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THIRD DIVISION

SAMAR-I ELECTRIC G.R. No. 193100

COOPERATIVE,
Petitioner, Present:

VELASCO, JR., J., Chairperson,

PERALTA,
- versus - VILLARAMA, JR.,
MENDOZA,* and
REYES,JJ.

COMMISSIONER OF Promulgated:
INTERNAL REVENUE,

x- _______ ~~~~o-n~~~t~ _____________ ~~~~~ _ -x

DECISION

VILLARAMA, JR., J.:

At bar is a petition for review on certiorari of the Decision 1 of the

Court of Tax Appeals En Banc (CTA EB) dated March 11, 2010 and it,s
Resolution2 dated July 28, 2010 in C.T.A. EB Nos. 460 and 462 (C.T.A·.
Case No. 6697) affirming the May 27, 2008 Decision3 and the January 19,
2009 Amended Decision4 of the CTA's First Division, and ordering
petitioner to pay respondent Commissioner of Internal Revenue (CIR)
deficiency withholding tax on compensation in the aggregate amount of
P2,690,850.91, plus 20% interest starting September 30, 2002, until fully
paid, pursuant to Section 249(c) of the National Internal Revenue Code
(NIRC) of 1997.

The following facts are undisputed as found by the CTA's First

Division and adopted by the CTA EB:
Samar-I Electric Cooperative, Inc. (Petitioner) is an electric
cooperative, with principal office at Barangay Carayman, Calbayog City.

• Designated as Acting Member per Special Order No. 1896 dated November 28, 2014.
1
Rollo, pp. 28-57.
2
Id. at 58-62.
3
Records, pp. 426-457.
4
Id. at 518-526.

tb"
Decision 2 G.R. No. 193100

It was issued a Certificate of Registration by the National Electrification

Administration (NEA) on February 27, 1974 pursuant to Presidential
Decree (PD) 269. Likewise, it was granted a Certificate of Provisional
Registration under Republic Act (RA) 6938, otherwise known as the
Cooperative Code of the Philippines on March 16, 1993, by the
Cooperative Development Authority (CDA).

Respondent Commissioner of Internal Revenue is a public officer

authorized under the National Internal Revenue Code (NIRC) to examine
any taxpayer including inter alia, the power to issue tax assessment,
evaluate, and decide upon protests relative thereto.

On July 13, 1999 and April 17, 2000, petitioner filed its 1998 and
1999 income tax returns, respectively. 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.

On November 13, 2000, respondent issued a duly signed Letter of

Authority (LOA) No. 1998 00023803; covering the examination of
petitioner’s books of account and other accounting records for income and
withholding taxes for the period 1997 to 1999. The LOA was received by
petitioner on November 14, 2000.

Petitioner cooperated in the audit and investigation conducted by

the Special Investigation Division of the BIR by submitting the required
documents on December 5, 2000.

On October 19, 2001, respondent sent a Notice for Informal

Conference which was received by petitioner in November 2001;
indicating the allegedly income and withholding tax liabilities of petitioner
for 1997 to 1999. Attached to the letter is a summary of the report, with an
explanation of the findings of the investigators.

In response, petitioner sent a letter dated November 26, 2001 to

respondent maintaining its indifference to the latter’s findings and
requesting details of the assessment.

On December 13, 2001, petitioner executed a Waiver of the

Defense of Prescription under the Statute of Limitations, good until March
29, 2002.

On February 27, 2002, a letter was sent by petitioner to respondent

requesting a detailed computation of the alleged 1997, 1998 and 1999
deficiency withholding tax on compensation.

On February 28, 2002, respondent issued a Preliminary

Assessment Notice (PAN). The PAN was received by petitioner on April 9,
2002, which was protested on April 18, 2002. Respondent’s Reply dated
May 27, 2002, contained the explanation of the legal basis of the issuance
of the questioned tax assessments.

However, on July 8, 2002, respondent dismissed petitioner’s

protest and recommended the issuance of a Final Assessment Notice.

Consequently, on September 15, 2002, 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
Decision 3 G.R. No. 193100

[P]3,760,225.69, as well as deficiency income tax covering the years 1998

to 1999 in the amount of [P]440,545.71, or in the aggregate amount of
[P]4,200,771.40.

