Supreme Court E-Library

664 PHILIPPINE REPORTS

Commissioner of Internal Revenue vs. Transitions Optical
Philippines, Inc.

As the Court finds the above-stated reasons already sufficient

to grant the present petition, it is henceforth unnecessary to
delve on the other ancillary issues raised herein.
WHEREFORE, the petition is GRANTED. The Decision
dated January 30, 2015 of the Court of Appeals in CA-G.R.
CR No. 35283 is hereby REVERSED and SET ASIDE.
Petitioner Hilario Lamsen is ACQUITTED of the crime of
Falsification of Public Document on the ground of reasonable
doubt. The bail bonds posted for his provisional liberty are
consequently cancelled and released.
SO ORDERED.
Carpio (Chairperson), Peralta, and Caguioa, JJ., concur.
Reyes, Jr., J., on official leave.

THIRD DIVISION

[G.R. No. 227544. November 22, 2017]

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs. TRANSITIONS OPTICAL PHILIPPINES, INC.,
respondent.

SYLLABUS

1. TAXATION; NATIONAL INTERNAL REVENUE CODE

(NIRC); INTERNAL REVENUE TAXES SHALL BE
ASSESSED WITHIN THREE (3) YEARS AFTER THE
LAST DAY PRESCRIBED BY LAW FOR THE FILING
OF THE RETURN; EXCEPTION.— As a general rule,
petitioner has three (3) years to assess taxpayers from the filing
of the return. x x x An exception to the rule of prescription is
found in Section 222(b) and (d) of this Code. x x x [T]he period
to assess and collect taxes may be extended upon the
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Commissioner of Internal Revenue and the taxpayer’s written

agreement, executed before the expiration of the three (3)-year
period.
2. CIVIL LAW; OBLIGATIONS AND CONTRACTS;
ESTOPPEL; APPLIES AGAINST A TAXPAYER WHO DID
NOT ONLY RAISE AT THE EARLIEST OPPORTUNITY
ITS REPRESENTATIVE’S LACK OF AUTHORITY TO
EXECUTE TWO (2) WAIVERS OF DEFENSE OF
PRESCRIPTION, BUT WAS ALSO ACCORDED,
THROUGH THESE WAIVERS, MORE TIME TO
COMPLY WITH THE AUDIT REQUIREMENTS OF THE
BUREAU OF INTERNAL REVENUE.— Indeed, the Bureau
of Internal Revenue was at fault when it accepted respondent’s
Waivers despite their non-compliance with the requirements
of RMO No. 20-90 and RDAO No. 05-01. Nonetheless,
respondent’s acts also show its implied admission of the validity
of the waivers. First, respondent never raised the invalidity of
the Waivers at the earliest opportunity, either in its Protest to
the PAN, Protest to the FAN, or Supplemental Protest to the
FAN. It thereby impliedly recognized these Waivers’ validity
and its representatives’ authority to execute them. Respondent
only raised the issue of these Waivers’ validity in its Petition
for Review filed with the Court of Tax Appeals. In fact, as
pointed out by Justice Del Rosario, respondent’s Protest to the
FAN clearly recognized the validity of the Waivers, when it
stated: This has reference to the Final Assessment Notice
(“[F]AN”) issued by your office, dated November 28, 2008.
The said letter was received by Transitions Optical Philippines[,]
Inc. (TOPI) on December 5, 2008, five days after the waiver
we issued which was valid until November 30, 2008 had
prescribed. Second, respondent does not dispute petitioner’s
assertion that respondent repeatedly failed to comply with
petitioner’s notices, directing it to submit its books of accounts
and related records for examination by the Bureau of Internal
Revenue. Respondent also ignored the Bureau of Internal
Revenue’s request for an Informal Conference to discuss other
“discrepancies” found in the partial documents submitted. The
Waivers were necessary to give respondent time to fully comply
with the Bureau of Internal Revenue notices for audit examination
and to respond to its Informal Conference request to discuss
the discrepancies. Thus, having benefitted from the Waivers
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666 PHILIPPINE REPORTS

Commissioner of Internal Revenue vs. Transitions Optical
Philippines, Inc.

