REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS

QUEZON CITY

EN BA N C

COMMISSIONER OF CTA EB NO. 2436

INTERNAL REVENUE, (CTA Case No. 9118)
Petitioner,

Present:

DEL ROSARIO, U ,
UY,
- versus - RINGPIS-LIBAN,
MANAHAN,
BACORRO-VILLENA,
MODESTO-SAN PEDRO,
REYES-FAJARDO, and,
CUI-DAVID,]].

RURAL BANK OF
BACNOTAN (LA UNION), Promulgated:
INC.,
Respondent. JUL 28 2022
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X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

D ECISION

BACORRO-VILLENA, L:

Before the Court En Bane is a Petition for Review pursuant to ,

2
Section 3(b) , Rule 8 of the Revised Rules of the Court of Tax Appeay
I
Filed o n I 0 February 202 1, Rollo, pp. 1-56, with annexes.
S EC. 3. Who may appeal; period to file petition. - ...

(b) A party adverse ly affected by a dec isio n or resolution of a Div ision of the Court on a mot ion
for reconsideratio n or new trial may appeal to the Court by fil ing before it a petition fo r review
w ith in fi ftee n days fro m receipt of a copy o f the questioned decision o r resolution. Upon proper
motion and the payment of the full amo unt of the docket and other lawful fees and deposi t for
CTA EB NO. 2436 (CTA Case No. 9118)
CIR v. Rural Bank of Bacnotan (La Union), Inc.
DECISION
Page 2 of 29
X-------------------------------- X

(RRCTA), filed by petitioner Commissioner of Internal Revenue

(petitioner/CIR). He seeks the reversal of the Decision dated 02
March 20203 (assailed Decision) and the Resolution dated 21 January
20214 (assailed Resolution) of the Court's Third Division5 in CTA
Case No. 9118, entitled Rural Bank of Bacnotan (La Union), Inc. v.
Commissioner of Internal Revenue.

THE PARTIES OF THE CASE

Respondent is in the business of extending rural credit to small

farmers and tenants, and to reserving rural industries or enterprises.
It is registered with the Bureau of Internal Revenue (BIR) under
Taxpayer Identification Number (TIN) ooo-541-789-ooo. 6

Petitioner, on the other hand, is the duly appointed CIR, and

holds office at the BIR National Office Building, Agham Road, Diliman,
Quezon City where he may be served with summons and other legal
processes. 7

FACTS OF THE CASE

On 17 March 2011, respondent filed its Annual Income Tax

Return (ITR) for taxable year (TY) 2010. 8

On 16 December 2011, respondent received Letter of Authority

(LOA) No. oo3-2011-ooooo315 (SN:eLA2o10ooo6993o) 9 dated o6
December 2011, authorizing the examination of its books of accounts
and other accounting records for all internal revenue taxes except for
Value-Added Tax (VAT) and Final Withholding VAT, forTY 2009 and
2010./

costs before the expiration of the reglementary period herein fixed, the Court may grant an
additional period not exceeding fifteen days from the expiration of the original period within
which to file the petition for review.
Division Docket, Volume V, pp. 2421-2437.
4
Id., pp. 2460-2466.
Penned by Associate Justice Erlinda P. Uy with Associate Justice Ma. Belen M. Ringpis-Liban,
and Associate Justice Maria Rowena Modesto-San Pedro, concurring.
6
Division Docket, Volume V, pp. 2422.
7
!d.
Exhibit "P-4", CD attached to respondent's supplemental FOE.
9
Exhibit "R-1", BIR Records, p. 2.
CTA EB NO. 2436 (CTA Case No. 9118)
CIR v. Rural Bank of Bacnotan (La Union), Inc.
DECISION
Page 3 of 29 •
x--- ----------------- ------------x

On 09 October 2013, respondent executed a Waiver of the

Defense of Prescription under the Statute of Limitations'o (First
Waiver) signed by its President/Manager Nicolas T. Flores (Flores).
Petitioner, through Officer-in-Charge-Revenue District Officer
Amador R. Ducut (OIC-RDO Ducut), accepted the same on 15
October 2013. Thereafter, on 03 December 2014, respondent received
from petitioner a Preliminary Assessment Notice" (PAN), dated 26
November 2014. The PAN reflected respondent's alleged deficiency
taxes for the TY 2010 in the total amount off'2,884,647·67, inclusive of
interest.

In response to the PAN, respondent sent a letter'2 dated 12

December 2014 (First Protest) contesting the proposed imposition of
internal revenue tax liabilities and increments. On 15 December 2014,
petitioner received the said protest.

On 16 December 2014, respondent executed another Waiver of

the Defense of Prescription under the Statute of Limitations'3 (Second
Waiver). Subsequently, on o6 January 2015, it also received a Formal
Letter of Demand with attached Assessment Notices'4 (FLD/FAN)
dated 22 December 2014, reiterating the assessments on deficiency
income tax (IT), gross receipts tax (GRT), expanded withholding tax
(EWT), final withholding tax (FWT) and compromise penalties in the
aggregate amount off'2,876,956.52.

On 14 January 2015, respondent filed a protest'5 to the FLO/FAN

(Second Protest) which the BIR received on 15 January 2015.

Later, alleging petitioner's inaction on its protests, respondent

filed its Petition for Review'6 with this Court on 13 August 2015. The
case was raffled initially to the Court's First Division/

10
Exhibit "R-5", id., p. 88.
II
Exhibit "R-13", id., pp. 210-213.
12
Exhibit "P-10", CD attached to respondent's supplemental FOE.
13
Exhibit "R-15", BlR Records, p. 276.
14
Exhibits "P-12-l" to "P-12-5", CD attached to respondent's supplemental FOE.
15
Exhibit "P-13'', id.
16
Division Docket, Volume I, pp. 10-41.
CTA EB NO. 2436 (CTA Case No. 9118)
CIR v. Rural Bank of Bacnotan (La Union), Inc.
DECISION
Page 4 of 29
X-------------------------------- X

After petitioner filed his Answer17 on 02 October 2015, the Pre-

Trial Conference'8 was set on u February 2016. Thereafter, on 02
March 2016, the parties filed their Joint Stipulation of Facts and Issues'9
(JSFI) which was approved in a Resolution20 dated 14 March 2016.
Subsequently, or on 26 April 2016, the First Division issued a Pre-Trial
Order. 2 '

During the trial proper, respondent presented the following

witnesses, namely: (1) Sylvia L. Florendo (Florendo), its Acting
Internal Auditor; (2) Vina Rose D. Marinas (Marinas), its Chief
Compliance Officer; and, (3) Atty. Adan T. Delamide (Atty.
Delamide), the Court-commissioned Independent Certified Public
Accountant (ICPA) who all testified through their judicial affidavits.

