In a ruling with significant implications for taxpayers, the Supreme Court has reiterated that the Bureau of Internal Revenue (BIR) must provide competent evidence proving that a taxpayer actually received a deficiency tax assessment. The decision emphasizes that while an assessment is considered made when the notice is sent within the prescribed period, the BIR bears the burden of proof to demonstrate that the taxpayer received the assessment notice, especially when the taxpayer denies such receipt. This case serves as a crucial reminder of the importance of due process and the taxpayer’s right to be properly informed of tax liabilities.

Missed Notice, Missed Taxes? Proving Receipt of Deficiency Assessments

The case revolves around a deficiency income tax assessment issued by the Commissioner of Internal Revenue (CIR) against GJM Philippines Manufacturing, Inc. (GJM) for the taxable year 1999. GJM filed its Annual Income Tax Return on April 12, 2000. Consequently, the BIR had until April 15, 2003, to issue an assessment. The BIR claimed it sent the Formal Assessment Notice (FAN) through registered mail on April 14, 2003. However, GJM denied ever receiving the FAN, leading to a dispute that eventually reached the Supreme Court. The core legal question was whether the BIR’s right to assess GJM had prescribed due to failure to prove that GJM received the assessment within the statutory period.

Section 203 of the 1997 National Internal Revenue Code (NIRC), as amended, is central to this case. It stipulates the period within which the CIR must make an assessment:

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 tiled. 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.

The Supreme Court underscored that while the BIR sent the FAN within the three-year prescriptive period, the critical issue was whether GJM received the assessment. The Court referenced previous jurisprudence, stating that the rule does not negate the requirement that the taxpayer should actually receive the assessment notice, even if beyond the prescriptive period. Due to GJM’s denial of receipt, the burden shifted to the BIR to prove that the notice was indeed received.

The court emphasized the importance of competent evidence in proving the fact of mailing. The Supreme Court reiterated that when a taxpayer denies having received an assessment from the BIR, the burden of proof shifts to the BIR to present competent evidence that the notice was, in fact, received. In this context, proving the mailing of the assessment notice requires more than just internal documentation. The Court highlighted the necessity of presenting concrete evidence, such as registry receipts or registry return cards signed by the taxpayer or their authorized representative. The absence of such evidence necessitates the submission of a certification from the Bureau of Posts, along with any other relevant documents, to substantiate the claim of mailing.

To prove the fact of mailing, it is essential to present the registry receipt issued by the Bureau of Posts or the Registry return card which would have been signed by the taxpayer or its authorized representative. And if said documents could not be located, the CIR should have, at the very least, submitted to the Court a certification issued by the Bureau of Posts and any other pertinent document executed with its intervention.

The BIR presented Transmittal Letter No. 282 and a certification from the Postmaster of Rosario, Cavite, as evidence. However, the court found these insufficient. The BIR did not present the author of the transmittal letter to testify, and the Postmaster’s Certification contained inconsistencies regarding the dates and origins of mail matters received by GJM. The court noted that the BIR failed to produce the registry receipt or registry return card, offering no explanation for this failure. Consequently, the CTA ruled that the CIR failed to discharge its duty to present evidence showing that GJM received the FAN.

The Court further reiterated its policy of respecting the conclusions of the Court of Tax Appeals (CTA), recognizing its expertise in tax matters. Unless there is an abuse or improvident exercise of authority, the Supreme Court typically upholds the CTA’s findings. In this case, the Supreme Court found no reason to overturn the CTA’s decision, emphasizing that the CTA’s findings were supported by substantial evidence.

The Supreme Court sustained the cancellation and withdrawal of the Formal Assessment Notice and the Warrant of Distraint and/or Levy. It affirmed the CTA En Banc’s decision, underscoring the importance of procedural due process in tax assessments. The ruling emphasizes that the BIR must not only issue assessments within the prescriptive period but also ensure that taxpayers receive these assessments, with adequate proof of receipt.

FAQs

What was the key issue in this case?	The key issue was whether the BIR’s right to assess GJM for deficiency income tax had prescribed due to a failure to prove that GJM received the Formal Assessment Notice within the three-year prescriptive period.
What is the prescriptive period for the BIR to issue an assessment?	According to Section 203 of the NIRC, the BIR has three years from the date of actual filing or the last day prescribed by law for filing the return, whichever is later, to assess internal revenue taxes.
What happens if a taxpayer denies receiving an assessment notice?	If a taxpayer denies receiving an assessment notice, the burden of proof shifts to the BIR to present competent evidence that the notice was indeed received by the taxpayer.
What evidence is required to prove the mailing of an assessment notice?	To prove mailing, the BIR must present the registry receipt issued by the Bureau of Posts or the registry return card signed by the taxpayer or their authorized representative; if these are unavailable, a certification from the Bureau of Posts is required.
Why did the Supreme Court uphold the CTA’s decision in this case?	The Supreme Court upheld the CTA’s decision because the CIR failed to provide sufficient evidence to prove that GJM actually received the Formal Assessment Notice, and the CTA’s findings were supported by substantial evidence.
What is a Formal Assessment Notice (FAN)?	A FAN is a notice issued by the BIR to inform a taxpayer of a deficiency tax assessment, outlining the specific tax liabilities, discrepancies, and legal basis for the assessment.
What is a Warrant of Distraint and/or Levy?	A Warrant of Distraint and/or Levy is a legal order issued by the BIR authorizing the seizure and sale of a taxpayer’s property to satisfy unpaid tax liabilities.
What is the significance of this ruling for taxpayers?	This ruling reinforces the importance of due process in tax assessments, ensuring that taxpayers are properly informed of their tax liabilities and that the BIR has the burden of proving the taxpayer’s receipt of assessment notices.

This case underscores the critical importance of procedural due process in tax assessments. The BIR must ensure not only that assessments are issued within the prescriptive period but also that taxpayers receive these assessments, backed by adequate proof of receipt. This ruling provides a vital safeguard for taxpayers, ensuring they are not subjected to unwarranted tax liabilities due to procedural lapses.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: COMMISSIONER OF INTERNAL REVENUE vs. GJM PHILIPPINES MANUFACTURING, INC., G.R. No. 202695, February 29, 2016