Petitioner filed its protest and Supplemental Protest to the Final

Assessment Notices on October 14, 2002 and November 4, 2002,
respectively. But on the Final Decision on Disputed Assessment issued on
April 10, 2003, petitioner was still held liable for the alleged tax liabilities.5

The CTA EB narrates the following succeeding events:

On May 29, 2003, the Petition for Review was filed by
SAMELCO-I with the Court in division.

On May 27, 2008, the assailed Decision partially granting

SAMELCO-I’s petition was promulgated.

Dissatisfied, both parties sought reconsideration of the said

decision. CIR filed the “Motion for Partial Reconsideration (Re: Decision
dated 27 May 2008[)]” on June 13, 2008. On the other hand, SAMELCO-
I’s “Motion for Reconsideration” was filed on June 17, 2008.

On January 19, 2009, the Court in division promulgated its

Amended Decision which denied CIR’s motion and partially granted
SAMELCO-I’s motion.

Thereafter, CIR and SAMELCO-I filed their “Motion for Extension

of Time to File Petition for Review” on February 6, 2009 and February 11,
2009, respectively. Both motions were granted by the Court.6

The following issues were raised by the parties in their petitions for
review before the CTA EB. In C.T.A. EB 460, herein respondent CIR raised
the following grounds:
I. Whether or not SAMELCO-I is entitled to tax privileges accorded to
members in accordance with Republic Act No. 6938, or the
Cooperative Code, or to privileges of Presidential Decree (PD) No. 269.

II. Whether or not SAMELCO-I is liable for the minimum corporate

income tax (MCIT) for taxable years 1998 to 1999.

III. Whether or not SAMELCO-I is liable to pay the total deficiency

expanded withholding tax of [P]3,760,225.69 for taxable years 1997
to 1999.7

On the other hand, petitioner SAMELCO-I raised the following legal

and factual errors in C.T.A. EB No. 462, viz.:
I. The Court in Division gravely erred in holding that the 1997 and
1998 assessments on withholding tax on compensation (received by
SAMELCO-I on September 15, 2002), have not prescribed even if
the waiver validly executed was good only until March 29, 2002.

5
Id. at 426-429. Citations omitted.
6
Rollo, p. 33.
7
Id. at 34.
Decision 4 G.R. No. 193100

II. The Court in Division erred in holding that CIR can validly assess
within the ten (10)-year prescriptive period even if the notice of
informal conference, PAN, formal letter of demand, and
assessment notice mention not a word that the BIR is invoking
Section 222 (a) of the 1997 Tax Code [then Sec. 223, NIRC], due
to alleged false withholding tax returns filed by [SAMELCO-I] as
the same assertions were mere afterthought to justify application of
the 10-year prescriptive period to assess.

III. The Court in Division failed to consider that CIR made no findings
as to SAMELCO-I’s filing of a false return as clearly manifested
by the non-imposition of 50% surcharge on the 1997, 1998 and
1999 basic withholding tax deficiency in the PAN, demand notice
and even in the assessment notice other than interest charges.

IV. The Court in Division erred in not holding that given SAMELCO-
I’s filing of its 1997, 1998, and 1999 withholding tax returns in
good faith, and in close consultation with the BIR personnel in
Calbayog City where SAMELCO-I’s place of business is located,
the latter should no longer be imposed the incremental penalties
(surcharge and interest).

V. The Court in Division failed to rule that since there was no substantial
under remittance of 1998 withholding tax as the basic deficiency tax
per amended decision is less than 30% of the computed total tax due
per return, SAMELCO-I did not file a false return.

VI. The Court in Division overlooked the fact that for taxable year
1999, [SAMELCO-I] remitted the amount of [P]844,958.00 as
withholding tax in compensation instead of [P]786,702.43 as
indicated in Page 8, Annex C of the CTA (1st Division) Decision.