Florendo testified essentially that petitioner erred in the

computation of respondent's tax liabilities. According to Florendo, the
BIR did not check respondent's Cash Receipt Books. Consequently, the
BIR failed to see that respondent's service charges were already
included in its Interest Income for which the s% percentage tax has
been paid thus leaving no unreported income (as opposed to the BIR's
findings). 22

Marinas, on the other hand, testified to respondent's receipt of

the PAN and FLO/FAN, and the filing of its protest and subsequent
judicial appeal within the reglementary periods. 23

Lastly, the ICPA, Atty. Delamide, testified on his examination of

respondents' documents and records, and concluded the assessments
against it had already prescribed. 24

With no further witnesses to present, respondent filed its Formal

Offer of Evidence 25 (FOE) on 03 April 2017. On 23 May 2017, petitioner
filed its Comment (Re: [Respondent's] Formal Offer ofEvidence). 2 /

17
ld., Volume IV, pp. 1744-1752.
18
ld., pp. 1753-1754.
19
ld., pp. 1827-1835.
20
1d., p. 1838.
21
ld., pp. 1871-1883.
22
Exhibit "P-31", id., pp. 1799-1802.
"
24
Exhibit "P-32", id., pp. 1803-1805.
Exhibit "P-48", id., pp. 2132-2139.
CTA EB NO. 2436 (CTA Case No. 9118)
CIR v. Rural Bank of Bacnotan (La Union), Inc.
DECISION
Page 5 of 29
X-------------------------------- X

In a Resolution 27 dated 04 September 2017, the First Division

admitted most of respondent's documentary exhibits except for:
Exh 1.b.t
1 s "P -1" "P -2 " "P - 3 " "P - 4 " "P - 5 " "P - 5 -1 " t o "P- 5 -12 " "P - 6" "P - 6 -1"
' ' ' '' ''
to "P - 6 -13"' "P -7"' "P-7-1" t 0 "P-7-12, "P- 8" ' "P- 8 -1" t 0 "P - 8 -4"' "P-9"' "P -
10", "P -n , "P -12 ", "P12-1" to "P -12-5 ", "P -13", "P -14", "P -14-1" to "P -14-3",
II

"P -15 ", "P -15-1 " to "P-15-3-205 ", "P16" , an d "P -1 6 -1". 28 The F'1rst D.1v1s10n . .
found that these exhibits were either not identified, submitted or duly
marked.

On 20 September 2017, respondent filed an "Omnibus Motion

(a) Motion for Partial Reconsideration (b) Motion to Re-Open Trial'" 9
(Omnibus Motion), praying that it be allowed to submit the
foregoing denied exhibits and for its witnesses to identify them in

25
ld., pp. 2188-2199.
26
ld., pp. 2205-2207.
27
ld .• pp. 2214-2215.
28

Exhibit Document
"P-I" Securities and Exchange Commission Amended Articles of
Incorporation dated 13 June 2011.
"P-2" Certificate of Authority issued by the Monetary Board of the
Central Bank of the Philippines dated 16 Febru<ll)'_ 1962.
"P-3" Certificate of Registration with the BIR.
"'P-4" Petitioner's 2010 Annual Income Tax Return (ITR) [BIR Form
No. 1702] filed on 17 March 2011 and its supporting
documents.
"'P-5", and "P-5-1" to "P-5-12" Schedule of Monthly Gross Receipts Tax for 20 I 0 and
supportinR tax returns.
"P-6", and "P-6-1" to "P-6-13" Schedule of Monthly Expanded Withholding Tax Returns for
20 I 0 and supporting tax returns.
"P-7'', and "P-7-1" to "P-7-12 Schedule of Monthly Final Withholding Tax Returns for 20 I 0
and supporting tax returns.
"P-8", and "P-8-1" to "P-8-4 u Petitioner's Audited Financial Statements for 2010 and
supporting documents.
"P-9" Preliminary Assessment Notice (PAN) dated 26 November
2014.
"P-1 0" Written reply to the PAN dated 12 December 2014.
"P-11" Waiver of the Defense of Prescription Under Statute of
Limitations ofNational Internal Revenue Code.
"P-12" CIR's Letter dated 15 December 2014.
"P-12-1" to "P-12-5" Formal Letter of Demand and Assessment Notices (FLD/FAN)
dated 22 December 2014.
"P-13'' Petitioner's protest to the and Assessment Notices (FLD/F AN)
dated 14 January 2015.
"P-14", and "P-14-1" to 2009 Annual Income Tax Return and its accompanying audited
"P-14-3" financial statements and other documents.
"P-15", and "P-15-1" to Reconciliation of Interest Income and Service Charge for 20 I 0;
"P-15-3-205" List of Official Receipts for Interest Earned; and supporting
official receipts.
"P-16", and "P-16-1" Monthly Percentage Tax Return for December 20 I 0 and its
accompanying document.
29
Division Docket, Volume IV, pp. 2224-2236.
CTA EB NO. 2436 (CTA Case No. 9118)
CIR v. Rural Bank of Bacnotan (La Union), Inc.
DECISION
Page 6 of 29
X--------------------------- -----X

court. On 13 October 2017, petitioner filed its opposition to

respondent's Omnibus Motion. 30

In a Resolution dated o6 December 201i', the First Division re-

opened trial. Florendo32 and Marifias33 were recalled to the witness
stand where they identified some of the denied exhibits through their
respective judicial affidavits. Thereafter, respondent filed its
Supplemental FOE34 on 01 February 2018, with petitioner's "Comment
(Re: [Respondent's] Supplemental Formal Offer of Evidence)"35 on 02
February 2018.

In a Resolution dated 02 March 201836, the First Division

admitted respondent's previously denied exhibits and deemed the
latter to have rested its case accordingly.

For his part, petitioner presented the following witnesses,

namely: (1) Revenue Officer (RO) Anna Rose T. Romero (Romero);
and, (2) RO Venus B. Ferrer (Ferrer) who both testified through their
Judicial Affidavits.

On the witness stand, Romero testified that the assessment

against respondent has yet not prescribed. He also attested to the
PAN's service on respondent and the latter's execution of the First
Waiver. 37

When Ferrer assumed the witness stand, she corroborated

Romero's testimony regarding the non-prescription of the assessment
against respondent. She further testified to respondent's execution of
the Second Waiver and FLO/FAN's issuance/

30
ld., pp. 2244-2247.
31
Id .. pp. 2250-2253.
32
Exhibit "P-2436"', Supplemental Judicial Affidavit of Sylvia L. Florendo, id., pp. 2254-2254.
33
Exhibit "P-2437", Supplemental Judicial Affidavit ofVina Rose D. Marinas, id., pp. 2263-2268.
34
Id., pp. 2280-2285.
35
Id., pp. 2286-2287.
36
ld., pp. 2293-2295.
37
Exhibit "R- I 8"', Judicial Affidavit of Anna Rose T. Romero, id., pp. I 775-1779.
38
Exhibit "R- I 7"', Judicial Affidavit of RO Venus B. Ferrer, id., pp. I 785- I 789.
CTA EB NO. 2436 (CTA Case No. 9118)
CIR v. Rural Bank of Bacnotan (La Union), Inc.
DECISION
Page 7 of 29
X-------------------------------- X

Thereafter, on 23 May 2018, petitioner proceeded to file his

FOE. Respondent's Comment40 thereto was filed on 13 June 2018. In a
39

Resolution dated o6 August 20184 ', the First Division noted

discrepancies between the Exhibit numbers in petitioner's FOE and
their actual markings. Petitioner was then given a period of ten (w)
days to rectify the errors. Subsequently, petitioner filed his Amended
F0£42 on 23 August 2018.

In the interim, in an Order dated 25 September 201843 , the case

was transferred to the Court's Third Division by virtue of CTA
Administrative Circular No. 02-2018. 44

In a Resolution dated 18 January 2019 4 S, the Third Division

admitted all of petitioner's evidence and directed the parties to file
their respective Memorandum within thirty (3o) days from notice
thereof.