executed at its instance, respondent is estopped from claiming

that they were invalid and that prescription had set in.
3. TAXATION; NATIONAL INTERNAL REVENUE CODE
(NIRC); A TAX ASSESSMENT SERVED BEYOND THE
EXTENDED PERIOD IS VOID.— The First Division of the
Court of Tax Appeals found that “the date indicated in the
envelope/mail matter containing the FAN and the FLD is
December 4, 2008, which is considered as the date of their
mailing.” Since the validity period of the second Waiver is
only until November 30, 2008, prescription had already set in
at the time the FAN and the FLD were actually mailed on
December 4, 2008. For lack of adequate supporting evidence,
the Court of Tax Appeals rejected petitioner’s claim that the
FAN and the FLD were already delivered to the post office for
mailing on November 28, 2008 but were actually processed by
the post office on December 2, 2008, since December 1, 2008
was declared a Special Holiday. The testimony of petitioner’s
witness, Dario A. Consignado, Jr., that he brought the mail
matter containing the FAN and the FLD to the post office on
November 28, 2008 was considered self-serving, uncorroborated
by any other evidence. Additionally, the Certification presented
by petitioner certifying that the FAN issued to respondent was
delivered to its Administrative Division for mailing on November
28, 2008 was found insufficient to prove that the actual date
of mailing was November 28, 2008. This Court finds no clear
and convincing reason to overturn these factual findings of
the Court of Tax Appeals.
4. ID.; ID.; PRELIMINARY ASSESSMENT NOTICE; A
REQUIREMENT OF DUE PROCESS THAT INFORMS
THE TAXPAYER OF THE INITIAL FINDINGS OF THE
BUREAU OF INTERNAL REVENUE.— [P]etitioner’s
contention that the assessment required to be issued within the
three (3)-year or extended period provided in Sections 203 and
222 of the National Internal Revenue Code refers to the PAN
is untenable. Considering the functions and effects of a PAN
vis à vis a FAN, it is clear that the assessment contemplated in
Sections 203 and 222 of the National Internal Revenue Code
refers to the service of the FAN upon the taxpayer. A PAN
merely informs the taxpayer of the initial findings of the Bureau
of Internal Revenue. It contains the proposed assessment, and
the facts, law, rules, and regulations or jurisprudence on which
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the proposed assessment is based. It does not contain a demand

for payment but usually requires the taxpayer to reply within
15 days from receipt. Otherwise, the Commissioner of Internal
Revenue will finalize an assessment and issue a FAN. The PAN
is a part of due process. It gives both the taxpayer and the
Commissioner of Internal Revenue the opportunity to settle
the case at the earliest possible time without the need for the
issuance of a FAN.
5. ID.; ID.; FINAL ASSESSMENT NOTICE; CONTAINS NOT
ONLY A COMPUTATION OF TAX LIABILITIES BUT
ALSO A DEMAND FOR PAYMENT WITHIN A
PRESCRIBED PERIOD.— [A] FAN contains not only a
computation of tax liabilities but also a demand for payment
within a prescribed period. As soon as it is served, an obligation
arises on the part of the taxpayer concerned to pay the amount
assessed and demanded. It also signals the time when penalties
and interests begin to accrue against the taxpayer. Thus, the
National Internal Revenue Code imposes a 25% penalty, in
addition to the tax due, in case the taxpayer fails to pay the
deficiency tax within the time prescribed for its payment in
the notice of assessment. Likewise, an interest of 20% per annum,
or such higher rate as may be prescribed by rules and regulations,
is to be collected from the date prescribed for payment until
the amount is fully paid. Failure to file an administrative protest
within 30 days from receipt of the FAN will render the assessment
final, executory, and demandable.

APPEARANCES OF COUNSEL

Office of the Solicitor General for petitioner.

Esquivias & Arbues Law Firm for respondent.

DECISION

LEONEN, J.:

Estoppel applies against a taxpayer who did not only raise

at the earliest opportunity its representative’s lack of authority
to execute two (2) waivers of defense of prescription, but was
also accorded, through these waivers, more time to comply with
the audit requirements of the Bureau of Internal Revenue.
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668 PHILIPPINE REPORTS

Commissioner of Internal Revenue vs. Transitions Optical
Philippines, Inc.

