REPUBLIC OF THE PHILIPPINES

Court ofTax Appeals

QUEZON CITY

En Bane

SPOUSES REMIGIO P. MAGAAN CTAEB N0.1338

and LETICIA L. MAGAAN, (CTA Case No. 7866)
Petitioners,
Present:

Del Rosario, P.J.

Castaneda, Jr.,
Bautista,
-versus- Uy,
Casanova,
Fabon-Victorino,
Mindaro-Grulla, and
Ringpis-Liban,
Manahan, JJ.

THE COMMISSIONER OF Promulgated:

INTERNAL REVENUE,
Respondent. JAN 1
X---------------------------------------------------------------------------- ------------X
DECISION
BAUTISTA, J:

Submitted for decision of the Court of Tax Appeals ("CTA") En

Bane under Section 4(b)1, Rule 8 of the 2005 Revised Rules of the CTA, as
amended, is the Petition for Review of the Decision2 dated March 9,
2015, and the Resolution3 dated June 30, 2015, rendered by the CTA
Second Division ("Court in Division") in CTA Case No. 7866.

1 "SEC. 4. Where to appeal; mode of appeal. -

XXX XXX XXX
(b) An appeal from a decision or resolution of the Court in Division on a motion for
reconsideration or new trial shall be taken to the Court by petition for review as provided
in Rule 43 of the Rules of Court. The Court En Bane shall act on the appeal."
2 Records, CTA Case No. 7866, Vol . 3, Decision, pp. 1537-1575; penned by Associate Justice Juanito

C. Castaneda, Jr., with Associate Justices Caesar A. Casanova and Amelia R. Cotangco-
Manalastas, concurring.
3 Id., Resolution, pp. 1622-1632; penned by Associate Justice Juanito C. Castaneda, Jr., with

Associate Justices Caesar A. Casanova and Amelia R. Cotangco-Manalastc..s, concurring.

DECISION
CTA EB CASE NO. 1338 (CTA Case No. 7866)
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The dispositive portions of the Decision and the Resolution

promulgated on March 9, 2015 and June 30, 2015, respectively, read
as follows:

Decision dated March 9, 2015

WHEREFORE, premises considered, the instant

Petition for Review is DENIED. Accordingly, petitioner
spouses are liable for deficiency income tax and percentage
tax for the years 1998, 1999 and 2000 in the aggregate amounts
of P[hp]9,900,203.90 and P[hp]1,560,465.22, respectively,
inclusive of the 50% surcharge imposed under Section 248{B)
of the [1997 National Internal Revenue Code, as amended
("1997 NIRC)], summarized as follows:

DEFICIENCY INCOME TAX

Taxable Year Basic Tax Surcharge Total
1998 [Php] 1,171,570.00 [Php] 585,785.00 [Php] 1,757,355.00
1999 5,282,006.54 2,641,003.26 7,923,009.80
2000 146,559.40 73,279.70 219,839.10
Total [Php] 6,600,135.94 [Php)3,300,067.96 [Php] 9,900,203.90

DEFICIENCY PERCENT AGE TAX

Taxable Year Basic Tax Surcharge Total
1998 [Ph2] 188,725.00 [Ph_p] 94,362.50 [Php] 283,087.50
1999 815,625.24 407,812.62 1,223,437.86
2000 35,959.90 17,979.96 53,939.86
Total [Php) 1,040,310.14 [Php) 520,155.08 [Php) 1,560,465.22

In addition, petitioner spouses are liable to pay:

(a) Deficiency interest at the rate of twenty percent

(20%) per annum pursuant to Section 249(B) of the
[1997 NIRC], on the:

1. basic deficiency income taxes of

P[hp]1,171,570.00, P[hp]5,282,006.54 and
P[hp]146,559.40 for the years 1998, 1999 and
2000, respectively, computed from April 15,
1999, 2000 and 2001 until full payment
thereof; and

2. basic deficiency percentage taxes of

P[hp ]188,725.00, P[hp ]815,625.24 and
P[hp]35,959.90 for the years 1998, 1999 and
2000, respectively, computed from January
25, 1999, 2000 and 2001 until full payment
thereof; and
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CTA EB CASE NO.l338 (CTA Case No. 7866)
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(b) Delinquency interest at the rate of 20% per annum

on the total amounts due of P[hp]9,900,203.90 and
P[hp ]1,560,465.22 representing deficiency income
tax and percentage tax, respectively and on the
deficiency interest which have accrued as
aforestated in (a) computed from January 5, 2009
until full payment thereof, pursuant to Section
249(C) of the [1997 NIRC].

SO ORDERED. 4

Resolution dated June 30, 2015

WHEREFORE, in view of the foregoing, petitioner's

Motion for Reconsideration is hereby DENIED for lack of
merit.

SO ORDERED.s

On August 11, 2015, the Spouses Remigio P. Magaan and

Leticia L. Magaan ("Spouses Magaan") filed a Petition for Review6
with the CTA En Bane, docketed as CTA EB No. 1338, which prays for
the Court En Bane to render a decision (1) reversing and setting aside
the questioned March 9, 2015 Decision and June 30, 2015 Resolution;
(2) declaring the deficiency income tax and percentage tax
assessments, including increments, against petitioners void for lack
of factual or legal basis, prescribed and for having been issued in
violation of due process of law; and (3) ordering the cancellation of
the said deficiency tax assessments?

The P artiesB

Petitioners reside at Lot 22, Block 13, Muralla Street, New

Intramuros Village, Diliman, Quezon City.

Respondent Commissioner of Internal Revenue (" CIR") is the

chief of the Bureau of Internal Revenue ("BIR"), the government

4 Records, Vol. 3, Decision, pp. 1574-1575; emphases retained.

s Id., Resolution, p. 1632; emphases retained.
6 Rollo, CTA EB No. 1338, Petition for Review, pp. 6-208, with annexes.

7 Id. at43.
(
8 Records, Vol. 3, Decision, Statement of Facts, pp. 1537-1538.
DECISION
CTA EB CASE NO. 1338 (CT A Case No. 7866)
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agency officially responsible for the assessment and collection of all

national internal revenue taxes, fees and charges; and the
enforcement of all forfeitures, penalties and fines connected with
such taxes. He holds office at the 4th Floor, BIR National Office
Building, Agham Road, Diliman, Quezon City.

The Facts

As stated in the Decision9 dated March 9, 2015, the factual

antecedents of this case are as follows:

On November 9, 2005, a complaint-affidavit was filed

with the Law Division of the BIR by a confidential informant,
which was docketed· as Confidential Information No. 641-
2005, alleging information that petitioner spouses have
opera ted financial companies known as IMILEC
TRADEHAUS and L4R REALTY AND DEVELOPMENT
CORPORATION since the year 1998; and that petitioner
spouses earned from the informant alone more than
P[hp]35,498,477.62 from April 1998 to January 2002, which
were not duly covered in their income tax returns [("ITRs")].

As a result, then BIR Commissioner Jose Mario Bufiag

issued Letter of Authority [("LOA")] No. 2001 00025876 on
February 9, 2006 to "SPS. REMIGIO P. MAGAAN & LETICIA
L. MAGAAN (IMILEC TRADEHAUS)" authorizing his
Revenue Officers [("ROs")] to examine/ audit the addressees'
books of accounts and other accounting records for internal
revenue taxes covering taxable years 1998 to 2001. The LOA,
together with an attached document listing the Tax Return
Payments, Books of Accounts and Other Documents,
Schedules to be Prepared and Worksheet to be Accomplished,
was received by petitioner Remigio Magaan.

Petitioner Remigio P. Magaan received a Final Notice

dated February 28, 2006, again addressed to "SPS. REMIGIO
P. MAGAAN & LETICIA L. MAGAAN (IMILEC
TRADEHAUS)" issued by Atty. Arnel Guballa, Chief of the
BIR National Investigation Division, giving them the last
opportunity to present the desired records to the investigating
team not later than ten (10) working days from receipt thereof.

On March 6, 2006, a Notice for an Informal Conference

was issued against petitioner spouses.

