THIRD DIVISION
[G.R. NO. 167560 : September 17, 2008]
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. DOMINADOR MENGUITO, Respondent.
D E C I S I O N
AUSTRIA-MARTINEZ, J.:
Petitioner Dominador Menguito [herein respondent] is a Filipino citizen, of legal age, married to Jeanne Menguito and is engaged in the restaurant and/or cafeteria business. For the years 1991, 1992 and 1993, its principal place of business was at Gloriamaris, CCP Complex, Pasay City and later transferred to Kalayaan Bar (Copper Kettle Cafeteria Specialist or CKCS), Departure Area, Ninoy Aquino International Airport, Pasay City. During the same years, he also operated a branch at Club John Hay, Baguio City carrying the business name of Copper Kettle Cafeteria Specialist (Joint Stipulation of Facts and Admissions, p. 133, CTA records).On April 2, 2002, the CTA rendered a Decision, the dispositive portion of which reads:
xxxx
Subsequently, BIR Baguio received information that Petitioner [herein respondent] has undeclared income from Texas Instruments and Club John Hay, prompting the BIR to conduct another investigation. Through a letter dated July 28, 1997, Spouses Dominador Menguito and Jeanne Menguito (Spouses Menguito) were informed by the Assessment Division of the said office that they have underdeclared sales totaling P48,721,555.96 (Exhibit 11, p. 83, BIR records). This was followed by a Preliminary Ten (10) Day Letter dated August 11, 1997, informing Petitioner [herein respondent] 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. These were protested by Ms. Jeanne Menguito, through a letter dated September 28, 1997 (Exhibit 14, p. 112, BIR Records), on the ground that the 40% deduction allowed on their computed gross revenue, is unrealistic. Ms. Jeanne Menguito requested for a period of thirty (30) days within which to coordinate with the BIR regarding the contested assessment.
On October 10, 1997, BIR Baguio replied, informing the Spouses Menguito that the source of assessment was not through the disallowance of claimed expenses but on data received from Club John Hay and Texas Instruments Phils., Inc. Said letter gave the spouses ten (10) days to present evidence (Exhibit 15, p. 110, BIR Records).
In an effort to clear an alleged confusion regarding Copper Kettle Cafeteria Specialist (CKCS) being a sole proprietorship owned by the Spouses, and Copper Kettle Catering Services, Inc. (CKCS, Inc.) being a corporation with whom Texas Instruments and Club John Hay entered into a contract, Petitioner [respondent] submitted to BIR Baguio a photocopy of the SEC Registration of Copper Kettle Catering Services, Inc. on March 23, 1999 (pp. 134-141, BIR Records).
On April 12, 1999, BIR Baguio wrote a letter to Spouses Menguito, informing the latter that a reinvestigation or reconsideration cannot be given due course by the mere submission of an uncertified photocopy of the Certificate of Incorporation. Thus, it avers that the amendment issued is still valid and enforceable.
On May 26, 1999, Petitioner [respondent] filed the present case, praying 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, erroneous address of notices and multiple credit/ investigation by the Respondent [petitioner] of Petitioner's [respondent's] books of accounts and other related records for the same tax year.
Instead of filing an Answer, Respondent [herein petitioner] moved to dismiss the instant petition on July 1, 1999, on the ground of lack of jurisdiction. According to Respondent [petitioner], the assessment had long become final and executory when Petitioner [respondent] failed to comply with the letter dated October 10, 1997.
Petitioner opposed said motion on July 21, 1999, claiming that the final decision on Petitioner's [respondent's] protest is the April 12, 1999 letter of the Baguio Regional Office; therefore, the filing of the action within thirty (30) days from receipt of the said letter was seasonably filed. Moreover, Petitioner [respondent] asserted that granting that the April 12, 1999 letter in question could not be construed to mean as a denial or final decision of the protest, still Petitioner's [respondent's] appeal was timely filed since Respondent [petitioner] issued a Warrant of Distraint and/or Levy against the Petitioner [respondent] on May 3, 1999, which warrant constituted a final decision of the Respondent [petitioner] on the protest of the taxpayer.On September 3, 1999, this Court denied Respondent's [petitioner's] 'Motion to Dismiss' for lack of merit.
Respondent [petitioner] filed his Answer on September 24, 1999, raising the following Special and Affirmative Defenses:
x x x x
- Investigation disclosed that for taxable years 1991, 1992 and 1993, petitioner [respondent] filed false or fraudulent income and percentage tax returns with intent to evade tax by under declaring his sales.