Nonetheless, a tax assessment served beyond the extended period

is void.
This Petition for Review on Certiorari1 seeks to nullify and
set aside the June 7, 2016 Decision 2 and September 26, 2016
Resolution3 of the Court of Tax Appeals En Banc in CTA EB
No. 1251. The Court of Tax Appeals En Banc affirmed its First
Division’s September 1, 2014 Decision, 4 cancelling the
deficiency assessments against Transitions Optical Philippines,
Inc. (Transitions Optical).
On April 28, 2006, Transitions Optical received Letter of
Authority No. 00098746 dated March 23, 2006 from Revenue
Region No. 9, San Pablo City, of the Bureau of Internal Revenue.
It was signed by then Officer-in-Charge-Regional Director
Corazon C. Pangcog and it authorized Revenue Officers Jocelyn
Santos and Levi Visaya to examine Transition Optical’s books of
accounts for internal revenue tax purposes for taxable year 2004.5
On October 9, 2007, the parties allegedly executed a Waiver
of the Defense of Prescription (First Waiver).6 In this supposed
First Waiver, the prescriptive period for the assessment of

1
Rollo, pp. 30-63.
2
Id. at 71-84. The Decision was penned by Associate Justice Ma. Belen
M. Ringpis-Liban and concurred in by Presiding Justice Roman G. Del
Rosario (with separate concurring opinion, pp. 85-92) and Associate Justices
Juanito C. Castañeda, Jr., Lovell R. Bautista, Erlinda P. Uy, Caesar A. Casanova,
Esperanza R. Fabon-Victorino, Cielito N. Mindaro-Grulla, and Amelia R.
Contangco-Manalastas of the Court of Tax Appeals, Quezon City.
3
Id. at 94-96. The Resolution was penned by Associate Justice Ma.
Belen M. Ringpis-Liban and concurred in by Presiding Justice Roman G.
Del Rosario and associate Justices Juanito C. Castañeda, Jr., Lovell R. Bautista,
Erlinda P. Uy, Caesar A. Casanova, Esperanza R. Fabon-Victorino, and
Cielito N. Mindaro-Grulla of the Court of Tax Appeals, Quezon City.
4
Id. at 97-121. The Decision, docketed as CTA Case No. 8442, was penned
by Associate Justice Erlinda P. Uy and concurred in by Presiding Justice
Roman G. Del Rosario and Associate Justice Cielito N. Mindaro-Grulla.
5
Id. at 72.
6
Id.
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Commissioner of Internal Revenue vs. Transitions Optical
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Transition Optical’s internal revenue taxes for the year 2004

was extended to June 20, 2008.7 The document was signed by
Transitions Optical’s Finance Manager, Pamela Theresa D. Abad,
and by Bureau of Internal Revenue’s Revenue District Officer,
Myrna S. Leonida.8
This was followed by another supposed Waiver of the Defense
of Prescription (Second Waiver) dated June 2, 2008. This time,
the prescriptive period was supposedly extended to November
30, 2008. 9
Thereafter, the Commissioner of Internal Revenue, through
Regional Director Jaime B. Santiago (Director Santiago), issued
a Preliminary Assessment Notice (PAN) dated November 11,
2008, assessing Transitions Optical for its deficiency taxes for
taxable year 2004. Transitions Optical filed a written protest
on November 26, 2008. 10
The Commissioner of Internal Revenue, again through Director
Santiago, subsequently issued against Transitions Optical a Final
Assessment Notice (FAN) and a Formal Letter of Demand (FLD)
dated November 28, 2008 for deficiency income tax, value-
added tax, expanded withholding tax, and final tax for taxable
year 2004 amounting to P19,701,849.68.11
In its Protest Letter dated December 8, 2008 against the FAN,
Transitions Optical alleged that the demand for deficiency taxes
had already prescribed at the time the FAN was mailed on
December 2, 2008. In its Supplemental Protest, Transitions
Optical pointed out that the FAN was void because the FAN
indicated 2006 as the return period, but the assessment covered
calendar year 2004. 12

7
Id. at 32.
8
Id. at 150-151.
9
Id. at 32-33 and 152-153.
10
Id. at 72.
11
Id. at 73.
12
Id.
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670 PHILIPPINE REPORTS

Commissioner of Internal Revenue vs. Transitions Optical
Philippines, Inc.