9 Records, Vol. 3, Decision, Statement of Facts, pp. 1538-1551.

(
DECISION
CTA EB CASE NO. 1338 (CTA Case No. 7866)
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Thereafter, petitioner spouses received a Subpoena Duces

Tecum dated June 20, 2006, with the attached list of the desired
documents to be presented, addressed to "SPS. REMIGIO P.
MAGAAN & LETICIA L. MAGAAN (IMILEC
TRADEHAUS)" issued by Atty. James Roldan, in his capacity
as Assistant Commissioner, BIR Legal Service, commanding
them to appear before the Chief of the Prosecution Division at
his office located at Room 704, 7th floor of the BIR National
Office Building, Diliman, Quezon City on July 4, 2006 and to
bring with them books of accounts and other accounting
records for taxable years 1998, 1999, 2000 and 2001 as
contained in the list of requirements attached thereto.

In response, petitioner Remigio Magaan sent a

compliance letter dated July 3, 2006, claiming that they are not
involved with IMILEC TRADEHAUS AND SERVICES CO., or
in any of their business transactions.

On June 20, 2007, respondent issued a Preliminary

Assessment Notice [("PAN")] with attached Details of
Discrepancies assessing petitioner spouses of deficiency
income and percentage taxes for the years 1998, 1999 and 2000
in the amounts of P[hp]20,773,278.63 and P[hp]1,981,362.40,
inclusive of surcharges and interest.

In protest, petitioner spouses sent a letter dated October

16, 2007 assailing the PAN and also requesting copies of the
checks covering the amounts allegedly received by them that
were used as basis for the PAN.

On January 24, 2008, petitioner spouses received a letter

dated January 7, 2008 from Atty. Celia C. King, Assistant
Commissioner, BIR Enforcement Services, denying petitioner
spouses' request that they be provided copies of the checks
allegedly deposited in their bank accounts which were made
the basis of the issuance of the PAN. In the said letter,
Assistant Commissioner King, citing Section 270 of the [1997
NIRC], informed petitioner spouses that the requested
documents, if furnished would divulge the identity of the
informer and this would allegedly violate the said provision
of the [1997 NIRC].

On February 5, 2008, petitioners filed a letter with the

office of the BIR Enforcement Service, requesting
reconsideration of Atty. Celia C. King's decision arguing,
among others, that the informer has long been known and
identified in the Joint Resolution dated August 7, 2007 of the
(
DECISION
CTA EB CASE NO. 1338 (CTA Case No. 7866)
Page 6of29

City Prosecutor's Office in 1.5. Nos. 07-2551 and 07-2552. Thus,

the confidentiality of the informer may no longer be invoked.

Thereafter, respondent, through BIR Deputy

Commissioner Gregorio C. Cabantac, issued a Formal Letter
of Demand with Audit Result/ Assessment Notices [("FLO-
FAN")] all dated July 28, 2008. The breakdown of the alleged
deficiency taxes are as follows:

Assessment No. ES-IT-1998-0699

Deficiency Income Tax 1998
Basic Deficiency Income Tax [Php] 1,541,319.00
Increments
Surcharge 50% 770,659.50
Interest 20% 4-15-99 to 7-31 (111.5mos/12mos) 2,851,440.15
TOTAL DEFICIENCY INCOME TAX [PHP] 5,163,418.65

Assessment No. ES-PT-1998-0700

Deficiency Percentage Tax 1998
Basic Deficiency Percentage Tax [Php] 145,860.00
Add: Increments
Surcharge 50% 72,930.00
Interest 20% 2-20-99 to 7-31-08 (113mosj12mos) 274,703.00
TOTAL DEFICIENCY PERCENTAGE TAX [PHP] 493,493.00

Assessment No. ES-IT-1999-0701

Deficiency Income Tax 1999
Basic Deficiency Income Tax [Php] 4,850,045.13
Increments
Surcharge 50% 2,425,022.57
Interest 20% 4-15-00 to 7-31-08 (99.5mos/12mos) 8,042,991.51
TOTAL DEFICIENCY INCOME TAX [PHP] 15,318,059.21

Assessment No. ES-PT-1999-0702

Deficiency Percentage Tax 1999
Basic Deficiency Percentage Tax [Php] 450,105.92
Add: Increments
Surcharge 50% 225,052.96
Interest 20% 2-20-00 to 7-31-08 (101mosj12mos) 757,678.30
TOTAL DEFICIENCY PERCENTAGE TAX [PHP] 1,432,837.18

Assessment No. ES-IT-2000-0703

Deficiency Income Tax 2000
Basic Deficiency Income Tax [Php] 585,632.96
Increments
Surcharge 50% 292,816.48
Interest 20% 4-15-01 to 7-31-08 (87.5mos/12mos) 854,048.06
TOTAL DEFICIENCY INCOME TAX [PHP] 1,732,497.51

Assessment No. ES-PT-2000-0704

Deficiency Percentage Tax 2000
Basic Deficiency Percentage Tax [Php] 63,385.50
Add: Increments
Surcharge 50% 31,692.80
Interest 20% 2-20-01 to 7-31-08 (89mos/12mos) 94,021.83
TOTAL DEFICIENCY PERCENTAGE TAX [PHP] 189,100.13

(
DECISION
CTA EB CASE NO. 1338 (CT A Case No. 7866)
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On August 26, 2008, petitioner spouses then filed their

letter-protest dated August 21, 2008, questioning the FLD-
[F]AN and requesting reconsideration thereof.

On January 5, 2009, petitioner spouses received a Final

Decision on Disputed Assessment [("FDDA")] dated October
7, 2008, denying their request for lack of factual and legal
bases and demanding payment of their alleged deficiency
taxes in the total amount of P[hp]24,329,405.68.

Aggrieved, petitioner spouses filed the instant Petition

for Review on February 3, 2009.

Respondent filed her Answer on March 16, 2009,

interposing the following special and affirmative defenses:

XXX XXX XXX

On April 20, 2009, both petitioner spouses and

respondent filed their respective Pre-Trial Briefs. Thereafter,
both parties submitted their Joint Stipulation of Facts and
Issues [("JSFI")] on May 21, 2009. In the Resolution dated May
25, 2009, the Court approved the JSFI, deemed the pre-trial
terminated, and ordered the parties to proceed with trial and
the initial presentation of petitioners' evidence. Thereafter,
trial proceeded.

On November 17, 2009, petitioner spouses filed their

Formal Offer of Documentary Evidence, offering Exhibits" A"
to "V[,]" inclusive of sub-markings. Having no
comment/ objection from respondent, this Court in the
January 20, 2010 Resolution, admitted petitioner spouses'
exhibits except for Exhibits "F-5" to "H[,]" for petitioner
spouses' failure to present the original documents for
comparison. In the same Resolution, the initial presentation of
evidence for respondent was likewise set on February 8, 2010.

Meanwhile, pursuant to CT A Administrative Circular

No. 01-2010, the case was transferred to the Third Division on
January 12, 2010.

During respondent's presentation of evidence, she filed

a Submission of Affidavit of Witness Yolanda G. Maniwang
on August 22, 2011,. intending to present the latter as her
witness and praying that Ms. Yolanda G. Maniwang' s judicial
affidavit be admitted. However, petitioner spouses filed their
Comment/Opposition to the Offer of Testimony of Yolanda
G. Maniwang on September 26, 2011, asserting the non-
(
DECISION
CTA EB CASE NO. 1338 (CT A Case No. 7866)
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inclusion of Ms. Yolanda G. Maniwang in the list of witnesses

in respondent's Pre-Trial Brief and the non-inclusion of
documents/records sought to be identified by the intended
witness for pre-marking before identification.

Thereafter, respondent filed her Reply (Re:

Comment/Opposition to the Offer Testimony of Yolanda G.
Maniwang arguing that she has the right to choose the
evidence she intends to present, that she also made a
reservation in her Pre-Trial Brief, and that her intended
witness has personal knowledge of the documents identified
in her judicial affidavit. In response, petitioner spouses filed
their Rejoinder (To Respondent's Reply on the
Comment/Opposition to the Offer of Testimony of Yolanda
G. Maniwang) on October 21, 2011, reiterating their position
that Ms. Yolanda G. Maniwang is the confidential informant
whose role ended when the BIR examiners submitted their
Investigation Report, thereby, disqualifying her to testify
during trial.