- The alleged duplication of investigation of petitioner [respondent] by the BIR Regional Office in Baguio City and by the Revenue District Office in Pasay City is justified by the finding of fraud on the part of the petitioner [respondent], which is an exception to the provision in the Tax Code that the examination and inspection of books and records shall be made only once in a taxable year (Section 235, Tax Code). At any rate, petitioner [respondent], in a letter dated July 18, 1994, waived his right to the consolidation of said investigation.
- The aforementioned falsity or fraud was discovered on August 5, 1997. The assessments were issued on September 2, 1997, or within ten (10) years from the discovery of such falsity or fraud (Section 223, Tax Code). Hence, the assessments have not prescribed.
- Petitioner's [respondent's] allegation that the assessments were not properly addressed is rendered moot and academic by his acknowledgment in his protest letter dated September 28, 1997 that he received the assessments.
- Respondent [petitioner] complied with the provisions of Revenue Regulations No. 12-85 by informing petitioner [respondent] of the findings of the investigation in letters dated July 28, 1997 and August 11, 1997 prior to the issuance of the assessments.
- Petitioner [respondent] did not allege in his administrative protest that there was a duplication of investigation, that the assessments have prescribed, that they were not properly addressed, or that the provisions of Revenue Regulations No. 12-85 were not observed. Not having raised them in the administrative level, petitioner [respondent] cannot raise the same for the first time on appeal (Aguinaldo Industries Corp. vs. Commissioner of Internal Revenue, 112 SCRA 136).
- The assessments were issued in accordance with law and regulations.
- All presumptions are in favor of the correctness of tax assessments (CIR vs. Construction Resources of Asia, Inc., 145 SCRA 67), and the burden to prove otherwise is upon petitioner [respondent].5 (Emphasis supplied)
Accordingly, Petitioner [herein respondent] is ORDERED to PAY the Respondent [herein petitioner] the amount of P11,333,233.94 and P2,573,655.82 as deficiency income and percentage tax liabilities, respectively for taxable years 1991, 1992 and 1993 plus 20% delinquency interest from October 2, 1997 until full payment thereof.Respondent filed a motion for reconsideration but the CTA denied the same in its Resolution of October 10, 2002.7
SO ORDERED.6
WHEREFORE, the instant petition is GRANTED. Reversing the assailed Decision dated April 2, 2002 and Resolution dated October 10, 2002, the deficiency income tax and percentage income tax assessments against petitioner in the amounts of P11,333,233.94 and P2,573,655.82 for taxable years 1991, 1992 and 1993 plus the 20% delinquency interest thereon are annulled.Petitioner filed a motion for reconsideration but the CA denied the same in its October 10, 2002 Resolution.13
SO ORDERED.12
On the first issue, the CTA has ruled that CKCS, Inc. and CKCS are one and the same corporation because "[t]he contract between Texas Instruments and Copper Kettle was signed by petitioner's [respondent's] wife, Jeanne Menguito as proprietress"14I
The Court of Appeals erred in reversing the decision of the Court of Tax Appeals and in holding that Copper Kettle Cafeteria Specialist owned by respondent and Copper Kettle Catering Services, Inc. owned and managed by respondent's wife are not one and the same.II
The Court of Appeals erred in holding that respondent was denied due process for failure of petitioner to validly serve respondent with the post-reporting and pre-assessment notices as required by law.