VII. The Court in Division erred in failing to declare as void both the
formal letter of demand and assessment notice on withholding tax
on compensation for 1997 taxable year, given its non-compliance
with Section 3.1.4 of RR 12-99.8

On February 26, 2009, the CTA EB consolidated both cases. After the
filing of the respective Comments of both parties, the cases were deemed
submitted for decision. The CTA EB found that the issues and arguments
raised by the parties were “mere reiterations of what have been considered
and passed upon by the Court in division in the assailed Decision and the
Amended Decision.”9 It ruled that SAMELCO-I is exempted in the payment
of the Minimum Corporate Income Tax (MCIT); that due process was
observed in the issuance of the assessments in accordance with Section 228
of the Tax Code; and that the 1997 and 1998 assessments on deficiency
withholding tax on compensation have not prescribed. Finding no reversible
error in the Decision and the Amended Decision, the CTA EB ruled, viz.:
WHEREFORE, premises considered, We deny the petitions for
lack of merit. Accordingly, We AFFIRM the May 27, 2008 Decision and
the January 19, 2009 Amended Decision promulgated by the First
Division of this Court.

8
Id. at 34-36. Underscoring in the original.
9
Id. at 37.
Decision 5 G.R. No. 193100

SO ORDERED.10

Petitioner moved for reconsideration. In a Resolution dated July 28,

2010, the CTA EB denied the motion. Petitioner now comes to this Court
raising the following assignment of errors:
A. The Honorable CTA En Banc gravely erred in holding that
respondent sufficiently complied with the due process requirements
mandated by Section 228 of the 1997 Tax Code in the issuance of
1997-1999 assessments to petitioner, even if the details of
discrepancies on which the assessments were factually and legally
based as required under Section 3.1.4 of Revenue Regulations (RR)
No[.] 12-99, were not found in the Formal Letter of Demand and
Final Assessment Notice (FAN) sent to petitioner, in clear violation
of the doctrine established in the case of Commissioner of Internal
Revenue vs. Enron Subic Power Corporation, G.R. No. 166387,
January 19, 2009, applying Section 3.1.4 of RR 12-99 in relation to
Section 228 NIRC.

B. The Honorable CTA En Banc erred in holding that respondent

observed due process notwithstanding the missing Annex “A-1” that
was meant to show Details of Discrepancies and to be attached to
BIR’s Letter of Demand/Final Notice dated September 15, 2002,
which was not furnished to petitioner and worse, a file copy of which
is not even found in the BIR records as part of its Exhibit “16” and
neither is the same found in the CTA records.

C. In deciding that the 1997 and 1998 withholding tax

assessments have not yet prescribed, the Honorable CTA En Banc
failed to consider the singular significance of the Waiver of the
Defense of Prescription validly agreed upon and executed by the
parties.

D. The Honorable CTA En Banc erred in holding that respondent

can validly assess within the ten (10)-year prescriptive period even if
the Notice of Informal Conference, PAN, and Final Letter of Demand
(dated September 15, 2002), mentioned not a word as to the falsity of
the returns filed by petitioner, but as an afterthought that was raised
rather belatedly only in the Answer and during the trial.

E. The Honorable CTA En Banc erred in holding as valid the

1997 deficiency withholding tax assessment being anchored on RR 2-
98 (as cited in Notice of Informal Conference and PAN), as the said
RR 2-98 governs compensation income paid beginning January 1,
1998.11

We shall resolve the instant controversy by discussing the following

two main issues in seriatim: whether 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.

10
Id. at 56. Emphasis in the original.
11
Id. at 12-13. Underscoring in the original.
Decision 6 G.R. No. 193100

On the issue of prescription, petitioner contends that the subject 1997

and 1998 withholding tax assessments on compensation were issued beyond
the prescriptive period of three years under Section 203 of the NIRC of
1997. Under this section, the government is allowed a period of only three
years to assess the correct tax liability of a taxpayer, viz.:
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.

Relying on Section 203, petitioner argues that the subject deficiency

tax assessments issued by respondent on September 15, 2002 was issued
beyond the three-year prescriptive period. Petitioner filed its Annual
Information Return of Income Tax Withheld on Compensation, Expanded
and Final Withholding Taxes on the following dates: on February 17, 1998
for the taxable year 1997; and on February 1, 1999 for the year taxable 1998.
Thus, if the period prescribed under Section 203 of the NIRC of 1997 is to
be followed, the three-year prescriptive period to assess for the taxable years
1997 and 1998 should have ended on February 16, 2001 and January 31,
2002, respectively.

We disagree.

While petitioner is correct that 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
Decision 7 G.R. No. 193100

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.)

