CASE DIGEST : Commissioner of Internal Revenue v. Pascor Realty and Development Corporation, Rogelio A. Dio, and Virginia S. Dio G.R. No. 128315, June 29, 1999 Third Division — Panganiban, J.

 

FACTS

By virtue of Letter of Authority No. 001198, then Commissioner of Internal Revenue Jose U. Ong authorized Revenue Officers Thomas T. Que, Sonia T. Estorco, and Emmanuel M. Savellano to examine the books of accounts and other accounting records of Pascor Realty and Development Corporation (PRDC) for taxable years 1986, 1987, and 1988. The examination resulted in a recommendation for the issuance of assessments amounting to P7,498,434.65 for 1986 and P3,015,236.35 for 1987.

On March 1, 1995, the Commissioner of Internal Revenue filed a criminal complaint for tax evasion before the Department of Justice against PRDC, its President Rogelio A. Dio, and its Treasurer Virginia S. Dio, alleging tax evasion involving P10,513,671.00. Attached to the criminal complaint was the Joint Affidavit of the revenue examiners, which contained the details of the alleged tax liabilities. On March 23, 1995, respondents received a subpoena from the DOJ concerning the criminal complaint.

Respondents filed an Urgent Request for Reconsideration/Reinvestigation, disputing the alleged tax assessment and liability. The Commissioner denied the request in a letter dated May 17, 1995, stating that no formal assessment had yet been issued. Respondents then filed a petition for review before the Court of Tax Appeals (CTA), challenging the Commissioner's denial.

The Commissioner moved to dismiss the CTA case, arguing that the CTA had no jurisdiction because there was no formal assessment. The CTA denied the motion, ruling that the criminal complaint and the revenue examiners' Joint Affidavit constituted an assessment that could be protested. The Court of Appeals affirmed the CTA. The Commissioner then brought the case to the Supreme Court.

ISSUE

The principal issue was whether the criminal complaint for tax evasion, together with the revenue officers' Joint Affidavit stating the alleged tax liabilities, constituted an assessment that could be questioned before the Court of Tax Appeals. The Court also had to determine whether the CTA could acquire jurisdiction over the case even though the Commissioner had not issued and served a formal assessment upon the respondents.

A related issue was whether a formal assessment is necessary before criminal charges for tax evasion may be instituted. The Court considered the provisions of the National Internal Revenue Code (NIRC), particularly Section 205, which authorized the collection of delinquent taxes through civil or criminal action, and Section 223(a), which provided that in cases involving failure to file a return, the tax may be assessed or a proceeding in court may be begun without assessment.

HELD

The Supreme Court GRANTED the petition, REVERSED and SET ASIDE the decision of the Court of Appeals, and DISMISSED CTA Case No. 5271. The Court held that the revenue officers' Joint Affidavit attached to the criminal complaint was not an assessment that could be questioned before the CTA. An assessment does not merely contain a computation of tax liabilities; it also constitutes a demand for payment within a prescribed period and signals the time when penalties and interests begin to accrue. Due process therefore requires that the assessment be served on and received by the taxpayer.

The Court distinguished an assessment from a criminal complaint. Before an assessment is issued, the taxpayer is ordinarily given an opportunity to submit position papers and documents concerning the proposed liability. If the Commissioner remains unsatisfied, a formal assessment is issued and served upon the taxpayer, specifically and clearly informing the taxpayer that an assessment has been made. A criminal complaint, on the other hand, is filed with the DOJ to penalize the taxpayer for violation of the Tax Code, rather than to demand payment of the assessed tax.

The Court further held that an assessment is not necessary before criminal charges for tax evasion may be instituted. Under Section 223(a) of the NIRC, when there is a failure to file a return, a proceeding in court may be begun without an assessment. The Court reiterated that the criminal charge need only be supported by a prima facie showing of failure to file the required return; a prior assessment is not required for the institution of the criminal prosecution. Thus, the absence of a formal assessment did not prevent the Commissioner from filing the criminal complaint before the DOJ.

The Court therefore ruled that the CTA could not take cognizance of respondents' petition as a disputed assessment, because there was no formal assessment issued and served upon them. The May 17, 1995 letter denying their request for reconsideration/reinvestigation likewise could not be treated as a final decision on a disputed assessment. Accordingly, the Supreme Court granted the CIR's petition, reversed the Court of Appeals, and dismissed CTA Case No. 5271, with no pronouncement as to costs.