In the November 9, 2011 Resolution, this Court allowed

the presentation of Ms. Yolanda G. Maniwang's testimony
reasoning that petitioner spouses prematurely raised the issue
of competency since it is only after the witness is presented
that the Court can judicially determine the issue of
competency.

Petitioner spouses filed a Motion for Reconsideration on

November 24, 2011, reiterating that divulging the informant's
confidentiality will violate the principle of estoppel.
Subsequently, respondent filed her Comment (Re: Motion for
Reconsideration) on December 13, 2011, which petitioner
spouses answered in their Reply (To Comment dated
December 13, 2011) filed on December 29, 2011.

In the Resolution dated February 6, 2012, this Court

denied petitioner spouses' motion, stating that once the
identity of the informer has been disclosed to those who
would have cause to resent the communication, the privilege
is no longer applicable. Thus, respondent presented Ms.
Yolanda G. Maniwang as witness and offered her testimony
as evidence.

After completing the presentation of her evidence,

respondent filed her Formal Offer of Documentary Evidence
on January 10, 2013, offering Exhibits "1" to "153[,]" inclusive
of sub-markings. In response thereto, petitioner spouses filed
their Comment/Objection (To Respondent's Formal Offer of

(
DECISION
CTA EB CASE NO. 1338 (CTA Case No. 7866)
Page 9of29

Documentary Evidence) on February 1, 2013. Subsequently, in

the February 21, 2013 Resolution, this Court admitted
respondent's exhibits save for the following:

XXX XXX XXX

Thereafter, respondent filed a Motion for Partial

Reconsideration (Re: Resolution promulgated on February 21,
2013) on March 13, 2013, praying that the Resolution be
reconsidered and the denied exhibits be admitted.

Meanwhile, on March 19, 2013, petitioner spouses filed

a Motion asking this Court for leave to file a Formal Offer of
Rebuttal Evidence and to admit the attached Formal Offer of
Rebuttal Evidence, offering Exhibits "W[,]" "W-1[,]" and "W-
2" as their additional evidence. In turn, respondent interposed
no objection to petitioner spouses' motion in her Comment
(Re: Petitioner's Formal Offer of Rebuttal Evidence dated 16
March 2013) filed on May 7, 2013.

On April 10, 2013, pursuant to CT A Administrative

Circular No. 01-2013, reorganizing the three (3) divisions of
the CT A, this case was transferred to the Second Division.

This Court, in the Resolution dated April 18, 2013,

denied respondent's Motion for Partial Reconsideration, while
granted petitioner spouses' Motion.

On May 7, 2013, respondent filed an Omnibus Motion

for the reconsideration of the Court's resolution, for the
setting of a Commissioner's hearing to mark the originals of
the denied exhibits, and to allow respondent to file a
Supplemental Formal Offer of Evidence. In the Resolution
dated July 3, 2013, the Court admitted petitioner spouses'
rebuttal evidence and granted respondent's omnibus motion;
thus, scheduling a Commissioner's hearing solely for the
purpose of marking the originals of respondent's denied
exhibits.

After several requests for resetting, respondent finally

presented Exhibits "38" to "59[,]" "61" to "114[,]" and "129[,]"
which were marked as original checks as per Commissioner's
Report dated November 25, 2013.

However, in the Resolution dated December 18, 2013,

this Court noted respondent's failure to timely file her
supplemental formal offer of evidence thereby considering her
to have waived her right to formally offer her exhibits. This
DECISION
CTA EB CASE NO. 1338 (CTA Case No. 7866)
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Court further ordered both parties to submit their respective

memorandum within thirty (30) days from notice.

On February 24, 2014, petitioner spouses filed a Motion

(to admit Memorandum) with their attached Memorandum,
which the Court admitted in its February 27, 2014 Resolution.
On the other hand, respondent failed to file her memorandum
as per Records Verification dated March 25, 2014. Thus, in the
April 8, 2014 Resolution, this Court deemed the case
submitted for decision.

On March 9, 2015, the Court in Division promulgated the

assailed Decision denying the Petition for Review and finding
Spouses Magaan liable for deficiency income and percentage taxes
for the years 1998, 1999 and 2000, inclusive of the 50% surcharge
imposed under Section 248(B) of the 1997 NIRC.l 0 They were also
found liable to pay deficiency interest at the rate of twenty percent
(20%) per annum, pursuant to Section 249(B) of the 1997 NIRC; and
delinquency interest at the rate of twenty percent (20%) per annum on
the total amounts due and the deficiency interest computed from
January 5, 2009 until full payment, pursuant to Section 249(C) of the
1997 NIRC.

On April 6, 2015, petitioners filed a Motion for

Reconsideration11 , which was denied by the Court in Division in its
Resolution12 dated June 30,2015.

On August 11, 2015, petitioners filed the present Petition for

Review13, docketed as CTA EB No. 1338.

On September 3, 2015, petitioners filed a Motion to File

Memorandum (to support the Petition for Review)14 with attached
Memorandum of Petitioners15 . The Court En Bane resolved to grant
the Motion in its Resolution16 dated December 15, 2015, at the same
time ordering respondent to file his comment to the Petition for
Review.

1o Records, Vol. 3, Decision, pp. 1574-1575.

11 Id., Motion for Reconsideration, pp. 1578-1615.
12 Id., Resolution, pp. 1622-1632.
13 Rollo, Petition for Review, pp. 6-208, with annexes.

14 Id. at 214-215.
1s Id., Memorandum for Petitioners, pp. 216-231.
16 Id. at 243-244.
DECISION
CTA EB CASE N0.1338 (CTA Case No. 7866)
Page 11 o£29

With the filing of respondent's Comment (Re: Petition for

Review dated August 10, 2015)1 7 on January 25, 2016, the Court En
Bane resolved18 to submit the case for decision on February 11, 2016;
hence, this Decision.

The Issues

Petitioners alleged the following assignment of errors/main

issues: 19

1. WHETHER THE ASSAILED DECISION AND

RESOLUTION SHOULD BE REVERSED; and

2. WHETHER THE DEFICIENCY TAX ASSESSMENTS

AGAINST SPOUSES MAGAAN SHOULD BE CANCELLED.

With the following sub-issues:2o

1. WHETHER THE DEFICIENCY TAX ASSESSMENTS

AGAINST SPOUSES MAGAAN HAVE FACTUAL AND LEGAL
BASES;

2. WHETHER THERE IS COMPETENT PROOF TO SHOW

FALSE AND FRAUDULENT RETURN;

3. WHETHER THE RULING OF THE SUPREME COURT

IN THE LABORTE CASE IS APPLICABLE IN THIS CASE;

4. WHETHER SPOUSES MAGAAN WERE DEPRIVED OF

THEIR RIGHT TO DUE PROCESS OF LAW;

5. WHETHER PRESCRIPTION HAS ALREADY SET IN TO

BAR THE DEFICIENCY TAX ASSESSMENTS AGAINST THE
SPOUSES MAGAAN;

17 Rollo, pp. 245-248.

18 Id. at 250-251.
19 Id., Petition for Review, pp. 20-21.
2o Id. at 21.
DECISION
CTA EB CASE NO. 1338 (CT A Case No. 7866)
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6. WHETHER THE ALLEGATIONS OF MS. YOLANDA

MANIWANG IN HER JUDICIAL AFFIDAVIT ARE WORTHY OF
FULL FAITH AND CREDIT; and

7. WHETHER THE PRESUMPTIONS OF CORRECTNESS

OF ASSESSMENT AND REGULARITY IN THE PERFORMANCE
OF DUTIES IS APPLICABLE TO THE CASE.

Petitioners' arguments21

Petitioners claim that fraud is never presumed, it must be

proven by clear and convincing evidence; that Exhibits "F-1" and "F-
2" prove that Imilec Trade Haus is owned by partners Rubilina M.
Simbulan and Rosalina L. Joanino, and not by petitioners; that
Rubilina M. Simbulan is not a puppet or dummy of petitioners; that
respondent did not present any evidence that will prove that the
checks were deposited to their account/ s; that during the cross-
examination, Ms. Maniwang admitted that the money was not
deposited to the account of petitioners.

