G.R. No. 136975 – 494 Phil. 306 – 454 SCRA 301 – Taxation Law – Tax Collection – Assessment
Remedial Law – Evidence – Documentary Evidence
Best Evidence Rule in Taxation vs Best Evidence Rule under the Rules of Court
In 1989, an informant informed the Counter-Intelligence Division of the Economic Intelligence and Investigation Bureau that Hantex Trading Co., Inc. underdeclared its importations in the year 1987. The said informant based its report from another informant and the photocopied documents provided to him. The photocopies were copies of Hantex’s Consumption Entries for the year 1987 where it was stated that Hantex’s importations amounted to Php115M. Hantex only declared Php45M.
The original copies of Consumption Entries cannot be produced because the copies in the possession of the Collection Division (official repository of said records) were eaten by termites. Hantex did not want to produce the said records because it alleged that it has been the subject of numerous investigations already and if they will provide their records, there will be no end to the investigation.
As such, the Investigation Division, in determining Hantex’s alleged tax deficiency, relied on the photocopied copies submitted to them by their informant. After investigation, it was found that Hantex’s importations amounted to Php105M. Hantex contested the findings as it averred that the same was based on incompetent evidence considering that it was based merely on photocopies which were not even authenticated or certified.
The Commissioner however argued that under the National Internal Revenue Code, under the best evidence rule, if the taxpayer does not want to provide the required documents for taxation purposes, the taxing authorities can rely on other evidences, in this case, the photocopies, to determine tax liabilities.
Hantex however averred that the best evidence rule was not complied with or was erroneously availed of because the said photocopies were not properly authenticated. To this the Commissioner argued that the BIR is not bound by the technical rules of evidence.
ISSUE: Whether or not it is proper to use the photocopies of the Consumption Entries of Hantex Trading Co., Inc. as proof of its tax liabilities.
HELD: No. It is true that the BIR is not bound by strict rules of evidence. It is also true that the best evidence rule under the NIRC should not be equated to the best evidence rule under the Rules of Court. That being, the best evidence rule under the NIRC may even mean that the best evidence obtainable may consist of hearsay evidence, such as the testimony of third parties or accounts or other records of other taxpayers similarly circumstanced as the taxpayer subject of the investigation – which are inadmissible in a regular proceeding in the regular courts. However in this case, the photocopies are not the best evidence obtainable. The official copies of the Consumption Entries are not solely kept in the Collection Division (where such records were destroyed by termites). The NSO (National Statistics Office) also keep such records. In fact, there are at least four copies of such Consumption Entries. There was no showing that BIR tried to obtain the copies held by NSO.
Further, it was not contested that Hantex was indeed subjected to various investigations for its 1987 tax liabilities. And those tax investigations resulted to a finding that Hantex was only liable for the minimum tax due. Such findings, done by the BIR and the BOC (Bureau of Customs) themselves, are presumed to be regularly done. There was even no showing that the investigating officers were negligent.
In fine, then, the CIR acted arbitrarily and capriciously in relying on and giving weight to the machine copies of the Consumption Entries in fixing the tax deficiency assessments against Hantex.The rule is that in the absence of the accounting records of a taxpayer, his tax liability may be determined by estimation. CIR is not required to compute such tax liabilities with mathematical exactness. Approximation in the calculation of the taxes due is justified. To hold otherwise would be tantamount to holding that skillful concealment is an invincible barrier to proof. However, the rule does not apply where the estimation is arrived at arbitrarily and capriciously.