Respondent filed its Memorandum 46 on 26 February 2019, while

petitioner filed his Memorandum47 on 21 March 2019. Subsequently,
the case was submitted for decision in a Resolution dated 26 March
2019-

On 02 March 2020, the Third Division promulgated the assailed

Decision. 48 The dispositive portion thereof reads:

WHEREFORE, in light of the foregoing considerations, the

instant Petition for Review is hereby GRANTED. Accordingly, the
Formal Letter of Demand and Final Assessment Notices assessing
[respondent] for deficiency income tax, gross receipts tax, expanded
withholding tax, final withholding tax and compromise penalties for
taxable year 2010 in the total amount of 1"2,844,647.67 are
CANCELLED and WITHDRAWN;

39
ld., pp. 2314-2321.
40
ld., pp. 2329-2330.
41
Id .• pp. 2342-2343.
42
ld., pp. 2345-2352.
43
ld., Volume V, p. 2354.
44
"Reorganizing the Three (3) Divisions of the Court" dated 18 September 2018.
45
Division Docket, Volume V, pp. 2356-2357.
46
!d., pp. 2369-240 I.
47
Id., pp. 2405-2415.
4S
Supra at note 3.
CTA EB NO. 2436 (CTA Case No. 9118)
CIR v. Rural Bank of Bacnotan (La Union), Inc.
DECISION
Page 8 of 29
X-------------------------------- X

SO ORDERED.

In ruling against petitioner, the Third Division found the

Waivers executed between the parties to be defective for non-
compliance with the provisions of Revenue Memorandum Order
(RMO) No. 20-9049 and Revenue Delegation Administrative Order
(RDAO) No. os-o1. 50

Following the case of Commissioner of Internal Revenue v. La Flor

Dela Isabela, Jnc. 51 (La Flor), the Third Division found respondent's
Waivers invalid for failing to indicate the exact amount of the tax due
assessed or collected. Pursuant to this, the periods for a regular
assessment under Section 203 of the National Internal Revenue Code
(NIRC) of 1997, as amended, was deemed applicable to respondent's
case. It quoted Section 203 providing thusly:

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.

Accordingly, the Third Division found the following dates

pertaining to respondent's tax payments and the periods for their
assessment/

49
Proper Execution of the Waiver of the Statute of Limitations under the National Internal Revenue
Code issued on 04 April 1990.
50
Delegation of Authority to Sign and Accept the Waiver of the Defense of Prescription Under the
Statute of Limitations issued on 02 August 200 I.
51
G.R. No. 211289, 14 January 2019.
CTA EB NO. 2436 (CTA Case No. 9118)
CIR v. Rural Bank of Bacnotan (La Union), Inc.
DECISION
Page 9 of 29
X-------------------------------- X

...... _ ............ _ _ _ J ...

lFil
.. & & & & & - - & & (...........~ ' A--& _ ....... )
~,

Tax Return Date of Actual Last day to File Last Day to

Filing Return Assess
Annual Income 17 March 2011 15 April 2011 15 April 2014
Tax Return CY
52
2010

GRT-M ---- hlv Filin~ (Y

' --- ----,)
Tax Return Date of Actual Filing Last day to File Last Day to
Return Assess
January53 16 February 2010 20 February 2010 20 February 2013
February54 17 March 2010 20 March 2010 20 March 2013
March 55 19 April 2010 20 April 2010 20 April 2013
April 56 17 May 2010 20 May201o 20 May2013
May57 17 June 2010 20 June 2010 20 June 2013
June 58 19 July 2010 20 July 2010 20 July 2o1l
July59 19 August 2010 20 August 2010 20 August 2013
August 6" 16 September 2010 20 September 2010 20 September 2013
September6' 18 October 2010 20 October 2010 20 October 2013
October 62 18 November 2010 20 November 2010 20 November 2013
November 63 16 December 2010 20 December 2010 20 December 2013
December64 17 January 2ou 20 January 20u 20 January 2014

EWT-M
- .. - -·----- hlv Filimz (Y·--- ----,)
Tax Return Date of Actual Filing Last day to File Last Day to
Return Assess
January" 5 o8 February 2010 10 February 2010 10 February 2010
Februar16 09 March 2010 10 March 2010 10 March 2010
March 67 o8 April 2010 10 April 2010 10 April 2013
April 68 o6 May 2010 10 May2o10 10 May 201]_
May6g o8 June 2010 10 June 2010 10 June 2013
June70 o8 July 2010 10 July 2010 10 July 201]_ d

52
Exhibit "P-4", supra at note 8.
S3
Exhibit "P-5-1" and Exhibit "P-5-1-1 ", CD attached to respondent's supplemental FOE.
54
Exhibit "P-5-2" and Exhibit "P-5-2-1", id.
55
Exhibit "P-5-3" and Exhibit "P-5-3-1 ", id.
56
Exhibit "P-5-4" and Exhibit "P-5-4-1", id.
57
Exhibit "P-5-5" and Exhibit "P-5-5-1", id.
58
Exhibit "P-5-6" and Exhibit "P-5-6-1", id.
59
Exhibit "P-5-7" and Exhibit "P-5-7-1", id.
60
Exhibit "P-5-8" and Exhibit "P-5-8-1 ", id.
"62 Exhibit "P-5-9" and Exhibit "P-5-9-1 ", id.
Exhibit "P-5-1 0" and Exhibit "P-5-1 0-1 ", id.
63
Exhibit "P-5-1 I" and Exhibit "P-5-11-1 ", id.
64
Exhibit "P-5-12" and Exhibit "P-5-12-1", id.
65
Exhibit "P-6-1" and Exhibit "P-6-1-1 ", id.
66
Exhibit "P-6-2" and Exhibit "P-6-2-1 ", id.
67
Exhibit "P-6-3" and Exhibit "P-6-3-1", id.
68
Exhibit "P-6-4" and Exhibit "P-6-4-1", id.
69
Exhibit "P-6-5" and Exhibit "P-6-5-1", id.
70
Exhibit "P-6-6" and Exhibit "P-6-6-1", id.
CTA EB NO. 2436 (CTA Case No. 9118)
CIR v. Rural Bank of Bacnotan (La Union), Inc.
DECISION
Page 10 of 29
X-------------------------------- X

July7' 09 August 2010 10 August 2010 10 August 2013

AJ!&ust72 09 September 2010 10 September 2010 10 September 2013
September73 07 October 2010 10 October 2010 10 October 2013
October 74 09 November 2010 10 November 2010 10 November 2013
November75 09 December 2010 10 December 2010 10 December 2013
December76 10 January 2011 15 January 2011 1~ January 2014

~ ..
...........................
~ hl ... ............
] I ._~ __
(\ ... ... _.............. ,)
Tax Return Date of Actual Filing Last day to File Last Day to
Return Assess
January77 o8 February 2010 10 February 2010 10 February 2010
February78 og March 2010 10 March 2010 10 March 2013
March79 o8 April 2010 10 April 2010 10 April 2013
April"0 o6 May2o10 10 May 2010 10 May 2013
Mal' o8 June 2010 10 June 2010 10 June 2013
June82 o8 July 2010 10 July 2010 10 July 2013
Julys3 09 August 2010 10 August 2010 10 August 2013
August"4 09 September 2010 10 September 2010 10 September 2013
September85 07 October 2010 10 October 2010 10 October 2013
October 86 09 November 2010 10 November 2010 10 November 2013
November87 09 December 2010 10 December 2010 10 December 2013
December88 10 January 2011 15 January 2011 15 January 2014

Given that the FLO/FAN was only issued on 22 December 2014,

the Third Division also ruled that the final assessment of respondent
was issued beyond the three (3)-year period provided in Section 203 of
the NIRC of 1997, as amended.

