CIR vs. FITNESS BY DESIGN (Tax 2)

COMMISSIONER OF INTERNAL REVENUE vs. FITNESS BY DESIGN, INC.

CT A EB No. 970 

(CTA Case No. 7160)

FACTS:

On April 11 , 1996, petitioner filed its Annual Income Tax Return for the taxable year 1995 reflecting that it was still on its pre-operating stage. On June 9, 2004, petitioner received a copy from respondent a FAN dated March 17, 2004, for deficiency taxes in the total amount of P10,647,529.68. 

Petitioner asserts that the questioned assessments became final, executory and demandable for failure of petitioner to file its protest within the required period. Moreover, even assuming that the questioned assessments are essentially void, respondent belatedly questioned it only for the first time in its memorandum. Besides, as petitioner claims, the Court has admitted several exhibits demonstrating  respondent's unreported income and that it failed to contest such unreported income in the administrative level. Finally, petitioner claims that the 10-year prescriptive period should apply since the return that where filed are false and fraudulent and that respondent failed to file its Value-added tax and documentary stamp tax returns. 

On the other hand, respondent argues that the Final Assessment Notice cannot be considered as a valid deficiency assessment since it is only a request for payment without specifying the period within which to pay the alleged assessments, hence, it is not in accordance with Section 228 of the National Internal Revenue Code of 1997, as amended, and implemented by Section 3.1.4 of Revenue Regulations No. 12-99.

ISSUE:

WHETHER OR NOT THE QUESTIONED INCOME TAX, VALUE-ADDED TAX AND DOCUMENTARY STAMP TAX ASSESSMENTS FOR TAXABLE YEAR 1995 ISSUED AGAINST RESPONDENT IS FINAL AND EXECUTORY.

RULING:

No, 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.

The subject FAN did not make a clear and categorical demand for payment of the alleged tax liabilities for it contains merely a request for payment.  In sum, the FAN failed to comply with the requirements of a valid assessment notice and create confusion on the part of the taxpayer. In one case, the Supreme Court admonished respondent for using vague language in an assessment notice. It was held that words must be carefully chosen to avoid any confusion that could adversely affect the rights and interest of the taxpayer. Respondent must therefore indicate in a clear and unequivocal language whether his action on a disputed assessment constitutes his final determination thereon in order for the taxpayer concerned to determine when his or her right to appeal to the tax court accrues. This is certainly absent in the subject assessment notices.