In the case at bar, 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.”12

The case of Aznar v. Court of Tax Appeals13 discusses what acts or

omissions may constitute falsity, viz.:
Petitioner argues that Sec. 332 of the NIRC does not apply because
the taxpayer did not file false and fraudulent returns with intent to evade
tax, while respondent Commissioner of Internal Revenue insists
contrariwise, with respondent Court of Tax Appeals concluding that the
very “substantial underdeclarations of income for six consecutive years
eloquently demonstrate the falsity or fraudulence of the income tax returns
with an intent to evade the payment of tax.”

To our minds we can dispense with these controversial arguments

on facts, although we do not deny that the findings of facts by the Court of
Tax Appeals, supported as they are by very substantial evidence, carry
great weight, by resorting to a proper interpretation of Section 332 of the
NIRC. We believe that 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, (3) omission. Our stand that the law
should be interpreted to mean a separation of the three different situations
of false return, fraudulent return with intent to evade tax, and failure to file
a return is strengthened immeasurably by the last portion of the provision
which segregates the situations into three different classes, namely
“falsity,” “fraud” and “omission.” That 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.

12
Sec. 222 (a), NIRC.
13
157 Phil. 510 (1974).
Decision 8 G.R. No. 193100

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.

There being undoubtedly false tax returns in this case, We affirm

the conclusion of the respondent Court of Tax Appeals that Sec. 332 (a) of
the NIRC should apply and that the period of ten years within which to
assess petitioner’s tax liability had not expired at the time said assessment
was made.14

A careful examination of the evidence on record yields to no other

conclusion but that petitioner failed to withhold taxes from its employees’
13th month pay and other benefits in excess of thirty thousand pesos
(P30,000.00) amounting to P2,690,850.91 for the taxable years 1997 to 1999
– resulting to its filing of the subject false returns. Petitioner failed to refute
this finding, both in fact and in law, before the courts a quo.

We quote the following portion of the assailed Decision of the CTA

EB, viz.:
It is noteworthy to mention that during the trial, the witness for the CIR
testified that SAMELCO-I did not file an accurate return, as follows:

ATTY. FRANCIA:
Q: Did the petitioner file an accurate Return?

MS. RAPATAN:
A: No.

ATTY. FRANCIA:
Q: Can you please explain?

MS. RAPATAN:
A: Because I based the computation of my deficiency
withholding taxes on declared taxable income per alpha list
submitted then, I have extracted a data from the Alpha List,
particularly that of the manager and other officials, only
their basic salary and their overtime pay were declared but
the other benefits were not actually subjected to
withholding tax. So, the deficiency withholding taxes from
the taxes on the taxable 13th month pay and other benefits
in excess of the [P]12,000.00 for 1997 and for the taxable
years 1998 and 1999, in excess of the [P]30,000.00. I also
noticed that the per diem of the Manager was not included
in the withholding tax computation of SAMELCO[-]I.

ATTY. FRANCIA:
Nothing further, your Honors.

14
Id. at 523-524.
Decision 9 G.R. No. 193100

JUSTICE BAUTISTA:
Any re-cross?

ATTY. NAPUTO:
No re-cross, your Honors.15

We have consistently held that courts will not interfere in matters

which are addressed to the sound discretion of the government agency
entrusted with the regulation of activities coming under its special and
technical training and knowledge.16 The findings of fact of these quasi-
judicial agencies are generally accorded respect and even finality as long as
they are supported by substantial evidence – in recognition of their expertise
on the specific matters under their consideration.17 In the case at bar,
petitioner failed to proffer convincing argument and evidence that would
persuade us to disturb the factual findings of the CTA First Division, as
affirmed by the CTA EB. As such, we cannot but affirm the finding of
petitioner’s substantial underdeclaration of withholding taxes in the amount
of P2,690,850.91 which constituted the “falsity” in the subject returns.

Anent the issue of violation of due process in the issuance of the final
notice of assessment and letter of demand, Section 228 of the NIRC of 1997
provides:

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

xxxx
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.

Petitioner contends that as the Final Demand Letter and Assessment

Notices (FAN) were silent as to the nature and basis of the assessments, it
was denied due process,18 and the assessments must be declared void. It
likewise invokes Revenue Regulations (RR) No. 12-99 which states, viz.:
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

We uphold the assessments issued to petitioner.