Aggrieved, petitioner filed a Motion for Reconsideration89 (MR)

on 10 June 2020. In the similarly assailed Resolution 90 of 21 January
2021, the Third Division denied petitioner's MR./
71
Exhibit "P-6-7" and Exhibit "P-6-7-1"', id.
72
Exhibit "P-6-8A" and Exhibit "P-6-8A-1 ", id.
73
Exhibit "P-6-9" and Exhibit "P-6-9-1 ", id.
74
Exhibit "P-6-1 0" and Exhibit "P-6-1 0-1 ", id.
75
Exhibit "P-6-11" and Exhibit "P-6-11-1 ", id.
76
Exhibit "P-6-12" and Exhibit "P-6-12-1 ", id.
77
Exhibit "P-7-1" and Exhibit "P-7-1-1", id.
78
Exhibit "P-7-2" and Exhibit "P-7-2-1", id.
79
Exhibit "P-7-3" and Exhibit "P-7-3-1", id.
80
Exhibit "P-7-4" and Exhibit "P-7-4-1", id.
81
Exhibit "P-7-5" and Exhibit "P-7-5-1", id.
82
Exhibit "P-7-6" and Exhibit "P-7-6-1", id.
83
Exhibit "P-7-7" and Exhibit "P-7-7-1", id.
84
Exhibit "P-7-8" and Exhibit "P-7-8-1", id.
85
Exhibit "P-7-9" and Exhibit "P-7-9-1", id.
86
Exhibit "P-7-1 0" and Exhibit "P-7-1 0-1 ", id.
87
Exhibit "P-7-11" and Exhibit "P-7-11-1", id.
88
Exhibit "P-7-12" and Exhibit "P-7-12-1 ", id.
CTA EB NO. 2436 (CTA Case No. 9118)
CIR v. Rural Bank of Bacnotan (La Union), Inc.
DECISION
Page 11 of 29
X-------------------------------- X

Hence, the present petition9' before the Court En Bane.

After respondent filed its Comment92 to the instant petition on

19 May 2021, the case was referred to the Philippine Mediation Center -
Court of Tax Appeals (PMC-CTA) for mediation. 93 With the parties
failure to arrive at a compromise9 \ the Court submitted the case for
decision in a Resolution dated 28 July 2021. 95

ISSUES

In this petition, petitioner puts forward the following issues for

the Court En Bane's resolution:

I.
WHETHER THE WAIVERS OF RESPONDENT RURAL BANK OF
BACNOTAN (LA UNION), INC. WERE VALIDLY EXECUTED
HENCE, EXTENDING THE PERIOD TO ASSESS; AND,

II.
WHETHER THE THIRD DIVISION OF THE HONORABLE COURT
ERRED WHEN IT CANCELLED THE DEFICIENCY INCOME TAX,
GROSS RECEIPTS TAX, EXPANDED WITHHOLDING TAX, FINAL
WITHHOLDING TAX AND COMPROMISE PENALTIES. 96

In support of the above, petitioner contends that respondent's

Waivers validly extended the period for the BIR to assess it. He claims
that respondent should be estopped from questioning the Waivers'
validity and it was an error for the Third Division to rule that the
assessment had already prescribed. He further stresses that the
assessment of respondent is supported by legal and factual bases.

Respondent, on the other hand, echoes the Third Division's

ruling as regards the assessment's prescription. It also adds that the
assessment is void since petitioner did not consider its argumen~~

89
Division Docket, Volume V, pp. 2438-2451.
90
Supra at note 4.
91
Supra at note I.
92
Rollo, pp. 60-86.
93
See Resolution dated 08 June 2021, id., pp. 88-89
94
No Agreement to Mediate, id., p. 90.
95
ld., pp. 92-93.
96
Supra at note I, p. 3.
CTA EB NO. 2436 (CTA Case No. 9118)
CIR v. Rural Bank of Bacnotan (La Union), Inc.
DECISION
Page 12 of 29
X----------------------- ---------X

supporting documents in denying its protest to the PAN and issuance

of the FLO/FAN. Additionally, it maintains that, at any rate,
petitioner's findings and calculations are erroneous as shown by its
documentary evidence.

RULING OF THE COURT EN BANC

Except on the matter of respondent's Waivers being invalid and

that prescription has set in, the Court En Bane fully agrees with the
Third Division's actions in this case.

RESPONDENT IS ESTOPPED FROM

QUESTIONING THE VALIDITY OF THE
WAIVERS.

As cited in the assailed Decision, the Supreme Court in La Flor

ruled:

In Commissioner of Internal Revenue v. Systems Technology

Institute, Inc., the Court had ruled that waivers extending the
prescriptive period of tax assessments must be compliant with RMO
No. 20-90 and must indicate the nature and amount of the tax due,
to wit:

These requirements are mandatory and must

strictly be followed. To be sure, in a number of cases,
this Court did not hesitate to strike down waivers
which failed to strictly comply with the provisions of
RMO 20-90 and RDAO os-ot.

The Court also invalidated the waivers executed by the

taxpayer in the case of Commissioner of Internal
Revenue v. Standard Chartered Bank, because: (1) they
were signed by Assistant Commissioner-Large
Taxpayers Service and not by the CIR; (2) the date of
acceptance was not shown; (3) they did not specify the
kind and amount of the tax due; and (4) the waivers
speak of a request for extension of time within which
to present additional documents and not for
reinvestigation and/or reconsideration of the pendiny'
CTA EB NO. 2436 (CTA Case No. 9118)
CIR v. Rural Bank of Bacnotan (La Union), Inc.
DECISION
Page 13 of 29
x--- --------------------------- --x

internal revenue case as required under RMO No. 20-

90.

Tested against the requirements of RMO 20-90 and

relevant jurisprudence, the Court cannot but agree
with the CTA's finding that the waivers subject of this
case suffer from the following defects:

3· Similar to Standard Chartered Bank, the

waivers in this case did not specifY the kind of
tax and the amount of tax due. It is established
that a waiver of the statute of limitations is a
bilateral agreement between the taxpayer and
the BIR to extend the period to assess or collect
deficiency taxes on a certain date. Logically,
there can be no agreement if the kind and
amount of the taxes to be assessed or
collected were not indicated. Hence, specific
information in the waiver is necessary for its
validity.

In the present case, the September 3, 2008, February 16, 2009

and December 2, 2009 Waivers failed to indicate the specific tax
involved and the exact amount of the tax to be assessed or collected.
As above-mentioned, these details are material as there can be no
true and valid agreement between the taxpayer and the CIR absent
these information. Clearly, the Waivers did not effectively extend the
prescriptive period under Section 203 on account of their invalidity.
The issue on whether the CTA was correct in not admitting them as
evidence becomes immaterial since even if they were properly
offered or considered by the CTA, the same conclusion would be
reached - the assessments had prescribed as there was no valid
waiver. 97

As an exception, there are, however, instances where waivers

were considered valid despite their non-compliance with RMO No. 20-
90 and RDAO No. os-m, in consideration of the principle of estoppel.
In the case of Commissioner of Internal Revenue v. Next Mobile, Inc.
(Formerly Nextel Communications Phils., Inc.) 98 [Next Mobile], the
Supreme Court ruled, thusly/

97
Supra at note 51.
98
G.R. No. 212825,07 December 2015; Citations omitted and italics in the original text.
CTA EB NO. 2436 (CTA Case No. 9118)
CIR v. Rural Bank of Bacnotan (La Union), Inc.
DECISION
Page 14 of 29
X-------------------------------- X

The general rule is that when a waiver does not comply with
the requisites for its validity specified under RMO No. 20-90 and
RDAO 01-05, it is invalid and ineffective to extend the prescriptive
period to assess taxes. However, due to its peculiar circumstances,
We shall treat this case as an exception to this rule and find the
Waivers valid for the reasons discussed below.