Petitioners contend that the Court erred in using the scale of

preponderance of evidence, and not the higher scale of clear and
convincing evidence in determining fraud; that mere photocopies of
the checks were presented and offered in evidence and were not
admitted by the Court; that it follows, therefore, that there is no
evidence coming from said checks; that the Real Estate Mortgage
("REM") dated October 6, 1999 between Spouses Maniwang and
Rubilina M. Simbulan and Rosalina L. Joanino and/ or Remigio
Magaan does not prove that Remigio Magaan was the actual lender
to Ms. Maniwang; that in the judicial affidavit of Ms. Maniwang, the
checks were issued to Rubilina M. Simbulan; that the REM dated
April 4, 2001 executed between Spouses Maniwang and L4R Realty
Development Corporation does not prove that Remigio Magaan was
a lender to Ms. Maniwang; and that this REM is irrelevant to a
deficiency assessment involving prior taxable years 1998, 1999 and
2000.

21 Rollo, Memorandum of Petitioners, pp. 216-231.

DECISION
CTA EB CASE NO.l338 (CTA Case No. 7866)
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Respondent's arguments22

Respondent CIR counter-argues that the Petition for Review is

a mere reiteration of arguments that were already passed upon by the
Court in Division; that competent evidence was presented to uphold
the assessment against Spouses Magaan; that the elements for the
application of the Laborte Case was sufficiently discussed in the
assailed Decision; that Ms. Yolanda G. Maniwang's testimony was
accurate and was not controverted by the spouses; that the
presumption in favor of the correctness of tax assessments is
applicable to all cases involving the good faith of tax assessors who
are presumed to have taken into account all the facts to which their
attention was called; that it is incumbent upon the taxpayer to prove
the contrary; that failure to do so shall vest legality on respondent's
actions and assessments; and that failure to present proof of error in
the assessment will justify judicial affirmation of said assessment.

The Ruling of the Court En Bane

The Court En Bane finds merit in the Petition for Review.

It was erroneous to apply the ten

(10)-year prescription period to
assess since fraud was not
proven.

As a general rule, the three (3) year prescriptive period for the
assessment of taxes is provided under Section 203 of the 1997 NIRC,
while the exception thereto, providing for a ten (10) year prescriptive
period is mentioned under Section 222 of the same Code. Said
provisions read as follows:

Sec. 203. Period of Limitation Upon Assessment and

Collection. - Except as provided in Section 222, internal
revenue taxes shall be assessed within three (3) years after the
last day prescribed by law for the filing of the return, and no
proceeding in court without assessment for the collection of
such taxes shall begin after expiration of such period; Provided,
That in a case where a return is filed beyond the period

22Id., Comment (Re: Petition for Review dated August 10, 2015), pp. 245-248; the CIR's arguments in
his Comment were adopted since the Court En Bane did not require the parties to file a
Memorandum.

(
DECISION
CTA EB CASE NO. 1338 (CT A Case No. 7866)
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prescribed by law, the three (3) year period shall be counted

from the day the return was filed. For purposes of this Section,
a return is filed before the last day prescribed by law for the
filing thereof shall be considered as filed on such last day.23

XXX XXX XXX

SEC. 222. Exceptions as to Period of Limitation of

Assessment and Collection of Taxes. -

(a) In the case of a false or fraudulent return with

intent to evade tax or of failure to file a return, the tax may be
assessed, or a proceeding in court for the collection of such tax
may be filed without assessment, at any time within ten (10)
years after the discovery of the falsity, fraud or omission:
Provided, That in a fraud assessment which has become final
and executory, the fact of fraud shall be judicially taken
cognizance of in the civil or criminal action for the collection
thereof.24

In light of the foregoing provisions, Section 203 of the 1997 NIRC

provides that the three-year prescriptive period to assess internal
revenue taxes commences to run after the last day prescribed by law
for the filing of the required return, except when the return was filed
beyond the period prescribed by law, the three-year period shall be
counted from the day the return was filed and that no proceeding in
court may be filed without assessment for the collection of such taxes
beyond the three (3) year prescriptive period. While Section 222(a) of
the 1997 NIRC provides that the ten-year prescriptive period shall
apply in the event that the taxpayer files a false or fraudulent return
with intent to evade taxes; or the taxpayer fails to file a return.

The FLD25 states that "the complete details covering the

aforementioned discrepancies established during the investigation of
this case are shown in the accompanying Schedules 1 and 2 of this
letter of demand." A closer inspection of Schedules 1 and 226 (shown
below) reveals that respondent assessed petitioners because there
was "no return filed:"

(
23 Underscoring ours.
24 Id.

2s BIR Records, Exhibit "Q, pp. 550-552.

11

2 6 !d., Exhibits "21, and "21-A, pp. 518-519.

II II
 DECISION
CTA EB CASE NO. 1338 (CTA Case No. 7866)
PagelS of29

SCHEDULE!
Taxable Year 1998
a. Income Tax
Undeclared Sales/Receipts in violation of Section[s] 31 and 32 of [the] 1997 NIRC[], details are as follows:
Remigio Leticia Total
Payments received per information 9,862,000.00
Less: Principal payment 5,000,000.00
Undeclared receipts 2,431,000.00 2,431,000.00 4,862,000.00
Gross Income per investigation 2,431,000.00 2,431,000.00 4,862,000.00
Less: Exemption 32,000.00 32,000.00 64,000.00
Net Taxable Income 2,399,000.00 2,399,000.00 4,798,000.00

Tax due
1st 500,000 124,999.00 125,000.00 249,999.00
Excess 1,899,000 x 34% 645,660.00 645,660.00 1,291,320.00
Total Tax Due 770,659.00 770,660.00 1,541,319.00
Less: Tax Paid (no return filed)
Basic Deficiency Income Tax 770,659.00 770,660.00 1,541,319.00
Surcharge (50%) 385,329.50 385,330.00 770,659.50
Interest 20% 04.15.99 to 07.31.08 (111.5/12 mos) 1,425,720.08 1,425,720.08 2,851,440.15
Total Deficiency Income Tax 2,581,708.58 2,581,710.08 5,163,418.65

b. Percentage Tax
In violation of Section 122 of [the] 1997 NIRC []
Remigio Leticia Total
Gross Receipts (Interest) 2,431,000.00 2,431,000.00 4,862,000.00
Basic Deficiency Percentage Tax (3%) 72,930.00 72,930.00 145,860.00
Surcharge (50%) 36,465.00 36,465.00 72,930.00
Interest 20% 02.20.99 to 07.31.08 (113/12 mos) 133,097.25 133,097.25 274,703.00
Total Deficiency Percentage Tax 242,492.25 242,492.25 493,493.00

Taxable Year 1999

a. Income Tax
Undeclared Sales/Receipts in violation ofSection[s] 31 and 32 of [the] 1997 NIRC[], details are as follows:
Remigio Leticia Total
Payments received per information
January to October 15,965,879.50
November to December 450,333.10
Total payments received in 1999 16,416,212.60
Less: Principal payment 1,412,681.90
Undeclared receipts 7,501,765.35 7,501,765.35 15,003,530.70
Gross income per investigation 7,501,765.35 7,501,765.35 15,003,530.70
Less: Exemption 32,000.00 32,000.00 64,000.00
Net Taxable Income 7,469,765.35 7,469,765.35 14,939,530.70

Tax due
lst500,000 125,000.00 125,000.00 250,000.00
Excess 6,969,765.35 x 33% 2,300,022.57 2,300,022.57 4,600,045.13
Total Tax Due 2,425,022.57 2,425,022.57 4,850,045.13
Less: Tax Paid (no return filed)
Basic Deficiency Income Tax 2,425,022.57 2,425,022.57 4,850,045.13
Surcharge (50%) 1,212,511.28 1,212,511.28 2,425,022.57
Interest 20% 04.15.99 to 07.31.08 (99.5/12 mos) 4,021,495.75 4,021,495.75 8,042,991.51
Total Deficiency Income Tax 7,659,029.60 7,659,029.60 15,318,059.21

b. Percentage Tax
In violation of Section 122 of[the] 1997 NIRC []
Remigio Leticia Total
Gross Receipts (Interest) 7,501,765.35 7,501,765.35 15,003,530.70
Basic Deficiency Percentage Tax (3%) 225,052.96 225,052.96 450,105.92
Surcharge (50%) 112,526.48 112,526.48 225,052.96
Interest 20% 02.20.99 to 07.31.08 (101/12 mos) 378,839.15 378,839.15 757,678.30
Total Deficiency [Percentage] Tax 716,418.59 716,418.59 1,432,837.18