Years later, the Commissioner of Internal Revenue, through

Regional Director Jose N. Tan, issued a Final Decision on the
Disputed Assessment dated January 24, 2012, holding Transitions
Optical liable for deficiency taxes in the total amount of
P19,701,849.68 for taxable year 2004, broken down as
follows:
Tax Amount
Income Tax P 3,153,371.04
Value-Added Tax 1,231,393.47
Expanded Withholding Tax 175,339.51
Final Tax on Royalty 14,026,247.90
Final Tax on Interest Income 1,115,497.76
Total P 19,701,849.6813
On March 16, 2012, Transitions Optical filed a Petition for
Review before the Court of Tax Appeals.14
In her Answer, the Commissioner of Internal Revenue
interposed that Transitions Optical’s claim of prescription was
inappropriate because the executed Waiver of the Defense of
Prescription extended the assessment period. She added that
the posting of the FAN and FLD was within San Pablo City
Post Office’s exclusive control. She averred that she could not
be faulted if the FAN and FLD were posted for mailing only
on December 2, 2008, since November 28, 2008 fell on a Friday
and the next supposed working day, December 1, 2008, was
declared a Special Holiday.15
After trial and upon submission of the parties’ memoranda,
the First Division of the Court of Tax Appeals (First Division)
rendered a Decision on September 1, 2014. 16 It held:

13
Id. at 73 and 158-159. The total sum indicated in the Formal Letter
of Demand is P19,614,438.97 but the correct total sum is P19,701,849.68.
14
Id. at 34.
15
Id. at 73.
16
Id. at 74.
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Commissioner of Internal Revenue vs. Transitions Optical
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In summary therefore, the Court hereby finds the subject Waivers

to be defective and therefore void. Nevertheless, granting for the
sake of argument that the subject Waivers were validly executed,
for failure of respondent however to present adequate supporting
evidence to prove that it issued the FAN and the FLD within the
extended period agreed upon in the 2nd Waiver, the subject assessment
must be cancelled for being issued beyond the prescriptive period
provided by law to assess.
WHEREFORE, in light of the foregoing considerations, the instant
Petition for Review is hereby GRANTED. Accordingly, the Final
Assessment Notice, Formal Letter of Demand and Final Decision on
Disputed Assessment finding petitioner Transitions Optical Philippines,
Inc. liable for deficiency income tax, deficiency expanded withholding
tax, deficiency value-added tax and deficiency final tax for taxable
year 2004 in the total amount of P19,701,849.68 are hereby
CANCELLED and SET ASIDE.
SO ORDERED. 17 (Emphasis in the original)

The Commissioner of Internal Revenue filed a Motion for

Reconsideration, which was denied by the First Division in its
Resolution18 dated November 7, 2014.
The Court of Tax Appeals En Banc affirmed the First Division
Decision19 and subsequently denied the Commissioner of Internal
Revenue’s Motion for Reconsideration.20
Hence, this Petition was filed before this Court. Transitions
Optical filed its Comment. 21
Petitioner contends that “[t]he two Waivers executed by the
parties on October 9, 2007 and June 2, 2008 substantially
complied with the requirements of Sections 203 and 222 of the
[National Internal Revenue Code].” 22 She adds that technical

17
Id. at 120.
18
Id. at 123-127.
19
Id. at 83.
20
Id. at 96.
21
Id. at 283-313.
22
Id. at 37.
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672 PHILIPPINE REPORTS

Commissioner of Internal Revenue vs. Transitions Optical
Philippines, Inc.

rules of procedure of administrative bodies, such as those

provided in Revenue Memorandum Order (RMO) No. 20-90
issued on April 4, 1990 and Revenue Delegation Authority Order
(RDAO) No. 05-01 issued on August 2, 2001, must be liberally
applied to promote justice.23 At any rate, petitioner maintains
that respondent is estopped from questioning the validity of
the waivers since their execution was caused by the delay
occasioned by respondent’s own failure to comply with the
orders of the Bureau of Internal Revenue to submit documents
for audit and examination. 24
Furthermore, petitioner argues that the assessment required
to be issued within the three (3)-year period provided in Sections
203 and 222 of the National Internal Revenue Code refer to
petitioner’s actual issuance of the notice of assessment to the
taxpayer or what is usually known as PAN, and not the FAN
issued in case the taxpayer files a protest.25
On the other hand, respondent contends that the Court of
Tax Appeals properly found the waivers defective, and therefore,
void. It adds that the three (3)-year prescriptive period for tax
assessment primarily benefits the taxpayer, and any waiver of
this period must be strictly scrutinized in light of the requirements
of the laws and rules.26 Respondent posits that the requirements
for valid waivers are not mere technical rules of procedure that
can be set aside. 27
Respondent further asserts that it is not estopped from
questioning the validity of the waivers as it raised its objections
at the earliest opportunity. 28 Besides, the duty to ensure
compliance with the requirements of RMO No. 20-90 and RDAO