First, the parties in this case are in pari delicto or "in equal
fault." In pari delicto connotes that the two parties to a controversy
are equally culpable or guilty and they shall have no action against
each other. However, although the parties are in pari delicto, the
Court may interfere and grant relief at the suit of one of them, where
public policy requires its intervention, even though the result may be
that a benefit will be derived by one party who is in equal guilt with
the other.

Here, to uphold the validity of the Waivers would be

consistent with the public policy embodied in the principle that
taxes are the lifeblood of the government, and their prompt and
certain availability is an imperious need. Taxes are the nation's
lifeblood through which government agencies continue to operate
and which the State discharges its functions for the welfare of its
constituents. As between the parties, it would be more equitable if
petitioner's lapses were allowed to pass and consequently uphold the
Waivers in order to support this principle and public policy.

Second, the Court has repeatedly pronounced that parties

must come to court with clean hands. Parties who do not come to
court with clean hands cannot be allowed to benefit from their own
wrongdoing. Following the foregoing principle, respondent should
not be allowed to benefit from the flaws in its own Waivers and
successfully insist on their invalidity in order to evade its
responsibility to pay taxes.

Third, respondent is estopped from questioning the validity of

its Waivers. While it is true that the Court has repeatedly held that
the doctrine of estoppel must be sparingly applied as an exception to
the statute oflimitations for assessment of taxes, the Court finds that
the application of the doctrine is justified in this case. Verily, the
application of estoppel in this case would promote the
administration of the law, prevent injustice and avert the
accomplishment of a wrong and undue advantage. Respondent
executed five Waivers and delivered them to petitioner, one after the
other. It allowed petitioner to rely on them and did not raise any
objection against their validity until petitioner assessed taxes and
penalties against it. Moreover, the application of estoppel is ,
necessary to prevent the undue injury that the government wouly
CTA EB NO. 2436 (CTA Case No. 9118)
CIR v. Rural Bank of Bacnotan (La Union), Inc.
DECISION
Page 15 of 29
x----------- -------------------- -x

suffer because of the cancellation of petitioner's assessment of

respondent's tax liabilities.

Finally, the Court cannot tolerate this highly susp1cwus

situation. In this case, the taxpayer, on the one hand, after
voluntarily executing waivers, insisted on their invalidity by raising
the very same defects it caused. On the other hand, the BIR
miserably failed to exact from respondent compliance with its rules.
The BIR's negligence in the performance of its duties was so gross
that it amounted to malice and bad faith. Moreover, the BIR was so
lax such that it seemed that it consented to the mistakes in the
Waivers. Such a situation is dangerous and open to abuse by
unscrupulous taxpayers who intend to escape their responsibility to
pay taxes by mere expedient of hiding behind technicalities.

Upon examination of respondent's First Waiver, the Court En

Bane notes the following defects:

(1) It does not contain the kind and exact amount of tax due;
(2) The fact of receipt was not indicated on the face of the
First Waiver; and,
(3) There is no board resolution showing the authority of
respondent's representative to the First Waiver on the
former's behalf.

On the other hand, the Second Waiver shows that:

(1) It does not contain an exact amount of the tax due;

(2) There is no board resolution showing the authority of
respondent's representative to the Second Waiver on the
former's behalf.

Notwithstanding these infirmities, the Court En Bane is

nevertheless inclined to rule in favor of the Waivers' validity for the
reasons set forth below.,
CTA EB NO. 2436 (CTA Case No. 9118)
CIR v. Rural Bank of Bacnotan (La Union), Inc.
DECISION
Page 16 of 29
X-------------------------------- X

First, it is noteworthy that in La Flor, the Supreme Court's

declaration on the invalidity of the waivers therein appears to be an
obiter dictum which means "words of a prior opinion entirely
unnecessary for the decision of the case". 99

An examination of La Flor reveals that the CIR failed to present

the two prior waivers into evidence while only the existence of the last
waiver was stipulated by the parties. This fact led the CTA to conclude
that the assessments had already prescribed given the lack of the
. .
prevwus waivers.

In the CIR's appeal before the Supreme Court, the CIR raised the
argument that the previous waivers should have been considered
although they failed to submit the same during trial. In denying the
CIR's argument, the Supreme Court held that even if the waivers were
considered, they would still be invalid as they did not specify the kind
and amount of tax due. 100

The fact of whether or not the previous waivers were defective in

La Flor were not essential for the case's disposal as none of these
previous waivers were offered or presented into evidence by the CIR'01 ,
and as a rule "evidence not offered is excluded in the determination of
the case" .102

In stark contrast to La Flor, both Waivers here were duly

identified and marked before the Third Division in the case at bar.

Second, unlike in La Flor where the only defect found in the

waivers was the absence of the kind and amount of tax due, the
Waivers in this case have several defects as previously mentioned.

Third, respondent cannot raise defects that were caused by it. It

is noted that in its Comment/Opposition, respondent does not deny ,
executing the Waivers although it argues that Flores, i y

99
Sta. Lucia Realty and Development, Inc.. eta/. v. Leticia Cabrigas, eta/., G.R. No. 134895, 19
June 2001, Black's Law Dictionary, p. 1222, citing the case of Noel v. 0/ds, 78 U.S. App. D.C.
155.
100
See Commissioner ofinternal Revenue v. La F/or De/a Isabel a, Inc., supra at note 97.
101
Id.
102
Republic of the Philippines v. Fe Roa Gimenez, eta/., G.R. No. 174673, II January 2016.
CTA EB NO. 2436 (CTA Case No. 9118)
CIR v. Rural Bank of Bacnotan (La Union), Inc.
DECISION
Page 17 of 29
X-------------------------------- X

President/Manager, was not authorized to sign the same on its behalf.

In Next Mobile, the Supreme Court viewed the taxpayer's act of
executing waivers without the requisite authority, coupled with the
BlR's failure to procure from the taxpayer a notarized authority, as
highly suspicious. 103

It must be emphasized that the signatory to the subject Waivers

was none other than respondent's own President. The records show
that Flores not only executed both Waivers but he also received the
PAN and FLO/FAN on respondent's behalf. Likewise, he signed both
protests to the PAN and FLO/FAN. Therefore, it becomes highly
doubtful that Flores lacked the authority to sign the Waivers since he
was respondent's representative in every vital exchange between it and
the BIR. As it appears, respondent either denies or upholds Flores'
authority as it deems convenient to its case.

