Taxation Law – Due Process Requirement
In November 1998, the Bureau of Internal Revenue, through one of its Revenue District Office conducted a tax investigation on the books of accounts of A. Brown Co., Inc. (ABCI) for the period of 1997. The examiner found that ABCI is liable for a tax deficiency amounting to P4.5 million.
On January 4, 2001, the Commissioner of Internal Revenue (CIR) issued a Preliminary Assessment Notice against ABCI advising the latter that it is liable to pay an amount more than P132 million for tax deficiencies. The said notice was however sent to ABCI’s former business address even though the CIR has been informed of ABCI’s change of address. ABCI was only able to receive said letter on January 15, 2001. On January 19, 2001, the CIR issued another set of Assessments with Formal Demand against ABCI. Thereafter, ABCI filed a protest.
ISSUE: Whether or not ABCI was deprived of procedural due process.
HELD: Yes. The CIR violated Section 228 of the National Internal Revenue Code as well as Revenue Regulations 12-85 and 12-99 and Revenue Memorandum Order 37-94.
Among the violations committed by the CIR are:
- Demanding a tax deficiency not reflective of the tax investigation conducted. Here, the investigation found ABCI liable for P4.5 million yet the CIR is demanding P132 million plus.
- No valid service of the pre-assessment notice because the Pre-assessment notice were sent to the wrong address. The notice should have been delivered by registered mail or personally to ABCI, and ABCI or its representative should receive personally.
- Assuming arguendo that there was a valid service of the notice, ABCI was deprived its right to present its side of the case. ABCI finally received the notice on January 15, 2001. Thereafter, ABCI should have 15 days to file a reply yet on January 19, 2001, the CIR immediately made an Assessment with Formal Demand.
These lapses rendered the subject assessments null and void. Taxation is indeed indispensable but nevertheless, the prescribed procedure pursuant thereto should be complied with. If it is not, then the taxpayer has a right to complain and the courts will then come to his succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not been observed.
