When best evidence obtainable isn't at its best

When best evidence obtainable isn't at its best by: Maria Minerva B. Aldave

DEALING with the Bureau of Internal Revenue’s (BIR) tax assessment can be stressful on the part of the taxpayer. Receiving an assessment from an agency aggressively collecting taxes is dreadful enough as it is, but it’s even more so knowing that there was no evidence presented to support such assessment.
  
In the case of Wintelecom Inc. vs. Commissioner of Internal Revenue (CIR) (CTA Case No. 7056 promulgated on June 7, 2012), the Court of Tax Appeals (CTA) was confronted with an issue: Can the CIR assess a taxpayer for deficiency income tax based on third party information without presenting any evidence to support it?

Petitioner Wintelecom received a Pre-Assessment Notice and a Final Assessment Notice for deficiency internal revenue taxes for the years 2000 and 2001. After receiving the CIR’s final decision denying its protest, petitioner filed a Petition for Review with the CTA.

Upon repeated failure of the respondent CIR to present evidence, it was deemed to have waived such right.

Petitioner alleged that there are no factual and legal bases in support of the BIR’s findings of alleged deficiency income tax considering that the respondent failed to present evidence to support her findings.

The respondent contended that the assessment for deficiency income was the result of an investigation based on third party information, reconciliation of purchases per unreported books and verification from ISOS Data Center of the BIR. Respondent further invoked her power under Section 6 (B) of the National Internal Revenue Code (NIRC) of 1997, as amended, which provides that when a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules or regulations or when there is reason to believe that any such report is false, incomplete or erroneous, the Commissioner shall assess the proper tax on the best evidence obtainable.

On ruling against the respondent, the CTA cited that the best evidence obtainable may consist of hearsay evidence, such as the testimony of third parties or accounts or other records of other taxpayers similarly circumstanced as the taxpayer subject of the investigation. However, the assessment must still be based on actual facts. The best evidence obtainable under the NIRC does not include mere photocopies of records/documents (CIR vs. Hantex Trading Co. 454 SCRA 327). The prima facie correctness of a tax assessment does not apply upon proof that an assessment is utterly without foundation, meaning it is arbitrary and capricious. The CTA emphasized that considering that the Supreme Court nullified an assessment based on mere photocopied documents, it is with more reason, that the assessment against petitioner Wintelecom should be nullified considering that respondent failed to present evidence on which the assessments were based.

According to the CTA, the BIR was considered to have waived its right to present evidence for the repeated failure of its counsel to appear during the scheduled initial presentation of the evidence for the petitioner and its failure to submit memoranda despite notice. For failure of the respondent to present evidence in support of her assessment for deficiency income tax, the prima facie correctness of a tax assessment will not apply. The court reiterated that mere allegation of third party information is not sufficient to justify the assessment, as petitioner was not given a chance to refute said information.

This ruling of the CTA has a great impact on the common practice of assessing taxpayers based on third party information. Clearly, additional evidence must be presented to prove the basis for the assessment. More importantly, taxpayers can examine the evidence and object to its admissibility. The BIR must still prove that the tax assessment was not based on mere presumptions but actual facts.