Moreover, despite the absence of a separate authority furnished

to the BIR to execute the Waivers, respondent's actions, and taking
into account Flores's position in the corporation, clearly establish
Flores' apparent authority to bind respondent. In People's Aircargo and
Warehousing Co. Inc. v. Court of Appeals, et al. 104, the Supreme Court
ruled:

Petitioner's argument is not persuasive. Apparent authority is

derived not merely from practice. Its existence may be ascertained
through (1) the general manner in which the corporation holds out
an officer or agent as having the power to act or, in other words, the
apparent authority to act in general, with which it clothes him; or (2)
the acquiescence in his acts of a particular nature, with actual or
constructive knowledge thereof, whether within or beyond the scope
of his ordinary powers. It requires presentation of evidence of similar
act(s) executed either in its favor or in favor of other parties. It is not
the quantity of similar acts which establishes apparent authority, but
the vesting of a corporate officer with the power to bind the
corporation./

103
Supra at note 98.
104
G.R. No. 117847, 07 October 1998; Citations omitted and emphasis supplied.
CTA EB NO. 2436 (CTA Case No. 9118)
CIR v. Rural Bank of Bacnotan (La Union), Inc.
DECISION
Page 18 of 29
X-------------------------------- X

In the case at bar, petitioner, through its president Antonio Punsalan

Jr., entered into the First Contract without first securing board
approval. Despite such lack of board approval, petitioner did not
object to or repudiate said contract, thus "clothing" its president
with the power to bind the corporation ....

The First Contract was consummated, implemented and paid

without a hitch.

Hence, private respondent should not be faulted for believing

that Punsalan's conformity to the contract in dispute was also
binding on petitioner. It is familiar doctrine that if a
corporation knowingly permits one of its officers, or any other
agent, to act within the scope of an apparent authority, it holds
him out to the public as possessing the power to do those acts;
and thus, the corporation will, as against anyone who has in
good faith dealt with it through such agent, be estopped from
denying the agent's authority.

Furthermore, private respondent prepared an operations manual and

conducted a seminar for the employees of petitioner in accordance
with their contract. Petitioner accepted the operations manual,
submitted it to the Bureau of Customs and allowed the seminar for
its employees. As a result of its aforementioned actions, petitioner
was given by the Bureau of Customs a license to operate a bonded
warehouse. Granting arguendo then that the Second Contract was
outside the usual powers of the president, petitioner's ratification of
said contract and acceptance of benefits have made it binding,
nonetheless. The enforceability of contracts under Article 1403(2) is
ratified "by the acceptance of benefits under them" under Article
1405.

Inasmuch as a corporate president is often given general

supervision and control over corporate operations, the strict
rule that said officer has no inherent power to act for the
corporation is slowly giving way to the realization that such
officer has certain limited powers in the transaction of the
usual and ordinary business of the corporation. In the absence
of a charter or bylaw provision to the contrary, the president is
presumed to have the authority to act within the domain of the
general objectives of its business and within the scope of his or
her usual duties.

Hence, it has been held in other jurisdictions that the

president of a corporation possesses the power to enter into a
contract for the corporation, when the "conduct on the part of
both the president and the corporation [shows] that he had ,
been in the habit of acting in similar matters on behalf of t h 1
CTA EB NO. 2436 (CTA Case No. 9118)
CIR v. Rural Bank of Bacnotan (La Union), Inc.
DECISION
Page 19 of 29
X------------------------------- -X

company and that the company had authorized him so to act

and had recognized, approved and ratified his former and
similar actions." Furthermore, a party dealing with the
president of a corporation is entitled to assume that he has the
authority to enter, on behalf of the corporation, into contracts
that are within the scope of the powers of said corporation and
that do not violate any statute or rule on public policy.

Fourth, respondent was furnished a copy of the Waivers.

Although the First Waiver did not have a receipt date stamped on its
face, respondent's subsequent acts show that it was well aware of the
First Waiver's acceptance.

As the records bear out clearly, the First Waiver was executed
and accepted prior to the PAN's issuance on 26 November 2014. If it
was a fact that respondent was not issued a copy of the accepted First
Waiver, prudence would dictate that it should raise such matter in its
protest to the PAN (given that at the time of its issuance, the
assessment would have already prescribed if it weren't for the First
Waiver's acceptance). However, instead of contesting the assessment
on the ground of prescription, respondent went on to challenge the
BIR's computations and thereafter, executed the Second Waiver on 16
December 2014.

A perusal of the Second Waiver would show that Flores received

the same on 19 December 2014 as opposed to respondent's allegations.
Equally, respondent made no mention of either the First Waiver's or
the Second Waiver's defects in its subsequent protest to the FLD/FAN.

With the foregoing disquisition, the Court could only then

conclude that respondent is already estopped from denying the
Waivers' validity on the basis of the aforementioned defects.

In Commissioner of Internal Revenue v. Transitions Optical

Philippines, Inc. 105 (TOPI), the Supreme Court held that estoppel
applies where the taxpayer failed to raise the invalidity of the
waivers at the earliest opportunity, to wir

105
G.R. No. 227544, 22 November 2017; Citations omitted, italics and emphasis in the original text
and underscoring supplied.
CTA EB NO. 2436 (CTA Case No. 9118)
CIR v. Rural Bank of Bacnotan (La Union), Inc.
DECISION
Page 20 of 29
X-------------------------------- X

Estoppel applies against a taxpayer who did not only raise at the
earliest opportunity its representative's lack of authoricy to execute
two (2) waivers of defense of prescription. but was also accorded.
through these waivers. more time to comply with the audit
requirements of the Bureau of Internal Revenue. Nonetheless, a tax
assessment served beyond the extended period is void.

Estoppel similarly applies in this case

Indeed, the Bureau of Internal Revenue was at fault when it accepted

respondent's Waivers despite their non[-]compliance with the
requirements ofRMO No. 20-90 and RDAO No. os-m.
Nonetheless, respondent's acts also show its implied admission of
the validity of the waivers. First, respondent never raised the
invalidity of the Waivers at the earliest opportunity, either in its
Protest to the PAN, Protest to the FAN, or Supplemental Protest to
the FAN. It thereby impliedly recognized these Waivers' validicy and
its representatives' authority to execute them. Respondent only
raised the issue of these Waivers' validity in its Petition for Review
filed with the Court of Tax Appeals. In fact, as pointed out by Justice
Del Rosario. respondent's Protest to the FAN clearly recognized the
validicy of the Waivers, when it stated:

This has reference to the Final Assessment Notice

("[F]AN") issued by your office, dated November 28,
2008. The said letter was received by Transitions
Optical Philippines[,] Inc. (TOP!) on December 5,
2008, five days after the waiver we issued which
was valid until November 30, 2008 had prescribed.

Lastly, the mentioned defects in respondent's Waivers are not

solely attributable to the ClR unlike in La Flor. In the case of Asian
Transmission Corporation v. Commissioner of Internal Revenue106
(Asian Transmission), the Supreme Court held that the primary
responsibility for the proper preparation of the waiver rests with

viz:!
the taxpayer; hence, the CIR may not be blamed for any defects in the
execution thereof,

106
G.R. 230861, 19 September 20 18; Citations omitted and emphasis supplied.
CTA EB NO. 2436 (CTA Case No. 9118)
CIR v. Rural Bank of Bacnotan (La Union), Inc.
DECISION
Page 21 of 29
X-------------------------------- X

We reiterate through this decision that the taxpayer has the

primary responsibility for the proper preparation of the waiver
of the prescriptive period for assessing deficiency taxes. Hence,
the Commissioner of Internal Revenue (CIR) may not be
blamed for any defects in the execution of the waiver.