Both Section 228 of the NIRC of 1997 and Section 3.1.4 of RR No.

15
Rollo, pp. 44-45.
16
Quiambao v. Court of Appeals, 494 Phil. 16, 37-38 (2005). Citations omitted.
17
Id. at 38-39. Citations omitted.
18
Rollo, p. 13.
Decision 10 G.R. No. 193100

12-99 clearly require the written details on the nature, factual and legal bases
of the subject deficiency tax assessments. The reason for the mandatory
nature of this requirement is explained in the case of Commissioner of
Internal Revenue v. Reyes:19
A void assessment bears no valid fruit.

The law imposes a substantive, not merely a formal, requirement.

To proceed heedlessly with tax collection without first establishing a valid
assessment is evidently violative of the cardinal principle in administrative
investigations: that taxpayers should be able to present their case and
adduce supporting evidence. In the instant case, respondent has not been
informed of the basis of the estate tax liability. Without complying with
the unequivocal mandate of first informing the taxpayer of the
government’s claim, there can be no deprivation of property, because
no effective protest can be made. The haphazard shot at slapping an
assessment, supposedly based on estate taxation’s general provisions that
are expected to be known by the taxpayer, is utter chicanery.

Even a cursory review of the preliminary assessment notice, as

well as the demand letter sent, reveals the lack of basis for – not to
mention the insufficiency of – the gross figures and details of the itemized
deductions indicated in the notice and the letter. This Court cannot
countenance an assessment based on estimates that appear to have
been arbitrarily or capriciously arrived at. Although taxes are the
lifeblood of the government, their assessment and collection “should be
made in accordance with law as any arbitrariness will negate the very
reason for government itself.” (Emphasis supplied; citations omitted)

In Commissioner of Internal Revenue v. Enron Subic Power

Corporation,20 we held that the law requires that the legal and factual bases
of the assessment be stated in the formal letter of demand and assessment
notice, and that the alleged “factual bases” in the advice, preliminary letter
and “audit working papers” did not suffice. Thus:

Both the CTA and the CA concluded that the deficiency tax
assessment merely itemized the deductions disallowed and included these
in the gross income. It also imposed the preferential rate of 5% on some
items categorized by Enron as costs. The legal and factual bases were,
however, not indicated.

The CIR insists that an examination of the facts shows that Enron
was properly apprised of its tax deficiency. During the pre-assessment
stage, the CIR advised Enron’s representative of the tax deficiency,
informed it of the proposed tax deficiency assessment through a
preliminary five-day letter and furnished Enron a copy of the audit
working paper allegedly showing in detail the legal and factual bases of
the assessment. The CIR argues that these steps sufficed to inform Enron
of the laws and facts on which the deficiency tax assessment was based.

We disagree. The advice of tax deficiency, given by the CIR to

an employee of Enron, as well as the preliminary five-day letter, were
not valid substitutes for the mandatory notice in writing of the legal

19
516 Phil. 176, 189-190 (2006).
20
596 Phil. 229, 236 (2009).
Decision 11 G.R. No. 193100

and factual bases of the assessment. These steps were mere perfunctory
discharges of the CIR’s duties in correctly assessing a taxpayer. The
requirement for issuing a preliminary or final notice, as the case may be,
informing a taxpayer of the existence of a deficiency tax assessment is
markedly different from the requirement of what such notice must contain.
Just because the CIR issued an advice, a preliminary letter during the
pre-assessment stage and a final notice, in the order required by law,
does not necessarily mean that Enron was informed of the law and
facts on which the deficiency tax assessment was made.21 (Emphasis
supplied)