Respondent's [herein petitioner's] allegation that Copper Kettle Catering Services, Inc. and Copper Kettle Cafeteria Specialists are not distinct entities and that the under-declared sales/revenues of Copper Kettle Catering Services, Inc. pertain to Copper Kettle Cafeteria Specialist are belied by the evidence on record. In the Joint Stipulation of Facts submitted before the tax court, respondent [petitioner] admitted "that petitioner's [herein respondent's] business name is Copper Kettle Cafeteria Specialist."Respondent is adamant that the CA is correct. Many times in the past, the BIR had treated CKCS separately from CKCS, Inc.: from May 1994 to June 1995, the BIR sent audit teams to examine the books of account and other accounting records of CKCS, and based on said audits, respondent was held liable for deficiency taxes, all of which he had paid.16 Moreover, the certifications17 issued by Club John Hay and Texas Instruments identify the concessionaire operating therein as CKCS, Inc., owned and managed by his spouse Jeanne Menguito, and not CKCS.18
Also, the Certification of Club John Hay and Letter dated July 9, 1997 of Texas Instruments both addressed to respondent indicate that these companies transacted with Copper Kettle Catering Services, Inc., owned and managed by JEANNE G. MENGUITO, NOT petitioner Dominador Menguito. The alleged under-declared sales income subject of the present assessments were shown to have been earned by Copper Kettle Catering Services, Inc. in its commercial transaction with Texas Instruments and Camp John Hay; NOT by petitioner's dealing with these companies. In fact, there is nothing on record which shows that Texas Instruments and Camp John Hay conducted business relations with Copper Kettle Cafeteria Specialist, owned by herein petitioner Dominador Menguito. In the absence, therefore, of clear and convincing evidence showing that Copper Kettle Cafeteria Specialist and Copper Kettle Catering Services, Inc. are one and the same, respondent can NOT validly impute alleged underdeclared sales income earned by Copper Kettle Catering Services, Inc. as sales income of Copper Kettle Cafeteria Specialist.15 (Emphasis supplied)
We are in receipt of the assessment notice you have sent us, dated September 2, 1997. Having taken hold of the same only now following our travel overseas, we were not able to respond immediately and manifest our protest. Also, with the impending termination of our businesses at 19th Tee, Club John Hay and at Texas Instruments, Loakan, Baguio City, we have already started the transfer of our records and books in Baguio City to Manila that we will need more time to review and sort the records that may have to be presented relative to the assessment x x x.19 (Emphasis supplied)Petitioner insists that said reply confirms that the assessment notice is directed against the businesses which she and her husband, respondent herein, own and operate at Club John Hay and Texas Instruments, and establishes that she is protesting said notice not just for herself but also for respondent.20
"in connection with the investigation of Copper Kettle Cafeteria Specialist which is located at 19th Tee Club John Hay, Baguio City under letter of authority nos. 0392897, 0392898, and 0392690 dated May 16, 1994, investigating my income, business, and withholding taxes for the years 1991, 1992, and 1993"35 (Emphasis supplied)Jeanne Menguito signed the letter as proprietor of Copper Kettle Cafeteria Specialist.36
BIR records show that on July 28, 1997, a letter was issued by BIR Baguio to Spouses Menguito, informing the latter of their supposed underdeclaration of sales totaling P48,721,555.96 and giving them 5 days to communicate any objection to the results of the investigation (Exhibit 11, p. 83, BIR Records). Records likewise reveal the issuance of a Preliminary Ten (10) Day Letter on August 11, 1997, informing Petitioner [respondent herein] that the sum of P34,193,041.55 is due from him as deficiency income and percentage tax (Exhibit 13, p. 173, BIR Records). Said letter gave the Petitioner [respondent herein] a period of ten (10) days to submit his objection to the proposed assessment, either personally or in writing, together with any evidence he may want to present.The CTA further held that respondent was estopped from raising procedural issues against the assessment notices, because these were not cited in the September 28, 1997 letter-protest which his spouse Jeanne Menguito filed with petitioner.59
x x x x
As to Petitioner's allegation that he was given only ten (10) days to reply to the findings of deficiency instead of fifteen (15) days granted to a taxpayer under Revenue Regulations No. 12-85, this Court believes that when Respondent [petitioner herein] gave the Petitioner [respondent herein] on October 10, 1997 an additional period of ten (10) days to present documentary evidence or a total of twenty (20) days, there was compliance with Revenue Regulations No. 12-85 and the latter was amply given opportunity to present his side x x x.58
Moreover, if the taxpayer denies ever having received an assessment from the BIR, it is incumbent upon the latter to prove by competent evidence that such notice was indeed received by the addressee. Here, respondent [petitioner herein] merely alleged that it "forwarded" the assessment notices to petitioner [respondent herein]. The respondent did not show any proof of mailing, registry receipt or acknowledgment receipt signed by the petitioner [respondent herein]. Since respondent [petitioner herein] has not adduced sufficient evidence that petitioner [respondent herein] had in fact received the pre-assessment notice and post-reporting notice required by law, it cannot be assumed that petitioner [respondent herein] had been served said notices.61No other ground was cited by the CA for the reversal of the finding of the CTA on the issue.
Endnotes:
1 Penned by Associate Justice Vicente S.E. Veloso and concurred in by Associate Justices Roberto A. Barrios and Amelita G. Tolentino; rollo, p. 10.
2 Id. at 82.
3 Id. at 101.
4 CA rollo, pp. 143-145.
5 CTA Decision, rollo, pp. 82, 84-87.
6 Id. at 100.
7 CA rollo, p. 106.
8 Id. at 107.
9 Petition for Review with the CA, rollo, pp. 115-1127.
10 Petition, CA rollo, pp. 48-50.
11 See Petition, rollo, pp. 4-12; respondent did not appeal from the CA Decision.
12 Id. at 80-81.
13 Supra note 3.
14 CTA Decision, rollo, p. 93.
15 CA Decision, id. at 24-26.
16 Memorandum for respondent, id. at 274-276.
17 Exhibits "10" and "11", id. at 170-171.
18Rollo, pp. 270-272.
