The Bureau of Internal Revenue (BIR) has, again, lost a multimillion-peso tax-deficiency assessment case at the Court of Tax Appeals (CTA) because of an invalidly executed waiver, which did not extend the prescriptive period to assess deficiency taxes against the taxpayer.
In the case of Commissioner of Internal Revenue v Systems Technology Institute Inc. (STI), the CTA en banc upheld the CTA’s Second Division, which ruled that the BIR’s P124-million tax-deficiency assessment for fiscal year 2003 against STI was made beyond the prescriptive period of three years.
The prescription was due to another invalidly executed “waiver of the defense of prescription” executed by the BIR and STI, which did not effectively extend the prescriptive period for assessing deficiency taxes against STI.
The defect, found by the CTA, consisted of the lack of proof of authority of STI’s representative to sign such waiver on behalf of STI.
The CTA pointed out that the BIR’s own Revenue Memorandum Order 20-90 provides the procedures, which should be strictly followed to make the waiver of the defense of prescription binding upon the taxpayer.
“The waiver must be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation, the waiver must be signed by any of its responsible officials. In case the authority is delegated by the taxpayer to a representative, such delegation should be in writing and duly notarized,” the CTA quoted the memorandum order.
The CTA dismissed the argument of the BIR that the assessment was made within the prescriptive period because STI was being assessed on the ground of fraud, in which case the prescriptive period is 10 years from the date of the discovery of the fraud.
But the CTA en banc said this BIR argument was only raised for the first time on appeal, and it was raised only in its motion for reconsideration from the Second Division’s judgment and not in its answer to STI’s petition in the Second Division said.
In its decision, the Second Division noted that the BIR’s argument on fraud was a mere afterthought to justify the belated deficiency assessment against STI, citing that the BIR did not even allege in its Formal Assessment Notice and Final Decision on Disputed Assessment that the deficiency assessment was being made upon an allegedly fraudulent income tax return.
“A careful perusal of the records of this case would show that respondent failed to allege in its Formal Assessment Notice and Final Decision on Disputed Assessment any falsity or fraud in the return filed by STI.
The said averment was raised for the first time in her motion for reconsideration and was never interposed in her answer,” the Second Division’s decision said.