23
Id. at 38.
24
Id. at 37-38.
25
Id. at 56-57.
26
Id. at 297.
27
Id. at 300.
28
Id. at 302-303.
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Commissioner of Internal Revenue vs. Transitions Optical
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No. 05-01, including proper authorization of the taxpayer’s

representative, fell primarily on petitioner and her revenue
officers. Thus, petitioner came to court with unclean hands and
cannot be permitted to invoke the doctrine of estoppel. 29
Respondent insists that there was no clear showing that the
signatories in the waivers were duly sanctioned to act on its behalf.30
Even assuming that the waivers were valid, respondent argues
that the assessment would still be void as the FAN was served
only on December 4, 2008, beyond the extended period of
November 30, 2008.31 Contrary to petitioner’s stance, respondent
counters that the assessment required to be served within the
three (3)-year prescriptive period is the FAN and FLD, not just
the PAN. 32 According to respondent, “it is the FAN and FLD
that formally notif[y] the taxpayer, and categorically [demand]
from him, that a deficiency tax is due.”33
The issues for this Court’s resolution are:
First, whether or not the two (2) Waivers of the Defense of
Prescription entered into by the parties on October 9, 2007 and
June 2, 2008 were valid; and
Second, whether or not the assessment of deficiency taxes
against respondent Transitions Optical Philippines, Inc. for
taxable year 2004 had prescribed.
This Court denies the Petition. The Court of Tax Appeals
committed no reversible error in cancelling the deficiency tax
assessments.
I
As a general rule, petitioner has three (3) years to assess
taxpayers from the filing of the return. Section 203 of the National
Internal Revenue Code provides:

29
Id. at 304 and 309.
30
Id. at 302.
31
Id. at 304-305.
32
Id. at 308.
33
Id. at 307.
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674 PHILIPPINE REPORTS

Commissioner of Internal Revenue vs. Transitions Optical
Philippines, Inc.

Section 203. Period of Limitation Upon Assessment and Collection.

— Except as provided in Section 222, internal revenue taxes shall
be assessed within three (3) years after the last day prescribed by
law for the filing of the return, and no proceeding in court without
assessment for the collection of such taxes shall be begun after the
expiration of such period: Provided, That in a case where a return
is filed beyond the period prescribed by law, the three (3)-year period
shall be counted from the day the return was filed. For purposes of
this Section, a return filed before the last day prescribed by law for
the filing thereof shall be considered as filed on such last day.
An exception to the rule of prescription is found in Section
222(b) and (d) of this Code, viz:
Section 222. Exceptions as to Period of Limitation of Assessment
and Collection of Taxes. —
... ... ...
(b) If before the expiration of the time prescribed in Section
203 for the assessment of the tax, both the Commissioner
and the taxpayer have agreed in writing to its assessment
after such time, the tax may be assessed within the period
agreed upon. The period so agreed upon may be extended
by subsequent written agreement made before the expiration
of the period previously agreed upon.
... ... ...
(d) Any internal revenue tax, which has been assessed within
the period agreed upon as provided in paragraph (b)
hereinabove, may be collected by distraint or levy or by a
proceeding in court within the period agreed upon in writing
before the expiration of the five (5) -year period. The period
so agreed upon may be extended by subsequent written
agreements made before the expiration of the period
previously agreed upon.