In this case, the CTA in Division noted that the eight waivers of ATC
contained the following defects, to wit:

1. The notarization of the Waivers was not in accordance with the

2004 Rules on Notarial Practice;

2. Several waivers clearly failed to indicate the date of acceptance by

the Bureau of Internal Revenue;

3· The Waivers were not signed by the proper revenue officer; and

4· The Waivers failed to specify the type of tax and the amount of
tax due.

We agree with the holding of the CTA En Bane that ATC's case was
similar to the case of the taxpayer involved in Commissioner of
Internal Revenue v. Next Mobile Inc. The foregoing defects noted in
the waivers of ATC were not solely attributable to the CIR. Indeed,
although RDAO 01-05 stated that the waiver should not be accepted
by the concerned BIR office or official unless duly notarized, a
careful reading of RDAO 01-05 indicates that the proper
preparation of the waiver was primarily the responsibility of
the taxpayer or its authorized representative signing the
waiver. Such responsibility did not pertain to the BIR as the
receiving party. Consequently, ATC was not correct in insisting that
the act or omission giving rise to the defects of the waivers should be
ascribed solely to the respondent CIR and her subordinates.

Moreover, the principle of estoppel was applicable. The execution of

the waivers was to the advantage of ATC because the waivers would
provide to ATC the sufficient time to gather and produce
voluminous records for the audit. It would really be unfair, therefore,
were ATC to be permitted to assail the waivers only after the final
assessment proved to be adverse. Indeed, the Court observed
in Commissioner of Internal Revenue v. Next Mobile Inc. that:

In this case, respondent, after deliberately executing

defective waivers, raised the very same deficiencies it
caused to avoid the tax liability determined by the BIR
during the extended assessment period. It must be
'
remembered that by virtue of these Waivers/
CTA EB NO. 2436 (CTA Case No. 9118)
CIR v. Rural Bank of Bacnotan (La Union), Inc.
DECISION
Page 22 of 29
X------------------------------- -X

respondent was given the opportunity to gather and

submit documents to substantiate its claims before the
CIR during investigation. It was able to postpone the
payment of taxes, as well as contest and negotiate the
assessment against it. Yet, after enjoying these
benefits, respondent challenged the validity of the
Waivers when the consequences thereof were not in its
favor. In other words, respondent's act of impugning
these Waivers after benefiting therefrom and allowing
petitioner to rely on the same is an act of bad faith.

Thus, the CTA En Bane did not err in ruling that ATC, after having
benefitted from the defective waivers, should not be allowed to assail
them. In short, the CTA En Bane properly applied the equitable
principles of in pari delicto, unclean hands, and estoppel as
enunciated in Commissioner of Internal Revenue v. Next Mobile case.

For the foregoing reasons, as stated, the Court finds the Waivers
herein valid on the basis of equity as both parties shared responsibility
for their infirmities. Accordingly, respondent as a party to the faulty
Waivers is precluded from questioning the validity thereof on the basis
of such defects for which it is partly to blame.

RESPONDENT WAS DENIED DUE

PROCESS WHEN THE BUREAU OF
INTERNAL REVENUE (BIR) FAILED TO
CONSIDER ITS PROTEST TO THE
PRELIMINARY ASSESSMENT NOTICE
(PAN).

Respondent argues that petitioner failed to consider their protest

to the PAN as the latter allegedly issued the FLD IF AN on the same day
that it received respondent's letter on 15 December 2014.

Contrary to respondent's allegations, evidence on record shows

that the FLDIFAN was issued on 22 December 2014 and not on 15
December 2014. What was issued against respondent on 15 December
2014 was a letter from the BIR in response to the First Protest (protest
to the PAN) and not the FLD IFAN itself. Section 3 of Revenuy'
CTA EB NO. 2436 (CTA Case No. 9118)
CIR v. Rural Bank of Bacnotan (La Union), Inc.
DECISION
Page 23 of 29
X-------------------------------- X

Regulations (RR) No. 12-99107, as amended by RR No. 18-2013108,

provides:

SEC. 3· Due Process Requirement in the Issuance of a Deficiency Tax

Assessment. -

3.1 Mode of procedure in the issuance of a deficiency tax

assessment:

3.1.1 Preliminary Assessment Notice (PAN). - If after

review and evaluation by the Commissioner or his duly authorized
representative, as the case may be, it is determined that there exists
sufficient basis to assess the taxpayer for any deficiency tax or taxes,
the said Office shall issue to the taxpayer a Preliminary Assessment
Notice (PAN) for the proposed assessment. It shall show in detail the
facts and the law, rules and regulations, or jurisprudence on which
the proposed assessment is based (see illustration in ANNEX "A"
hereoO.

If the taxpayer fails to respond within fifteen (15) days from

date of receipt of the PAN, he shall be considered in default, in which
case, a Formal Letter of Demand and Final Assessment Notice
(FLD/FAN) shall be issued calling for payment of the taxpayer's
deficiency tax liability, inclusive of the applicable penalties.

If the taxpayer, within fifteen (15) days from date of

receipt of the PAN, responds that he/it disagrees with the
findings of deficiency tax or taxes, an FLD/FAN shall be issued
within fifteen (15) days from filing/submission of the taxpayer's
response, calling for payment of the taxpayer's deficiency tax
liability, indusive of the applicable penalties.'" 9

Respondent received the PAN, dated 26 November 2014, on 03

December 2014. Therefore, it had fifteen (15) days or until18 December
2014 to reply thereto/

107
Implementing the Provisions of the National Internal Revenue Code of 1997 Governing the Rules
on Assessment of National Internal Revenue Taxes. Civil Penalties and Interest and the Extra-
Judicial Settlement of a Taxpayer's Criminal Violation of the Code Through Payment of a
Suggested Compromise Penalty.
108
Amending Certain Sections of Revenue Regulations No. 12-99 Relative to the Due Process
Requirement in the Issuance of a Deficiency Tax Assessment.
109
Emphasis supplied.
CTA EB NO. 2436 (CTA Case No. 9118)
CIR v. Rural Bank of Bacnotan (La Union}, Inc.
DECISION
Page 24 of 29
X-------------------------------- X

Respondent was able to file its protest to the PAN through a

letter dated 12 December 2014, and which the BIR received on 15
December 2014. From 15 December 2014, the BIR had 15 days or until;m
December 2014 to issue the FLO/FAN. On 22 December 2014, the BIR
issued an FLO/FAN against respondent. Clearly, respondent's filing of
its protests to the PAN and the FLO/FAN's issuance were made within
the proper periods.

At first glance, petitioner appears to have complied squarely with

the requirements of RR No. 12-99, as amended. However, it must be
pointed out that in the BIR's letter dated 15 December 2014, it not only
acknowledged receipt of respondent's protest, but it also already
indicated therein that it could not act favorably on the latter's protest.
The letter reads:

This had reference to your letter in reply to the duly issued

Preliminary Assessment Notice (PAN) dated November 26, 2014 ...

In connection therewith, please be informed that your protest

letter cannot be acted upon favorably since a Formal Letter of
Demand (FLO) and Final Assessment Notice (FAN) shall be issued
pursuant to Sec. 3.1.1 of Revenue Regulation[s] No. 18-2013 ... " 0

True enough, the FLO/FAN denied respondent's protest. The

Details of Discrepanciesm attached to the FLO/FAN was a literal
reiteration of the Details of Discrepancies112 attached to PAN which
respondent had protested. There are no indications in the FLO/FAN
that would show that respondent's evidence attached to its First
Protest (to the PAN) were even considered in arriving at the assessed
computation of total tax liabilities amounting to f'2,876,956.52.

