurisdiction from attaching in the first instance, and it retains jurisdiction until it finally disposes of the case."[89]
Issuance of subpoena duces tecum is not mandatory in determining the taxpayer’s correct tax liability.
The CTA Division, and affirmed by the En banc, aptly held that the issuance of subpoena duces tecum is not mandatory before the BIR may resort to third-party information and best obtainable evidence. The issuance of subpoena is merely one of the powers[90] that the CIR may exercise in assessing or ascertaining the tax due from the taxpayer.[91] Section 6 of the Tax Code allows the CIR to make assessments based on best evidence obtainable in case of failure of the taxpayer to submit the required returns, statements, reports, and other documents. The “best evidence” includes the accounting records of the taxpayer who is the subject of the assessment process, the accounting records of other taxpayers engaged in the same line of business, data, record, paper, document, or any evidence gathered by internal revenue officers from other taxpayers who had personal transactions or from whom the subject taxpayer received any income; and record, data, document, and information secured from government offices or agencies.[92]
In the present case, Joel failed to comply with the three-letter notices to produce records and documents for taxable years 2001, 2002, and 2003. As a result, the BIR promptly resorted to third-party information and best evidence obtainable to ascertain Joel’s correct tax liability.
The prosecution established Joel’s guilt beyond reasonable doubt.
Section 255 of the Tax Code reads: SECTION 255. Failure to File Return, Supply Correct and Accurate Information, Pay Tax, Withhold and Remit Tax and Refund Excess Taxes Withheld on Compensation. — Any person required under this Code or by rules and regulations promulgated thereunder to pay any tax, make a return, keep any record, or supply correct [and] accurate information, who willfully fails to pay such tax, make such return, keep such record, or supply correct and accurate information, or withhold or remit taxes withheld, or refund excess taxes withheld on compensation, at the time or times required by law or rules and regulations shall, in addition to other penalties provided by law, upon conviction thereof, be punished by a fine of not less than Ten thousand pesos ([P]10,000) and suffer imprisonment of not less than one (1) year but not more than ten (10) years. (Emphasis supplied) To successfully prosecute a violation of Section 255, it must be shown that: (1) the taxpayer is required to pay any tax, make or file a return, keep any record, or supply correct and accurate information, or withhold or remit taxes withheld, or refund excess taxes withheld on compensation, at the time or times required by law or rules and regulations; (2) the taxpayer failed to do so; and (3) the act is willful. All the elements are present here.
In CTA Crim. Case No. O-013 – willful failure to file ITR for the taxable year 2002, the prosecution proved that first, Joel is a Filipino citizen engaged in business and the practice of profession required to file a return on income derived from all sources.[93] On this point, we affirm the prosecution’s use of the expenditures method in identifying Joel’s likely source of undeclared or unreported income. In Bureau of Internal Revenue v. Court of Appeals,[94] the Court held that: [T]he government is allowed to resort to all evidence or resources available to determine a taxpayer’s income and to use methods to reconstruct his income. A method commonly used by the government is the expenditure method, which is a method of reconstructing a taxpayer’s income by deducting the aggregate yearly expenditures from the declared yearly income. The theory of this method is that when the amount of the money that a taxpayer spends during a given year exceeds his reported or declared income and the source of such money is unexplained, it may be inferred that such expenditures represent unreported or undeclared income.[95] (Emphasis supplied; citations omitted) Of course, the taxpayer may justify that the expenses were sourced from other funds, such as personal wealth, donations, borrowings or loans, and other income.[96]
Here, the prosecution proved that Joel spent a large amount of money on rentals and advertisements, purchases of vehicles, and foreign travel in 2002. The Contract of Lease[97] dated July 12, 2001, for a 220-square meter health clinic and gallery at No. 31-G A. Roces Avenue, Quezon City, showed a monthly rental of P27,000.00 for the period of August 15, 2001, to August 24, 2007. Joel and his witness, lessor Ma. Lita D. Gregorio never disputed the payment of rentals.[98] They merely claimed that the clinic’s operation was suspended in 2002 because of a lack of building permit.[99] Moreover, Joel did not contest the prosecution’s claim that he spent P1,385,108.78 for advertisement placements with PhilStar Daily, Inc. and P1,702,871.41 with Philippine Daily Inquirer, that Joel acquired several vehicles, and he had frequent travels abroad. Joel’s failure to account for the source of his expenditures leads us to conclude that the monies spent were derived from undisclosed income from the operation of his business and the practice of his profession in 2002.
