CIR vs. Menguito GR NO. 167560

 CIR vs. Menguito

Facts:

The case involves petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the decision of the Court of Appeals (CA) which reversed and set aside the Court of Tax Appeals.

Menguito is engaged in Cafeteria and Restaurant business. BIR received information that Menguito has undeclared income from Texas Instruments and Club John Hay, prompting the BIR to conduct investigation. Through a letter dated July 28, 1997, Menguito were informed that he have underdeclared sales totaling P48,721,555.96. This was followed by a Preliminary Ten (10) Day Letter dated August 11, 1997 informing him that in the investigation of his 1991, 1992 and 1993 income, business and withholding tax case, it was found out that there is still due from him the total sum of P34,193,041.55 as deficiency income and percentage tax.

On September 2, 1997, the assessment notices subject of the instant petition were issued. 

Menguito prays for the cancellation and withdrawal of the deficiency income tax and percentage tax assessments on account of prescription, whimsical factual findings, violation of procedural due process on the issuance of assessment notices by CIR.

Issue:

Whether the CA erred in holding that Menguito was denied due process for failure of CIR to validly serve respondent with the post-reporting and pre-assessment notices as required by law.

Ruling:

No, CTA correctly upheld the validity of the assessment notices. Citing Section 223 of the Tax Code which provides that the prescriptive period for the issuance of assessment notices based on fraud is 10 years, the CTA ruled that the assessment notices issued against respondent on September 2, 1997 were timely because petitioner discovered the falsity in respondent's tax returns for 1991, 1992 and 1993 only on February 19, 1997.55

Moreover, notwithstanding the fact that a post-reporting notice and pre-assessment notice do not bear the gravity of a formal assessment notice. The post-reporting notice and pre-assessment notice merely hint at the initial findings of the BIR against a taxpayer and invites the latter to an "informal" conference or clarificatory meeting. Neither notice contains a declaration of the tax liability of the taxpayer or a demand for payment thereof. Hence, the lack of such notices inflicts no prejudice on the taxpayer for as long as the latter is properly served a formal assessment notice. In the case of respondent, a formal assessment notice was received by him.

In this case, the Supreme Court reinstated the CTA decision.