Notwithstanding compliance with the technical requirements of

RR No. 12-99, as amended, due process remains of paramount
consideration. No less than the Bill of Rights requires that, "[n]o •
person shall be deprived of life, liberty, or property without d/"

110
Emphasis supplied.
Ill
Supra at note 14.
112
Supra at note II.
CTA EB NO. 2436 (CTA Case No. 9118)
CIR v. Rural Bank of Bacnotan (La Union), Inc.
DECISION
Page 25 of 29
X-------------------------------- X

process of law, nor shall any person be denied the equal protection of
the laws" ."3

In administrative proceedings, "due process" means an

opportunity to explain one's side, or an opportunity to seek a
reconsideration of the action or ruling complained of."4 In Ray Peter 0.
Vivo v. Philippine Amusement and Gaming Corporation (Pagcoryns
[Vivo], the Supreme Court elaborates on the meaning of
administrative due process in this wise:

The essence of procedural due process is embodied in the

basic requirement of notice and a real opportunity to be heard. In
administrative proceedings, such as in the case at bar, procedural
due process simply means the opportunity to explain one's side or
the opportunity to seek a reconsideration of the action or ruling
complained of. "To be heard" does not mean only verbal arguments
in court; one may be heard also thru pleadings. Where opportunity
to be heard, either through oral arguments or pleadings, is accorded,
there is no denial of procedural due process.

In administrative proceedings, procedural due process has

been recognized to include the following: (1) the right to actual or
constructive notice of the institution of proceedings which may
affect a respondent's legal rights; (2) a real opportunity to be
heard personally or with the assistance of counsel, to present
witnesses and evidence in one's favor, and to defend one's
rights; (3) a tribunal vested with competent jurisdiction and so
constituted as to afford a person charged administratively a
reasonable guarantee of honesty as well as impartiality; and (4) a
finding by said tribunal which is supported by substantial
evidence submitted for consideration during the hearing or
contained in the records or made known to the parties
affected.

Vivo enumerates the requirements of administrative due process.

To the Court's mind, petitioner, through his agents, have failed to
comply with all the above requisites./

J13
1987 Philippine Constitution, Article III, Section I.
114
F/0 Ledesma v. Court of Appeals, eta/., G.R. No. 166780, 27 December 2007
115
G.R. No. 187854, 12 November2013; Emphasis supplied.
CTA EB NO. 2436 (CTA Case No. 9118)
CIR v. Rural Bank of Bacnotan (La Union), Inc.
DECISION
Page 26 of 29
X----------------------------- ---X

First, petitioner failed to afford respondent a real opportunity to

be heard when the BIR's letter dated 15 December 2014 immediately
denied any chance of respondent's protest being considered. To be
clear, the BIR did not simply deny respondent's protest but it likewise
notified the latter (on the same day it received the latter's protest) that
its protest "cannot be acted upon favorably".

Second, in immediately striking down respondent's protest,

petitioner did not consider respondent's arguments and the supporting
evidence it submitted to the BIR. As a result, petitioner could not have
possibly arrived at a decision supported by evidence presented for the
BIR's consideration. This is demonstrated by the fact that the Details
of Discrepancies in the FLD IF AN are but echoes of those previously
included in the PAN. It did not, in any way, make reference and
neither did it refute respondent's arguments in its protest to the PAN.

As the records also clearly evince, in its protest to the FLDIFAN,

respondent raised the same exact issue, i.e., the BIR's failure to
consider its arguments or the documents it attached to its protest to
the PAN. However, such issue fell on deaf ears when its subsequent
protest to the FLD IF AN was not acted upon.

In this respect, the Supreme Court, in Commissioner of Internal

Revenue v. Avon Products Manufacturing, Inc." 6 (Avon), ruled that an
opportunity to be heard goes hand in hand with a decision based on
the arguments and evidence presented by the taxpayer, to wit:

Tax assessments issued in violation of the due process

rights of a taxpayer are null and void. While the government has
an interest in the swift collection of taxes, the Bureau of Internal
Revenue and its officers and agents cannot be overreaching in their
efforts, but must perform their duties in accordance with law, with
their own rules of procedure, and always with regard to the basic
tenets of due process.

The 1997 National Internal Revenue Code, also known as the

Tax Code, and revenue regulations allow a taxpayer to file a reply or
otherwise to submit comments or arguments with supporting ,
documents at each stage in the assessment process. Due proce/

116
G.R. No. 201398-99,03 October 2018; Citations omitted and emphasis supplied.
CTA EB NO. 2436 (CTA Case No. 9118)
CIR v. Rural Bank of Bacnotan (La Union), Inc.
DECISION
Page 27 of 29
X-------------------------------- X

requires the Bureau of Internal Revenue to consider the

defenses and evidence submitted by the taxpayer and to render
a decision based on these submissions. Failure to adhere to these
requirements constitutes a denial of due process and taints the
administrative proceedings with invalidity.

In carrying out these quasi-judicial functions, the

Commissioner is required to "investigate facts or ascertain the
existence of facts, hold hearings, weigh evidence, and draw
conclusions from them as basis for their official action and exercise
of discretion in a judicial nature." Tax investigation and assessment
necessarily demand the observance of due process because they
affect the proprietary rights of specific persons.

"[A] fair and reasonable opportunity to explain one's side" is

one aspect of due process. Another aspect is the due
consideration given by the decision-maker to the arguments
and evidence submitted by the affected party.

Taking into consideration the above principles, petitioner and

his agents could not simply skirt their responsibility to rule on
respondent's case on the merits of its claims as the latter was able to
file its protest to the PAN within the reglementary period provided in
the SIR's own rules.

In sum, the Court En Bane finds petitioner's assessment to be

wholly null and void for violation of respondent's right to due process.

WHEREFORE, the foregoing premises considered, petitiOner

Commissioner of Internal Revenue's Petition for Review filed on 10
February 2021 is hereby DENIED for lack of merit. Accordingly, the
assailed Decision and Resolution dated 02 March 2020 and 21 January
2021, respectively, in CTA Case No. 9118, entitled Rural Bank of
Bacnotan (La Union), Inc. v. Commissioner of Internal Revenue, are
hereby AFFIRMED.

Petitioner Commissioner of Internal Revenue is further

ENJOINED from collecting taxes pursuant to the Final Letter of

l
Demand and Final Assessment Notice dated 22 December 2014 subject
of this case.
CTA EB NO. 2436 (CTA Case No. 9118)
CIR v. Rural Bank of Bacnotan (La Union), Inc.
DECISION
Page 28 of 29
x------ -------------------- ------x

SO ORDERED.

JEAN IVII\.K lA', Dl\.LUKKV'-VILLENA

WE CONCUR:

(On Leave)
ROMAN G. DEL ROSARIO
Presiding Justice

ER~P.UY
Associate Justice

~- ~ -r <...__
MA. BELEN M. RINGPIS-LIBAN
Associate Justice

C~T.~......~
Associate Justice

MARlAR 0-SANPEDRO

.
~~/f~-~
MARIAN IVi F. REiES-FA{ARDO
Associate Justice
CTA EB NO. 2436 (CTA Case No. 9118)
CIR v. Rural Bank of Bacnotan (La Union), Inc.
DECISION
Page 29 of 29
x-- --------------------------- ---x

lhtufdlu~
LANEE S. CUI-DAVID
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.

ER~.UY
Acting Presiding Justice