Second, Joel did not file ITR for the taxable year 2002 with the RDO of his legal residence or principal place of business on or before April 15, 2003.[100] To be sure, Joel never denied the non-filing of his Annual ITR.
Third, the non-filing of ITR was willful. The term “willful” is defined in the Ninth Edition of Black’s Law Dictionary as voluntary and intentional, but not necessarily malicious, viz.:[101] The word “Wilful” or “Wilfully” when used in the definition of a crime, it has been said time and again, means only intentionally or purposely as distinguished from accidentally or negligently and does not require any actual impropriety; while on the other hand it has been stated with equal repetition and insistence that the requirement added by such a word is not satisfied unless there is a bad purpose or evil intent. Rollin M. Perkins & Ronald N. Boyce, Criminal Law 875-76 (3d ed. 1982).
Almost all of the cases under [Bankruptcy Code § 523(a)(6)] deal with the definition of the two words “willful” and “malicious.” Initially one might think that willful and malicious mean the same thing. If they did, Congress should have used one word and not both. Most courts feel compelled to find some different meaning for each of them. David G. Epstein, et al., Bankruptcy § 7-30, at 531 (1993). (Emphasis supplied) In the United States (US) Supreme Court case of Cheek v. United States,[102] the word willfully as used in the federal criminal tax statutes, was construed as voluntary, intentional violation of a known legal duty. In that case, Cheek was charged with violation of Section 7203 of the Internal Revenue Code for willfully failing to file income tax returns and Section 7201 for willfully attempting to evade his income taxes. The US Supreme Court held: Willfulness, as construed by our prior decisions in criminal tax cases, requires the Government to prove that the law imposed a duty on the defendant, that the defendant knew of this duty, and that he voluntarily and intentionally violated that duty. We deal first with the case where the issue is whether the defendant knew of the duty purportedly imposed by the provision of the statute or regulation he is accused of violating, a case in which there is no claim that the provision at issue is invalid. In such a case, if the Government proves actual knowledge of the pertinent legal duty, the prosecution, without more, has satisfied the knowledge component of the willfulness requirement. But carrying this burden requires negating a defendant’s claim of ignorance of the law or a claim that, because of a misunderstanding of the law, he had a good-faith belief that he was not violating any of the provisions of the tax laws. This is so because one cannot be aware that the law imposes a duty upon him and yet be ignorant of it, misunderstand the law, or believe that the duty does not exist. In the end, the issue is whether, based on all the evidence, the Government has proved that the defendant was aware of the duty at issue, which cannot be true if the jury credits a good-faith misunderstanding and belief submission, whether or not the claimed belief or misunderstanding is objectively reasonable.
In this case, if Cheek asserted that he truly believed that the Internal Revenue Code did not purport to treat wages as income, and the jury believed him, the Government would not have carried its burden to prove willfulness, however unreasonable a court might deem such a belief. Of course, in deciding whether to credit Cheek’s good-faith belief claim, the jury would be free to consider any admissible evidence from any source showing that Cheek was aware of his duty to file a return and to treat wages as income, including evidence showing his awareness of the relevant provisions of the Code or regulations, of court decisions rejecting his interpretation of the tax law, of authoritative rulings of the Internal Revenue Service, or of any contents of the personal income tax return forms and accompanying instructions that made it plain that wages should be returned as income. The prosecution must prove that the taxpayer knew his legal duty to file an ITR, yet, the taxpayer knowingly, voluntarily, and intentionally neglected to do so. It must be stressed that the willful neglect to file the required tax return cannot be presumed.[103] It must be established fully as a fact and cannot be attributed to a mere inadvertent or negligent act.