SCHEDULE2
Taxable Year 2000
a. Income Tax
Undeclared Sales/Receipts in violation of Section[s] 31 and 32 of [the] 1997 NIRC[], details are as follows:

(
 DECISION
CTA EB CASE N0.1338 (CTA Case No. 7866)
Page16 of29

Remigio Leticia Total

Payments received per information 5,700,171.12
Less: Principal payment 3,587,318.10
Undeclared receipts 1,056,426.51 1,056,426.51 2,112,853.02
Gross income per investigation 1,056,426.51 1,056,426.51 2,112,853.02
Less: Exemption 32,000.00 32,000.00 64,000.00
Net Taxable Income 1,024,426.51 1,024,426.51 2,048,853.02

Tax due
1st500,000 125,000.00 125,000.00 250,000.00
Excess 524,426.51 x 32% 167,816.48 167,816.48 335,632.96
Total Tax Due 292,816.48 292,816.48 585,632.96
Less: Tax Paid (no return filed)
Basic Deficiency Income Tax 292,816.48 292,816.48 585,632.96
Surcharge (50%) 146,408.24 146,408.24 292,816.48
Interest 20% 04.15.99 to 07.31.08 (87.5/12 mos) 427,024.03 427,024.03 854,048.06
Total Deficiency Income Tax 866,248.76 866,248.76 1,732,497.51

b. Percentage Tax
In violation of Section 122 of [the}1997 NIRC[]
Remigio Leticia Total
Gross Receipts (Interest) 1,056,426.51 1,056,426.51 2,112,853.02
Basic Deficiency Percentage Tax (3%) 31,692.80 31,692.80 63,385.50
Surcharge (50%) 15,846.40 15,846.40 31,692.80
Interest 20% 02.20.99 to 07.31.08 (89/12 mos) 47,010.91 47,010.91 94,021.83
Total Deficiency Percentage Tax 94,550.11 94,550.11 189,100.13

Summgy of Deficiency Tax Assessment

Basic Surcharge Interest Total
Deficiency Income Tax
1998 1,541,319.00 770,659.50 2,851,440.15 5,163,418.65
1999 4,850,045.13 2,425,022.57 8,042,991.51 15,318,059.21
2000 585,632.96 292,816.48 854,048.06 1,732,497.50
Total Deficiency Income Tax 6,976,997.09 3,488,498.54 11,748,479.72 22,213,975.35
Deficiency Percentage Tax
1998 145,860.00 72,930.00 274,703.00 493,493.00
1999 450,105.92 225,052.96 757,678.30 1,432,837.18
2000 63,385.50 31,692.80 94,021.83 189,100.13
Total Deficiency Percentage Tax 659,351.42 329,675.76 1,126,403.13 2,115,430.31

The Court En Bane agrees with the Court in Division that

petitioners did not fail to file the required returns, this is evidenced
by the Certification27 issued by the BIR confirming that Remigio
Magaan with Taxpayer Identification Number ("TIN") 104-712-964
registered at RDO 29 and Leticia Magaan with TIN 137-594-769
registered at RDO 28 filed their ITRs. The Court in Division held:

Since respondent only issued the FLD-AN on July 28,

2008, it is clear that it was [issued] beyond the three-year
prescriptive period. Now, the question is whether petitioner
spouses filed a false or fraudulent return with intent to evade
tax, or failed to file a return, so as to excuse the said FLD-AN
from the three-year prescriptive period.

Anent respondent's assertion that petitioner spouses

willfully failed to file their income tax and quarterly

27 BIR Records, Exhibit "11," p. 217.

DECISION
CTA EB CASE NO. 1338 (CTA Case No. 7866)
Page 17of29

percentage tax returns, this Court believes otherwise. Even

though the best evidence to dispute said assertion is the
production and presentation of petitioner spouses' tax returns,
the Certification dated November 30, 2005 issued by the BIR's
database, nonetheless, shows that petitioner spouses indeed
filed income tax returns, value-added tax (VAT) returns, and
withholding tax returns during taxable years 1998 to 2001
thereby negating respondent's assertion. Therefore, petitioner
spouses did not fail to file their tax returns.

However, the Court En Bane finds that it was erroneous for the
Court in Division to apply the ten-year period because of fraud, to
wit:

The only remam1ng ground for it to fall within the

ambit of Section 222(a) of the NIRC of 1997, as amended, is
whether petitioner spouses filed a false or fraudulent return
with intent to evade tax. It must be stressed that respondent
has been asserting since the onset that, based on a confidential
information, petitioner spouses had received income from
numerous checks issued to them by Ms. Yolanda G.
Maniwang which were undeclared in their tax returns for
taxable years 1998, 1999 and 2000. Thus, such
underdeclaration of income/ sales are considered fraud under
Section 8 of Finance Regulations No.1, to wit:

Section 8. Frauds upon and/ or violation of

the Internal Revenue Laws. - The following are
some of the frauds and/ or violation commonly
committed against the internal revenue laws.

1. Underdeclaration of Sales
2. Underdeclaration of Income
3. False entries in the books of accounts

XXX XXX XXX

Fraud implies intentional or deceitful entry with intent to

evade the taxes due. 28 Hence, fraud must be accompanied by the
intention to evade taxes. In another case, the Supreme Court has
defined fraud as the deliberate or intentional evasion of the normal
fulfilment of an obligation. Fraud is never presumed. It must be

28 Aznar v. Court of Tax Appeals, G.R. No. 20569, August 23, 1974,58 SCRA 519.
DECISION
CT A EB CASE NO. 1338 (CT A Case No. 7866)
Page 18of29

alleged and proven and established by clear and convincing

evidence. 29

In addition, fraud is a generic term embracing all multifarious

means which human ingenuity can devise, and which are resorted to
by one individual to secure an advantage.3o It includes all surprise,
trick, cunning, dissembling and any unfair way by which another is
cheated.31 Since fraud is a state of mind, its presence can only be
determined by examining the attendant circumstances.32

While it is true that the burden of proof is on the taxpayer

contesting the validity or correctness of an assessment to prove not
only that the CIR is wrong, but that the taxpayer is right; the same
does not apply when there are allegations of fraud, as in the case at
bar. 33 In civil tax fraud cases, the burden of proof is always on the
CIR to prove that the taxpayer committed fraud intentionally. 34

In Spouses Nilo 0. Ramos and Eliadora Ramos v. Raul Obispo and

Far East Bank and Trust Company35, the Supreme Court held that:

In civil cases, basic is the rule that the party making

allegations has the burden of proving them by a
preponderance of evidence. Moreover, parties must rely on
the strength of their own evidence, not upon the weakness of
the defense offered by their opponent. This principle equally
holds true, even if the defendant had not been given the
opportunity to present evidence because of a default order.
The extent of the relief that may be granted can only be as
much as has been alleged and proved with preponderant
evidence required under Section 1 of Rule 133 of the Revised
Rules on Evidence.

Preponderance of evidence is the weight, credit, and

value of the aggregate evidence on either side and is usually
considered to be synonymous with the term greater weight II

of the evidence" or greater weight of the credible evidence."

II

29 Yutivo Sons Hardware Company v. Court of Tax Appeals and Collector of Internal Revenue, G.R. No.
L-13203, January 28,1961,1 SCRA 160.
30 Joson v. People of the Philippines, G.R. No. 178836, July 23, 2008, 559 SCRA 550.

31 Id.
32 Commissioner of Customs vs Court of Tax Appeals, G.R. Nos. 171516-17, February 13,2009.
33 Tan Guan v. Court of Tax Appeals, G.R. No. L-23676, April27, 1967,19 SCRA 903.
34 Commissioner of Internal Revenue v. Hantex Trading Co., Inc., G.R. No. 136975, March 31, 2005,454

SCRA301.
35 G.R. No. 193804, February 27, 2013, 692 SCRA 240.
DECISION
CTA EB CASE NO. 1338 (CTA Case No. 7866)
Page 19of29

Preponderance of evidence is a phrase which, in the last

analysis, means probability of the truth. It is evidence which is
more convincing to the court as worthier of belief than that
which is offered in opposition thereto.