19 Exhibit "14", BIR records, p. 112,
20 Petition, rollo, pp. 49-50.
21 Id. at 50-51.
22 Id. at 51-52; Memorandum for petitioner, id. at 243-245.
23Rollo, pp. 245-246.
24 Petition, id. at 57-58.
25 ASJ Corporation v. Sps. Evangelista, G.R. No. 158086, February 14, 2008.
26 Twin Towers Condominium Corporation v. Court of Appeals, 446 Phil. 280 (2003).
27 Commissioner of Internal Revenue v. Sekisui Jushi Philippines, Inc., G.R. No. 149671, July 21, 2006, 496 SCRA 206.
28 Commissioner of Internal Revenue v. Manila Electric Co., G.R. No. 121666, October 10, 2007, 535 SCRA 399; Commissioner of Internal Revenue v. Bank of the Philippine Islands, G.R. No. 134062, April 17, 2007; 521 SCRA 373.
29Commissioner of Internal Revenue v. Norton and Harrison Company, No. L-17618, August 31, 1964, 11 SCRA 714.
30Commissioner of Internal Revenue v. Norton and Harrison Company, supra note 29.
31 Liddell & Co., Inc. v. Commissioner of Internal Revenue, 112 Phil. 524 (1961). See also Commissioner of Internal Revenue v. Toda, G.R. No. 147188, September 14, 2004, 438 SCRA 290.
32 CTA records, p. 1.
33 CA rollo, p. 143.
34 BIR records, p. 0180.
35 Petitioner's Formal Officer of Evidence, CA rollo, p. 217.
36Rollo, p. 170.
37 Petition, rollo, pp. 49-50.
38 CA rollo, p. 212.
39 Id. at 211.
40 Id. at 210.
41 Respondent's Formal Officer of Evidence, id. at 206.
42 Rollo, p. 170.
43 Rollo, p. 171.
44 CA rollo, p. 209.
45 Supra note 34.
46 Supra note 35.
47 CA rollo, pp. 358-367.
48 BIR Records, pp. 0004-0007.
49 Annexes "G", "H", "I", "J". "K" and "L", CTA records, pp. 13-18.
50 Petition for Review, id. at 4.
51 Id.
52 Id. at 4-5.
53 Id. at 5.
54 TSN, January 5, 2000, pp. 9-10.
55 CTA Decision, rollo, pp. 94-95.
56 Id. at 89-90.
57 Id. at 90.
58 CTA Decision, rollo, pp. 88 and 91.
59 CTA Resolution, id. at 104-105.
60 Petition for Review, CA rollo, p. 47.
61 CA Decision, rollo, p. 26.
62 CA rollo, p. 44.
63 Supra note 21.
64 BIR records, pp. 0004-0007.
65 See Commissioner of Internal Revenue v. Bank of the Philippine Islands, 458 Phil. 332 (2003).
66 BIR records pp. 0082-0083.
67 Id. at 0173.
68 Sec. 1. Post-reporting notice. - Upon receipt of the report of findings, the Division Chief, Revenue District Officer or Chief, Office Audit Section, as the case maybe, shall send to the taxpayer a notice of an informal conference before forwarding the report to higher authorities for approval. The notice which is Annex "A" hereof shall be accompanied with a summary of findings as basis for the informal conference.
In cases where the taxpayer has agreed in writing to the proposed assessment, or where such proposed assessment has been paid, the required notice maybe dispensed with.
69 Sec. 2. Notice of proposed assessment. - When the commissioner or his duly authorized representative finds that taxes should be assessed, he shall first notify the taxpayer of the findings in the attached prescribed form as Annex "B" hereof. The notice shall be made in writing and sent to the taxpayer at the address indicated in his return or at his last known address as stated in his notice of change of address.
In cases where the taxpayer has agreed in writing to the proposed assessment, or where such proposed assessment has been paid, the required notice maybe dispensed with.
70 Diez Vda. de Gabriel v. Commissioner of Internal Revenue, 465 Phil. 986 (2004).
71 Commissioner of Internal Revenue v. Reyes, G.R. No. 159694, January 27, 2006, 480 SCRA 382.
72 Roxas Securities, Inc. v. Commissioner of Internal Revenue, G.R. No. 157064, August 7, 2006, 498 SCRA 126. See also Commissioner of Internal Revenue v. Pascor Realty & Devt. Corp., 368 Phil. 714 (1999).