We are convinced that Joel was aware of his obligation to file ITR, and he consciously and voluntarily refused to comply with his duty to make the return. In the First place, Joel is a doctor by profession and a businessman. As the CTA aptly held, Joel ought to know and understand, as he should, all the matters concerning his practice and business. The legal presumption is that a person takes ordinary care of his concerns.[104] Secondly, the Roces Avenue branch was registered with RDO-South Quezon City on May 6, 2002, under the trade name “Mendez Body and Face Salon and Spa."[105] Under Section 51 (A)(2)(a)[106] of the Tax Code, a Filipino citizen engaged in business or practice of profession within the Philippines shall file an ITR, regardless of the amount of gross income earned. Thus, the non-operation or suspension of operation of the Roces branch is inconsequential. Joel should have filed his Annual ITR, even only reporting the expenses incurred during the year. Lastly, it cannot escape our attention that the BIR issued an LoA to examine Joel’s books of accounts and accounting records, which was followed by three-letter notices to produce records and documents. As a result, Joel was made aware of a possible tax violation. Joel’s failure to take any action on the letter requests is simply an indication of his conscious and intentional refusal to comply with his obligation under the tax laws.
All things considered, the Court holds that Joel knew he should file his Annual ITR, but he deliberately failed to do so. The prosecution sufficiently proved Joel’s guilt beyond reasonable doubt of violating Section 255 of the Tax Code for willful failure to file or make his Annual ITR for the taxable year 2002.
Likewise, we sustain Joel’s conviction in CTA Crim. Case No. O-015 – willful failure to supply correct and accurate information in the ITR for the taxable year 2003. All the elements of the crime are present.
First, Joel is an individual required by law to file a return and declare all his income derived from all sources in the taxable year 2003.[107] He filed an ITR with the RDO of Calasiao, Pangasinan.[108] However, the income he earned from the operation of his clinics in Mendez Body and Face Salon and Spa-Roces Avenue Branch, Mendez Body and Face Salon and Spa-Cubao Branch, and Weigh Less Center-San Fernando, Pampanga Branch,[109] were not reported.
Second, Joel cannot pass the blame to his accountant Richard. The CTA found that Richard merely took clinic inventories, monies allotted for payment of business and mayor’s permit fees, and withholding tax remittances. There was no evidence that Richard misappropriated the money supposedly intended for the payment of income tax.
Joel’s failure to inquire and ensure that the ITR filed with RDO-Calasiao reported all income earned from other branches constitutes willful blindness. Black’s Law Dictionary defines willful blindness as the “[d]eliberate avoidance of knowledge of a crime, [especially] by failing to make a reasonable inquiry about suspected wrongdoing despite being aware that it is highly probable."[110] In the US Supreme Court case of Global-Tech Appliances, Inc. v. SEB S.A.,[111] the doctrine of willful blindness was elucidated in this wise: The doctrine of willful blindness is well established in criminal law. Many criminal statutes require proof that a defendant acted knowingly or willfully, and courts applying the doctrine have held that defendants cannot escape the reach of these statutes by deliberately shielding themselves from clear evidence of critical facts that are strongly suggested by the circumstances. The traditional rationale for the doctrine is that defendants who behave in this manner are just as culpable as those who have actual knowledge. Edwards, The Criminal Degrees of Knowledge, 17 Mod. L. Rev. 294, 302 (1954) (hereinafter Edwards) (observing on the basis of English authorities that “up to the present day, no real doubt has been cast on the proposition that [willful blindness] is as culpable as actual knowledge”). It is also said that persons who know enough to blind themselves to direct proof of critical facts in effect have actual knowledge of those facts. See [United States v. Jewell], 532 F. 2d 697, 700 (CA9 976) (En Banc).
This Court’s opinion more than a century ago in [Spurr v. United States], 17