As to fraud, the rule is that he who alleges fraud or

mistake affecting a transaction must substantiate his
allegation, since it is presumed that a person takes ordinary
care of his concerns and that private transactions have been
fair and regular. The Court has stressed time and again that
allegations must be proven by sufficient evidence because
mere allegation is definitely not evidence. Moreover, fraud is
not presumed - it must be proved by clear and convincing
evidence.36

Applying the foregoing rulings of the Supreme Court to the

instant case, the Court En· Bane holds that respondent failed to
establish that petitioners committed fraud with intent to evade tax.
There was no evidence to prove that petitioners earned income based
on the checks that were allegedly given to them by Ms. Maniwang,
and that they intentionally filed a fraudulent ITR with intent to evade
tax.

The assessments lack factual and

legal basis, and are therefore
void.

Section 22837 of the 1997 NIRC provides that the taxpayers shall
be informed in writing of the law and the facts on which the

36Underscoring ours.
37 "Sec. 228. Protesting of Assessment. - When the Commissioner or his[/her] duly authorized
representative finds that proper taxes should be assessed, he[/ she] shall first notify the taxpayer
of his[/ her] findings: Provided, however, That a pre-assessment notice shall not be required in the
following cases:
XXX XXX XXX
The taxpayers shall be informed in writing of the law and the facts on which the
assessment is made; otherwise, the assessment shall be void.
Within a period to be prescribed by implementing rules and regulations, the taxpayer
shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner or
his[/ her] duly authorized representative shall issue an assessment based on his findings.
Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such
form and manner as may be prescribed by implementing rules and regulations. Within sixty (60)
days from filing of the protest, all relevant supporting documents shall have been submitted;
otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not acted upon within one hundred
eighty (180) days from submission of documents, the taxpayer adversely affected by the decision
or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of said
DECISION
CTA EB CASE N0.1338 (CTA Case No. 7866)
Page 20of29

assessment is made; otherwise, the assessment shall be void. A closer

look at the FLD reveals that respondent failed to provide details on
how the figure assessed came about. It is worthy to note that the ITRs
filed by petitioners were not even presented into evidence in order to
support respondent's claim that the income tax and percentage tax
returns filed for the taxable years 1998, 1999 and 2000 are false or
fraudulent.

However, a closer inspection of Schedules 1 and 238 containing

the details of discrepancies reveals that the assessments were made
"based on information" without any elaboration as to the kind of
information and how the figures were arrived at.

The Court En Bane notes that the checks39 that were submitted
before the Court show that from April 28, 1998 to October 26, 1999,
the payee was Imilec Tradehaus. Remigio P. Magaan' s name started
to appear on the checks only on November 2, 1999 until April 18,
2000. Even then it was not issued in his name alone, but as a co-
payee. Evident on the face of the checks that it was "pay to the order
of Rubilina M. Simbulan and/ or Remigio Magaan." The checks that
were allegedly given by Ms. Maniwang to petitioners are summed up
as follows:

YEAR PAYEE TOTAL

1998 Imilec TradeHausjlmilec Trade Hauz Inc. Php 8,774,500.00
Jan. 1 to Oct. 26 1999 Imilec TradeHaus 15,692,124.15
Nov. 2 to Dec. 1999 Rubilina Simbulan and/ or Remigio Magaan 1,863,015.00
Jan. to April2000 Rubilina Simbulan and/ or Remigio Magaan 4,945,799.00

Evidence on record also reveal that the checks that were

received by Remigio Magaan only amounted to Php6,808,814.00; that
the said checks were issued pursuant to the Real Estate Mortgage4°
that was executed among Ms. Maniwang and Reynaldo V.
Maniwang, as borrowers; Rubilina M. Simbulan, Roselita M. Joanino
and Remigio Magaan, as lenders.

Respondent alleged that petitioners are the owners of Imilec

Tradehaus, as well as the bank accounts/ account numbers to which

decision, or from the lapse of the one hundred eighty (180)-day period; otherwise, the decision
shall become final, executory and demandable."
38 BIR Records, Exhibit "21," pp. 518-519.

39 Records, Vol. 2, Exhibits "38" to "59," pp. 1139-1149; Exhibits "61" to "137," pp. 1165-1204.

40 Id., Exhibit "36," pp. 1136-1138.

(
DECISION
CTA EB CASE NO. 1338 (CTA Case No. 7866)
Page 21 of29

the checks were allegedly deposited; and that Rubilina Simbulan is

just a dummy of Remigio Magaan. However, there was no
explanation or evidence presented to prove these allegations.

In addition, during the cross examination41 of Ms. Maniwang,

she admitted that she has no proof that the account numbers, where
the checks were allegedly deposited, belong to petitioners, viz.:

November 14, 2012

XXX XXX XXX

ATTY. SANTIANO
Q: I see. There are three (3) account[] number[s] appearing [on] the
back [of] the various checks, do you have any direct proof to show
that Planters Development Bank [A]ccount No. 01-40-01394-3 ...
(interrupted by the Witness)

MRS. MANIWANG
A: May I see, sir, what exhibit?

ATTY. SANTIANO
Q: That is Exhibits ["]39["] and ["]50.["] Do you have any direct proof
to show that the number belong[s] to the petitioner, and not to
somebody else?

XXX XXX XXX

JUSTICE MANALASTAS
Do you have proof that this [A]ccount No. 01-40-01394-3 is the account
of whom?

ATTY. SANTIANO
Remigio Magaan, your honors.

MRS. MANIWANG
A: Yes, your Honors.

JUSTICE MANALASTAS
What is your proof?

MRS. MANIWANG
A: I have here the original checks validated by the bank.

JUSTICE MANALASTAS
Please show the account, does it show[] that this is the account of Mr.
Magaan?

MRS. MANIWANG

41Transcript of Stenographic Notes ("TSN") for the November 14, 2012 and November 2012 Hearings,
Cross Examination of respondent's witness, pp. 153-162, and 8-18, 26.
DECISION
CTA EB CASE NO. 1338 (CT A Case No. 7866)
Page22of29

A: Yes, your Honors.

JUSTICE MANALASTAS
May I see them?
(at this juncture[,] the checks were hand[ed] to the Court)
Not only the account number, it should state[] there that it is the account
of Mr. Magaan.

MRS. MANIWANG
A: Yes, your Honors.

JUSTICE MANALASTAS
Witness presenting ... can I see[?]
Witnessing presenting [C]heck No. 000034227, there's nothing here that
[]shows that it is the account of Mr. Magaan.

ATTY. SANTIANO
Q: Let me also ask you the same question, this time pertaining to
another bank account, Metrobank Account No ... []

MRS. MANIWANG
A: There is [an] account"number, your Honors.

JUSTICE MANALASTAS
How did you know, can I see?
(at this juncture the witness handed the check to the Clerk of Court to be
given to the Court)
May I see[ t]his [A]ccount [N]o. 01394-3?

MRS. MANIWANG
A: Yes, your Honors.

JUSTICE MANALASTAS
Yes, this is just a number. How do you know that this is the account
number of Mr. Magaan?

MRS. MANIWANG
A: It is validated by the bank, your Honors.

JUSTICE MANALASTAS
I know, I know. But how do you know that this is the account of Mr.
Magaan[?] T]here is no name here.
Do you have any proof that this is the account of Mr. Magaan? The
check is payable to Imilec Tradehaus. The check was deposited to
[Account No.] 00001394-3, the account number written here at the back
of the checks, this is only the account number, how do you know that
this is the account of Mr. Magaan?

MRS. MANIWANG
A: I asked somebody from the bank [this] reliable info [but] they
cannot give the certification.

JUSTICE MANALASTAS
They cannot give you a certification?

MRS. MANIWANG
DECISION
CTA EB CASE NO. 1338 (CTA Case No. 7866)
Page23of29

A: They cannot give the certification

JUSTICE MANALASTAS
You just get the information from somebody in the bank?

MRS. MANIWANG
A: Yes, your Honors.