In this case, we agree with the respondent that petitioner was

sufficiently apprised of the nature, factual and legal bases, as well as how
the deficiency taxes being assessed against it were computed. Records
reveal that on October 19, 2001, prior to the conduct of an informal
conference, petitioner was already informed of the results and findings of the
investigations made by the respondent, and was duly furnished with a copy
of the summary of the report submitted by Revenue Officer Elisa G.
Ponferrada-Rapatan of the Special Investigation Division. Said summary
report contained an explanation of Findings of Investigation stating the legal
and factual bases for the deficiency assessment. In a letter dated February
27, 2002 petitioner requested for copies of working papers indicating how
the deficiency withholding taxes were computed.22 Respondent promptly
responded in a letter-reply dated February 28, 2002 stating:
please be informed that the cooperative’s deficiency withholding taxes on
compensation were due to the failure of the cooperative to withhold taxes
on the taxable 13th month pay and other benefits in excess of P30,000.00
threshold pursuant to Section 3 of Revenue Regulation No. 2-95
implementing Republic Act No. 7833 and Section 2.78/1 B 11 of Revenue
Regulation 2-98 implementing Section 32 B e of Republic Act No. 8424.
Further, we are providing you hereunder the computational format on how
deficiency withholding taxes were computed and sample computation
from our working papers, for your information and guidance.23

On April 9, 2002, petitioner received the PAN dated February 28,

2002 which contained the computations of its deficiency income and
withholding taxes. Attached to the PAN was the detailed explanation of the
particular provision of law and revenue regulation violated, thus:
DETAILS OF DISCREPANCIES

1. Deficiency income taxes for 1998 and 1999 respectively result from
non-payment of the minimum corporate income tax (MCIT) imposed
pursuant to Section 27(E) of the 1997 Tax Reform Act.

2. Deficiency Withholding Taxes on Compensation for 1997-1999 are

the total withholding taxes on compensation of all employees of
SAMELCO[-]I resulting from failure of employer to withhold taxes on
the taxable 13th month pay and other benefits in excess of [P]30,000.00
threshold pursuant to Revenue Regulation 2-98.24
21
Id. at 235-236.
22
CTA records, pp. 19-22, 27.
23
BIR records, pp. 121-122.
24
Id. at 137.
Decision 12 G.R. No. 193100

The above information provided to petitioner enabled it to protest the

PAN by questioning respondent's interpretation of the laws cited as legal
basis for the computation of the deficiency withholding taxes and
assessment of minimum corporate income tax despite petitioner's position
that it remains exempt therefrom. 25 In its letter-reply dated May 27, 2002,
respondent answered the arguments raised by petitioner in its protest, and
requested it to pay the assessed deficiency on the date of payment stated in
the PAN. A second protest letter dated June 23, 2002 was sent by petitioner,
to which respondent replied (letter dated July 8, 2002) answering each of the
two issues reiterated by petitioner: ( 1) validity of EO 93 withdrawing the tax
exemption privileges under PD 269; and (2) retroactive application of RR
No. 8-2000. 26 The FAN was finally received by petitioner on September 24,
2002, and protested by it in a letter dated October 14, 2002 which reiterated
in lengthy arguments its earlier interpretation of the laws and regulations
upon which the assessments were based. 27

Although the FAN and demand letter issued to petitioner were not
accompanied by a written explanation of the legal and factual bases of the
deficiency taxes assessed against the petitioner, the records showed that
respondent in its letter dated April 10, 2003 responded to petitioner's
October 14, 2002 letter-protest, explaining at length the factual and legal
bases of the deficiency tax assessments and denying the protest. 28

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.

WHEREFORE, the petition is DENIED. The assailed Decision and

Resolution of the Court of Tax Appeals En Banc dated March 11, 2010 and
July 28, 2010, respectively, in C.T.A. EB Nos. 460 and 462 (C.T.A. Case
No. 6697), are hereby AFFIRMED and UPHELD.

With costs against the petitioner.

SO ORDERED.

~
Associate Ju~

25
CTA records, pp. 30-32.
26
Id. at 33-39.
27
Id. at 40-41, 46-61.
28
Exhibit 17, BIR records, pp. 254-263.
Decision 13 G.R. No. 193100

WE CONCUR:

PRESBITERO J. VELASCO, JR.

Associate Justice

JOS OZA

IENVENIDO L. REYES
Associate Justice

ATTESTATION
I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Court's Division.

PRESBITER~. VELASCO, JR.

Asso ate Justice
Chairpers n, Third Division

A
Decision 14 G.R. No. 193100

CERTIFICATION

Pursuant to Section 13, Article VIII of the 1987 Constitution and the
Division Chairperson's Attestation, I certify that the conclusions in the above
Decision had been reached in consultation before the case was assigned to
the writer of the opinion of the Court's Division.

MARIA LOURDES P.A. SERENO

Chief Justice