Facts:
Hantex Trading Co is a company organized under the Philippines. It is engaged in thesale of plastic products, it imports synthetic resin and other chemicals for themanufacture of its products. For this purpose, it is required to file an Import Entry andInternal Revenue Declaration (Consumption Entry) with the Bureau of Customs underSection 1301 of the Tariff and Customs Code. Sometime in October 1989, Lt. VicenteAmoto, Acting Chief of Counter-Intelligence Division of the Economic Intelligence andInvestigation Bureau (EIIB), received confidential information that the respondent hadimported synthetic resin amounting to P115,599,018.00 but only declaredP45,538,694.57. Thus, Hantex receive a subpoena to present its books of accountwhich it failed to do. The bureau cannot find any original copies of the productsHantex imported since the originals were eaten by termites. Thus, the Bureau reliedon the certified copies of the respondent’s Profit and Loss Statement for 1987 and1988 on file with the SEC, the machine copies of the Consumption Entries, Series of 1987, submitted by the informer, as well as excerpts from the entries certified by Tomas and Danganan. The case was submitted to the CTA which ruled that Hantexhave tax deficiency and is ordered to pay, per investigation of the Bureau. The CAruled that the income and sales tax deficiency assessments issued by the petitionerwere unlawful and baseless since the copies of the import entries relied upon incomputing the deficiency tax of the respondent were not duly authenticated by thepublic officer charged with their custody, nor verified under oath by the EIIB and theBIR investigator.
Issue:
Whether or not the final assessment of the petitioner against the respondent fordeficiency income tax and sales tax for the latter’s 1987 importation of resins andcalcium bicarbonate is based on competent evidence and the law
Ruling:
No. Section 16 of the NIRC of 1977, as amended, provides that the Commissioner of Internal Revenue has the power to make assessments and prescribe additionalrequirements for tax administration and enforcement. Among such powers are thoseprovided in paragraph (b), which provides that “Failure to submit required returns,statements, reports and other documents. – When a report required by law as a basisfor the assessment of any national internal revenue tax shall not be forthcomingwithin the time fixed by law or regulation or when there is reason to believe that anysuch report is false, incomplete or erroneous, the Commissioner shall assess theproper tax on the best evidence obtainable.” This provision applies when theCommissioner of Internal Revenue undertakes to perform her administrative duty of assessing the proper tax against a taxpayer, to make a return in case of a taxpayer’sfailure to file one, or to amend a return already filed in the BIR. The “best evidence”envisaged in Section 16 of the 1977 NIRC, as amended, includes the corporate andaccounting records of the taxpayer who is the subject of the assessment process, theaccounting records of other taxpayers engaged in the same line of business,including their gross profit and net profit sales. Such evidence also includes data,record, paper, document or any evidence gathered by internal revenue officers fromother taxpayers who had personal transactions or from whom the subject taxpayerreceived any income; and record, data, document and information secured fromgovernment offices or agencies, such as the SEC, the Central Bank of the Philippines, the Bureau of Customs, and the Tariff and Customs Commission. However, the bestevidence obtainable under Section 16 of the 1977 NIRC, as amended, does notinclude mere photocopies of records/documents. The petitioner, in making apreliminary and final tax deficiency assessment against a taxpayer, cannot anchorthe said assessment on mere machine copies of records/documents. Merephotocopies of the Consumption Entries have no probative weight if offered as proof of the contents thereof. The reason for this is that such copies are mere scraps of paper and are of no probative value as basis for any deficiency income or businesstaxes against a taxpayer.
Hantex Trading Co is a company organized under the Philippines. It is engaged in thesale of plastic products, it imports synthetic resin and other chemicals for themanufacture of its products. For this purpose, it is required to file an Import Entry andInternal Revenue Declaration (Consumption Entry) with the Bureau of Customs underSection 1301 of the Tariff and Customs Code. Sometime in October 1989, Lt. VicenteAmoto, Acting Chief of Counter-Intelligence Division of the Economic Intelligence andInvestigation Bureau (EIIB), received confidential information that the respondent hadimported synthetic resin amounting to P115,599,018.00 but only declaredP45,538,694.57. Thus, Hantex receive a subpoena to present its books of accountwhich it failed to do. The bureau cannot find any original copies of the productsHantex imported since the originals were eaten by termites. Thus, the Bureau reliedon the certified copies of the respondent’s Profit and Loss Statement for 1987 and1988 on file with the SEC, the machine copies of the Consumption Entries, Series of 1987, submitted by the informer, as well as excerpts from the entries certified by Tomas and Danganan. The case was submitted to the CTA which ruled that Hantexhave tax deficiency and is ordered to pay, per investigation of the Bureau. The CAruled that the income and sales tax deficiency assessments issued by the petitionerwere unlawful and baseless since the copies of the import entries relied upon incomputing the deficiency tax of the respondent were not duly authenticated by thepublic officer charged with their custody, nor verified under oath by the EIIB and theBIR investigator.
Issue:
Whether or not the final assessment of the petitioner against the respondent fordeficiency income tax and sales tax for the latter’s 1987 importation of resins andcalcium bicarbonate is based on competent evidence and the law
Ruling:
No. Section 16 of the NIRC of 1977, as amended, provides that the Commissioner of Internal Revenue has the power to make assessments and prescribe additionalrequirements for tax administration and enforcement. Among such powers are thoseprovided in paragraph (b), which provides that “Failure to submit required returns,statements, reports and other documents. – When a report required by law as a basisfor the assessment of any national internal revenue tax shall not be forthcomingwithin the time fixed by law or regulation or when there is reason to believe that anysuch report is false, incomplete or erroneous, the Commissioner shall assess theproper tax on the best evidence obtainable.” This provision applies when theCommissioner of Internal Revenue undertakes to perform her administrative duty of assessing the proper tax against a taxpayer, to make a return in case of a taxpayer’sfailure to file one, or to amend a return already filed in the BIR. The “best evidence”envisaged in Section 16 of the 1977 NIRC, as amended, includes the corporate andaccounting records of the taxpayer who is the subject of the assessment process, theaccounting records of other taxpayers engaged in the same line of business,including their gross profit and net profit sales. Such evidence also includes data,record, paper, document or any evidence gathered by internal revenue officers fromother taxpayers who had personal transactions or from whom the subject taxpayerreceived any income; and record, data, document and information secured fromgovernment offices or agencies, such as the SEC, the Central Bank of the Philippines, the Bureau of Customs, and the Tariff and Customs Commission. However, the bestevidence obtainable under Section 16 of the 1977 NIRC, as amended, does notinclude mere photocopies of records/documents. The petitioner, in making apreliminary and final tax deficiency assessment against a taxpayer, cannot anchorthe said assessment on mere machine copies of records/documents. Merephotocopies of the Consumption Entries have no probative weight if offered as proof of the contents thereof. The reason for this is that such copies are mere scraps of paper and are of no probative value as basis for any deficiency income or businesstaxes against a taxpayer.
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