XXX XXX XXX

November 26, 2012

XXX XXX XXX

ATTY. SANTIANO
Q: Now, I ask you[], Madam Witness, can you please present the said
check again?

M[R]S. MANIWANG
A: Yes, I have [it] here.

JUSTICE BAUTISTA
Can I also have a look [at] the check, Atty. Dan, after petitioner's
counsel?

ATTY. SANTIANO
Q: Now, Madam Witness, is this the same Exhibit "133" of the
respondent?

JUSTICE BAUTISTA
So, that's [a] different account number you mentioned earlier? It's [a]
different account number? You deposited in Account No. 3-108035913,
Miss, are you Ms. Maniwang? The face of the check has no mark from
the bank. At the back, there is an indorsement that the check was
deposited to Account No. 3-108035913?

M[R]S. MANIWANG
A: Yes, your Honors.

JUSTICE BAUTISTA
Account of whom?

M[R]S. MANIW ANG

A: !melee and Remigio Magaan.

JUSTICE BAUTISTA
Accountofthecorporation,notMagaan?

M[R]S. MANIWANG
A: That's the same, your Honors.

JUSTICE BAUTISTA
The same? How do you know that it's the same? Are you from the bank?
DECISION
CTA EB CASE NO. 1338 (CT A Case No. 7866)
Page24 of29

M[R]S. MANIWANG
A: No.

XXX XXX XXX

ATTY. SANTIANO
Q: Did you go to the bank to verify if indeed Planters Development
Bank Account No. 01-40-013-94-3 belong[s] to the petitioner?

M[R]S. MANIWANG
A: Hindi po ako nagpunta, sir, sa ... (Interrupted)

ATTY. SANTIANO
Q: How about Metrobank Account No. 3-10803591-3? Did you go to
the bank to verify the ownership of this account?

M[R]S. MANIWANG
A: Meron po akong reliable info in the bank but they will not give me
a certification because that's a secre[t].

ATTY. SANTIANO
Q: Madam Witness, my question is, did you go to the bank?

M[R]S. MANIWANG
A: Yes.

ATTY. SANTIANO
Q: What is your proof that you [went] to the bank?

M[R]S. MANIWANG
A: I have no proof, your Honors.

ATTY. SANTIANO
Q: All right. How about Metrobank Account No. 3-19801347-2? Did
you ... go to the bank to verify the ownership of this bank account
number?

M[R]S. MANIWANG
A: I have reliable info in the bank. .. (Interrupted)

ATTY. SANTIANO
Q: Same answer as before?

M[R]S. MANIWANG
A: Yes.

XXX XXX XXX

ATTY. SANTIANO
You were asked by this representation, Madam Witness, if there are
supporting company documents[,] particularly vouchers[,] that would
support the checks that were issued to Imelec, Robilina Simbulan and/ or
Magaan, Simbulan alone and Magaan.
Q: May I have your answer again, Madam Witness?

M[R]S. MANIWANG
(
DECISION
CTA EB CASE NO. 1338 (CT A Case No. 7866)
Page25of29

A: No voucher, sir.

XXX XXX XXX

In Collector of Internal Revenue v. Benipayo42 , the Court ruled that

the assessment must be based on actual facts. Respondent could have
exerted more effort in proving the allegations against petitioners.
Section 543 of the 1997 NIRC grants the CIR the power to obtain
information from any person in order to arrive at a correct
assessment. The best evidence includes the corporate and 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, including their gross profit and net profit sales. Such
evidence also includes data, records, papers, documents 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 records, data, documents and information
secured from government offices or agencies, such as the SEC, the

42 G.R. No. L-13656, January 31, 1962, 4 SCRA 182.

43"SEC. 5. Power of the Commissioner to Obtain Information, and to Summon, Examine, and Take
Testimony of Persons.- In ascertaining the correctness of any return, or in making a return when
none has been made, or in determining the liability of any person for any internal revenue tax, or
in collecting any such liability, or in evaluating tax compliance, the Commissioner is authorized:
(A) To examine any book, paper, record, or other data which may be
relevant or material to such inquiry;
(B) To obtain on a regular basis from any person other than the person
whose internal revenue tax liability is subject to audit or investigation, or from
any office or officer of the national and local governments, government agencies
and instrumentalities, including the Bangko Sentral ng Pilipinas and government-
owned or -controlled corporations, any information such as, but not limited to,
costs and volume of production, receipts or sales and gross incomes of taxpayers,
and the names, addresses, and financial statements of corporations, mutual fund
companies, insurance companies, regional operating headquarters of
multinational companies, joint accounts, associations, joint ventures of consortia
and registered partnerships, and their members;
(C) To summon the person liable for tax or required to file a return, or
any officer or employee of such person, or any person having possession,
custody, or care of the books of accounts and other accounting records
containing entries relating to the business of the person liable .for tax, or any
other person, to appear before the Commissioner or his duly authorized
representative at a time and place specified in the summons and to produce such
books, papers, records, or other data, and to give testimony;
(D) To take such testimony of the person concerned, under oath, as may
be relevant or material to such inquiry; and
(E) To cause revenue officers and employees to make a canvass from
time to time of any revenue district or region and inquire after and concerning all
persons therein who may be liable to pay any internal revenue tax, and all
persons owning or having the care, management or possession of any object with
respect to which a tax is imposed.
The provisions of the foregoing paragraphs notwithstanding, nothing in
this Section shall be construed as granting the Commissioner the authority to
inquire into bank deposits other than as provided for in Section 6(F) of this
Code."

(
DECISION
CTA EB CASE NO. 1338 (CT A Case No. 7866)
Page 26 of29

Central Bank of the Philippines, the Bureau of Customs, and the

Tariff and Customs Commission.44

Aside from the checks that were presented by Ms. Maniwang,

no other proof was presented by respondent to support his claims
that petitioners had undeclared income.

The rule that assessments made

by tax examiners are presumed
correct does not apply when the
assessment is arrived at
arbitrarily.

In CIR v. Hantex Trading Co., Inc.4 5, the Supreme Court held as

follows:

We agree with the contention of the petitioner that, as a

general rule, tax assessments by tax examiners are presumed
correct and made in good faith. All presumptions are in favor
of the correctness of a tax assessment. It is to be presumed,
however, that such assessment was based on sufficient
evidence. Upon the introduction of the assessment in
evidence, a prima facie case of liability on the part of the
taxpayer is made. If a taxpayer files a petition for review in the
CT A and assails the assessment, the prima facie presumption is
that the assessment made by the BIR is correct, and that in
preparing the same, the BIR personnel regularly performed
their duties. This rule for tax initiated suits is premised on
several factors other than the normal evidentiary rule
imposing proof obligation on the petitioner-taxpayer: the
presumption of administrative regularity; the likelihood that
the taxpayer will have access to the relevant information; and
the desirability of bolstering the record-keeping requirements
oftheNIRC.

However, the prima facie correctness of a tax assessment

does not apply upon proof that an assessment is utterly
without foundation, meaning it is arbitrary and capricious.
Where the BIR has come out with a naked assessment, i.e.,
without any foundation character, the determination of the tax
due is without rational basis. In such a situation, the U.S.
Court of Appeals ruled that the determination of the

44 CIR v. Hantex Trading Co., Inc., G.R. No. 136975, March 31, 2005, 454 SCRA 301.
45 G.R. No. 136975, March 31, 2005, 454 SCRA 301.
DECISION
CT A EB CASE NO. 1338 (CT A Case No. 7866)
Page 27of29

Commissioner contained in a deficiency notice

disappears. Hence, the determination by the CT A must rest on
all the evidence introduced and its ultimate determination
must find support in credible evidence.

XXX XXX XXX

However, considering that it has been established that

the petitioners assessment is barren of factual basis, arbitrary
and illegal, such failure on the part of the respondent cannot
serve as a basis for a finding by the Court that it is liable for
the amount contained in the said assessment; otherwise, the
Court would thereby be committing a travesty.46

In the instant case, the assessments of alleged deficiency income

and percentage taxes of petitioners are unfounded and lack basis.
Petitioners presented the Articles of Partnership of Imilec Tradehaus,
showing that they are not partners of said corporation, as claimed by
respondent. Respondent countered that the partners appearing in the
Articles of Partnership are dummies of petitioners, without
presenting any evidence to support this allegation. Moreover,
petitioners' ITR were not even presented or used as a basis in order to
come up with the computation of their alleged deficiency income and
percentage taxes.

