Taxation Review - Samar I Electric Cooperative Vs CIR

CASE: SAMAR-I ELECTRIC COOPERATIVE VS.
CIR
GR No. 193100
December 10, 2014
FACTS:
Petitioner filed its 1998- and 1999-income tax returns. Petitioner filed its 1997,
1998, and 1999 Annual Information Return of Income Tax Withheld on Compensation,
Expanded and Final Withholding Taxes on February 17, 1998, February 1, 1999, and
February 4, 2000, in that order.
Petitioner received a demand letter and assessments notices (Final Assessment

Notices) for the alleged 1997, 1998, and 1999 deficiency withholding tax in the amount
of Php 3,760,225.69, as well as deficiency income tax covering the years 1998 to 1999
in the amount of Php 440,545.71, or in the aggregate amount of Php 4,200,771.40.
ISSUE:
Whether or not the 1997 and 1998 assessments on withholding tax on
compensation were issued within the prescriptive period provided by law and whether
the assessments were issued in accordance with Section 228 of the NIRC of 1997.
HELD:
Yes. 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 be begun after the
expiration of such period: Provided, that in a case where a return is filed beyond the
period 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 filed before the last day
prescribed by law for the filing thereof shall be considered as filed on such last day.
Section 203 sets the three-year prescriptive period to assess, the following exceptions
are provided under Section 222 of the NIRC of 1997, viz.:
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.
(b) If before the expiration of the time prescribed in Section 203 for the assessment of
the tax, both the Commissioner and the taxpayer have agreed in writing to its
assessment after such time, the tax may be assessed within the period agreed upon.
The period so agreed upon may be extended by subsequent written agreement made
before the expiration of the period previously agreed upon.
(c) Any internal revenue tax which has been assessed within the period of limitation as
prescribed in paragraph (a) hereof may be collected by distraint or levy or by a
proceeding in court within five (5) years following the assessment of the tax.
(d) Any internal revenue tax, which has been assessed within the period agreed upon
as provided in paragraph (b) hereinabove, may be collected by distraint or levy or by a
proceeding in court within the period agreed upon in writing before the expiration of
the five (5)-year period. The period so agreed upon may be extended by subsequent
written agreements made before the expiration of the period previously agreed upon.
(e) Provided, however, that nothing in the immediately preceding Section and
paragraph (a) hereof shall be construed to authorize the examination and investigation
or inquiry into any tax return filed in accordance with the provisions of any tax amnesty
law or decree. (Emphasis supplied.)
It was petitioner’s substantial underdeclaration of withholding taxes in the

amount of P2,690,850.91 which constituted the “falsity” in the subject returns – giving
respondent the benefit of the period under Section 222 of the NIRC of 1997 to assess
the correct amount of tax “at any time within ten (10) years after the discovery of the
falsity, fraud or omission.”
The proper and reasonable interpretation of said provision should be that in the
three different cases of:
1. false return;
2. fraudulent return with intent to evade tax;
3. failure to file a return, the tax may be assessed, or a proceeding in court
for the collection of such tax may be begun without assessment, at any
time within ten years after the discovery of the (1) falsity, (2) fraud, AND
(3) omission.
There is a difference between “false return” and “fraudulent return” cannot be

denied. While the first merely implies deviation from the truth, whether intentional or
not, the second implies intentional or deceitful entry with intent to evade the taxes due.
The ordinary period of prescription of 5 years within which to assess tax liabilities
under Sec. 331 of the NIRC should be applicable to normal circumstances, but
whenever the government is placed at a disadvantage so as to prevent its lawful agents
from proper assessment of tax liabilities due to false returns, fraudulent return intended
to evade payment of tax or failure to file returns, the period of ten years provided for in
Sec. 332 (a) NIRC, from the time of the discovery of the falsity, fraud or omission even
seems to be inadequate and should be the one enforced.
SEC. 228. Protesting of Assessment. – x x x xxx x

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.
3.1.4 Formal Letter of Demand and Assessment Notice. – The formal letter of demand
and assessment notice shall be issued by the Commissioner or his duly authorized
representative. The letter of demand calling for payment of the taxpayer’s deficiency
tax or taxes shall state the facts, the law, rules and regulations, or jurisprudence on
which the assessment is based, otherwise, the formal letter of demand and assessment
notice shall be void. The same shall be sent to the taxpayer only by registered mail or
by personal delivery. x x x
Both Section 228 of the NIRC of 1997 and Section 3.1.4 of RR No. 12-99 clearly require
the written details on the nature, factual and legal bases of the subject deficiency tax
assessments.
Considering the foregoing exchange of correspondence and documents between the

parties, we find that the requirement of Section 228 was substantially complied with.
Respondent had fully informed petitioner in writing of the factual and legal bases of the
deficiency taxes assessment, which enabled the latter to file an "effective" protest,
·much unlike the taxpayer's situation in Enron. Petitioner's right to due process was
thus not violated.

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CASE: SAMAR-I ELECTRIC COOPERATIVE VS.

Petitioner received a demand letter and assessments notices (Final Assessment

SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes.

It was petitioner’s substantial underdeclaration of withholding taxes in the

There is a difference between “false return” and “fraudulent return” cannot be

SEC. 228. Protesting of Assessment. – x x x xxx x

Considering the foregoing exchange of correspondence and documents between the

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