Indeed, tax assessments prepared by examiners are presumed

correct and made in good faith. In the absence of proof of any
irregularity in the performance of official duties, an assessment will
not be disturbed. However, this a disputable presumption, and in
order to determine that there was indeed good faith, it must be made
in accordance with existing laws, rules and regulations.

The Supreme Court, in the case of Commissioner of Internal

Revenue v. United Salvage and Towage (Phils.), Inc. 47, held that, to wit:

In balancing the scales between the power of the State

to tax and its inherent right to prosecute perceived
transgressors of the law on one side, and the constitutional
rights of a citizen to due process of law and the equal
protection of the laws on the other, the scales must tilt in favor

46Underscoring ours.
47G.R. No. 197515, July 2, 2014, citing Commissioner of Internal Revenue v. Metro Star Superama, G.R.
No. 185371, December 8, 2010, 637 SCRA 633, and Commissioner of Internal Revenue v. Algue, 241
Phil. 829.
 DECISION
CTA EB CASE NO. 1338 (CT A Case No. 7866)
Page28of29

of the individual, for a citizen's right is amply protected by the

Bill of Rights under the Constitution. Thus, while taxes are the
lifeblood of the government, the power to tax has its limits, in
spite of all its plenitude. Even as we concede the inevitability
and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in
accordance with the prescribed procedure.48

WHEREFORE, premises considered, the Petition for Review

filed by Spouses Remigio P. Magaan and Leticia L. Magaan is hereby
GRANTED. The Decision dated March 9, 2015 and the Resolution
dated June 30, 2015 are REVERSED and SET ASIDE. Consequently,
Assessment Nos. ES-IT-1998-0699, ES-PT-1998-0700, ES-IT-1999-0701,
ES-PT-1999-0702, ES-IT-2000-0703 and ES-PT-2000-0704 are
CANCELLED.

SO ORDERED.

LOVELL ~AUTISTA
Associate Justice

WE CONCUR:

Presiding Justice

~~c.~~~.Sl

ER~P.UY
(joined PJ del Rosario's D.tff ~
JUAN ITO C. CASTANEDA, JR.
Associate Justice Associate Justice

cP
CAESAR A. CASANOVA ABON-VICTORINO
Associate Justice

48 Underscoring ours.
 DECISION
CTA EB CASE NO. 1338 (CTA Case No. 7866)
Page29of29

~N,M~,&~ -
(joined PJ del Rosario's D.O.) ~. ~ ..&. ' -
CIELITO N. MINDARO-GRULLA MA. BELEN M. RINGPIS-LIBAN
Associate Justice Associate Justice

~·;./11~-
CATHERINE T. MANAHAN
Associate Justice

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, it is hereby

certified that the conclusions in the above Decision were reached in
consultation before the case was assigned to the writer of the opinion
of the Court.

Presiding Justice
 REPUBLIC OF THE PHILIPPINES
Court of Tax Appeals
QUEZON CITY

ENBANC

SPOUSES REMIGIO P. MAGAAN CTA EB No. 1338

and LETICIA L. MAGAAN , (CTA Case No. 7866)
Petitioners,

Present:

DEL ROSARIO, P.J.,

CASTANEDA, JR.,
- versus- BAUTISTA,
UY,
CASANOVA,
FASON-VICTORINO,
MINDARO-GRULLA,
RINGPIS-LIBAN, and
MANAHAN, JJ.

COMMISSIONER OF INTERNAL Promulgated :

REVENUE,
Respondent.
)(- --- - ------ - - - - - - - - - - - - - - - - - -
DISSENTING OPINION

DEL ROSARIO, P.J.:

With due respect, I dissent in the ponenc1a m granting the

present Petition for Review and reversing and setting aside the
assailed Decision dated March 9, 2015 and Resolution dated June 30,
2015 of the Court in Division finding petitioners Remigio P. Magaan
and Leticia L. Magaan liable for deficiency income tax and percentage
tax for the years 1998, 1999 and 2000.

In reversing the assailed Decision 1 and Resolution ,2 the

ponencia ruled that it was erroneous to apply the ten (1 0) year

1 ·2
Penned by Associate Justice Juanito C. Castaneda, Jr., and concurred by
Associate Justice Caesar A. Casanova and Associate Justice Amelia R.
Cotangco-Manalastas.
Dissenting Opinion
CTA EB No. 1338
(CTA Case No. 7866)
Page 2 of 3

prescriptive period instead of the three (3) year prescriptive period to

assess taxes as respondent failed to prove that petitioners committed
fraud with intent to evade taxes. It found that there is no evidence
showing that petitioners earned income based on the checks issued to
them by Ms. Yolanda Maniwang and that they intentionally filed
fraudulent Income Tax Returns ("ITRs") with intent to evade tax.

A careful review of the records, however, shows that there is

sufficient evidence, both testimonial and documentary, to prove that
petitioners committed fraud by not declaring in their ITRs the interest
income they earned from the interest-bearing loan which petitioner
Remigio P. Magaan extended to Spouses Reynaldo and Yolanda
Maniwang.

The existence of the aforementioned loan is evident from the

notarized Real Estate Mortgage ("REM") 3 which petitioner Remigio P.
Magaan executed with Spouses Maniwang as collateral for the loan.
The REM clearly confirms that Mr. Remigio P. Magaan, together with
Rubilina M. Simbulan and Rosalita M. Joanino, extended a loan in the
amount of Five Million Pesos (P5,000,000.00) to Spouses Maniwang
with stipulated interest of 5% per month. To be sure, the REM,
which is a notarized document, is entitled to full faith and credit upon
its face without further proof of its authenticity. Gaw vs. Chua4
declares:

"It is also worthy to note that both the Deed of Partition and
the Deed of Sale were acknowledged before a Notary Public. The
notarization of a private document converts it into a public
document, and makes it admissible in court without further
proof of its authenticity. It is entitled to full faith and credit upon
its face. A notarized document carries evidentiary weight as to
its due execution, and documents acknowledged before a
notary public have in their favor the presumption of regularity.
Such a document must be given full force and effect absent a
strong, complete and conclusive proof of its falsity or nullity on
account of some flaws or defects recognized by law. A public
document executed and attested through the intervention of a notary
public is, generally, evidence of the facts therein express in clear
unequivocal manner." (Boldfacing supplied)

Furthermore, the unrebutted testimony of Ms. Maniwang

established that she loaned money from petitioners and subsequently
paid them by issuing a series of checks to lmilec Trade Hauz, Inc.
("lmilec"), as per instruction of petitioners themselves who claimed to
3 Exhibit "36", CTA Case No. 7866, Case Docket Volume 2, pp. 1133-1138.
4 G.R. No. 160855, April16, 2008.
Dissenting Opinion
CTA EB No. 1338
(CTA Case No. 7866)
Page 3 of 3

be the owners thereof. 5 The issued checks, which were validated by

the banks to have been deposited in the account of the payee, were
offered and admitted into evidence.

Interestingly, petitioners never denied the existence of the said

loan or the fact that they were subsequently paid by Ms. Maniwang
through checks issued to lmilec. Petitioners also never questioned the
authenticity of the REM. During his cross-examination, Mr. Magaan
even admitted that he had in fact loaned money to Ms. Maniwang in
1999. 6

In the absence of evidence refuting the version narrated by Ms.

Maniwang, I submit that the Court in Division correctly gave weight and
credit to respondent's testimonial and documentary evidence. The
totality of the evidence shows that there is in fact undeclared interest
income on the part of petitioners which makes the ITRs they filed with
the BIR fraudulent. Needless to say, the ten (1 0) year prescriptive
period under Section 222 of the NIRC, as amended, is necessarily
applicable in this case.

For all the foregoing, I vote to DENY the Petition for Review and
AFFIRM the assailed Decision and Resolution of the Court in Division.

Presiding Justice

5 Sinumpang Sa/aysay ni Yolanda Maniwang, pp. 663-701; Also quoted in p. 28

of the assailed Decision.
6 TSN, Hearing dated June 8, 2009, CTA Case No. 7866, p. 46.