Thus, the period to assess and collect taxes may be extended

upon the Commissioner of Internal Revenue and the taxpayer’s
written agreement, executed before the expiration of the three
(3)-year period.
In this case, two (2) waivers were supposedly executed by
the parties extending the prescriptive periods for assessment
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of income tax, value-added tax, and expanded and final withholding

taxes to June 20, 2008, and then to November 30, 2008.
The Court of Tax Appeals, both its First Division and En
Banc, declared as defective and void the two (2) Waivers of
the Defense of Prescription for non-compliance with the
requirements for the proper execution of a waiver as provided
in RMO No. 20-90 and RDAO No. 05-01. Specifically, the
Court of Tax Appeals found that these Waivers were not
accompanied by a notarized written authority from respondent,
authorizing the so-called representatives to act on its behalf.
Likewise, neither the Revenue District Office’s acceptance date
nor respondent’s receipt of the Bureau of Internal Revenue’s
acceptance was indicated in either document.34
However, Presiding Justice Roman G. Del Rosario (Justice
Del Rosario) in his Separate Concurring Opinion35 in the Court
of Tax Appeals June 7, 2016 Decision, found that respondent
is estopped from claiming that the waivers were invalid by reason
of its own actions, which persuaded the government to postpone
the issuance of the assessment. He discussed:
In the case at bar, respondent performed acts that induced the
BIR to defer the issuance of the assessment. Records reveal that to
extend the BIR’s prescriptive period to assess respondent for deficiency
taxes for taxable year 2004, respondent executed two (2) waivers.
The first Waiver dated October 2007 extended the period to assess
until June 20, 2008, while the second Waiver, which was executed
on June 2, 2008, extended the period to assess the taxes until November
30, 2008. As a consequence of the issuance of said waivers, petitioner
delayed the issuance of the assessment.
Notably, when respondent filed its protest on November 26, 2008
against the Preliminary Assessment Notice dated November 11, 2008,
it merely argued that it is not liable for the assessed deficiency taxes
and did not raise as an issue the invalidity of the waiver and the
prescription of petitioner’s right to assess the deficiency taxes. In
its protest dated December 8, 2008 against the FAN, respondent argued

34
Id. at 77 and 112-115.
35
Id. at 85-92.
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Commissioner of Internal Revenue vs. Transitions Optical
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that the year being audited in the FAN has already prescribed at the
time such FAN was mailed on December 2, 2008. Respondent even
stated in that protest that it received the letter (referring to the FAN
dated November 28, 2008) on December 5, 2008, which accordingly
is five (5) days after the waiver it issued had prescribed. The foregoing
narration plainly does not suggest that respondent has any objection
to its previously executed waivers. By the principle of estoppel,
respondent should not be allowed to question the validity of the
waivers. 36

In Commissioner of Internal Revenue v. Next Mobile, Inc.

(formerly Nextel Communications Phils., Inc.), 37 this Court
recognized the doctrine of estoppel and upheld the waivers when
both the taxpayer and the Bureau of Internal Revenue were in
pari delicto. The taxpayer’s act of impugning its waivers after
benefitting from them was considered an act of bad faith:
In this case, respondent, after deliberately executing defective
waivers, raised the very same deficiencies it caused to avoid the tax
liability determined by the BIR during the extended assessment period.
It must be remembered that by virtue of these Waivers, respondent
was given the opportunity to gather and submit documents to
substantiate its claims before the [Commissioner of Internal Revenue]
during investigation. It was able to postpone the payment of taxes,
as well as contest and negotiate the assessment against it. Yet, after
enjoying these benefits, respondent challenged the validity of the
Waivers when the consequences thereof were not in its favor. In
other words, respondent’s act of impugning these Waivers after
benefiting therefrom and allowing petitioner to rely on the same is
an act of bad faith.38

This Court found the taxpayer estopped from questioning

the validity of its waivers:
Respondent executed five Waivers and delivered them to petitioner,
one after the other. It allowed petitioner to rely on them and did not
raise any objection against their validity until petitioner assessed

36
Id. at 90-91.
37
774 Phil. 428 (2015) [Per J. Velasco, Jr., Third Division].
38
Id. at 442.
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taxes and penalties against it. Moreover, the application of estoppel

is necessary to prevent the undue injury that the government would
suffer because of the cancellation of petitioner’s assessment of
respondent’s tax liabilities.39 (Emphasis in the original)
Parenthetically, this Court stated that when both parties
continued to deal with each other in spite of knowing and without
rectifying the defects of the waivers, their situation is “dangerous
and open to abuse by unscrupulous taxpayers who intend to
escape their responsibility to pay taxes by mere expedient of
hiding behind technicalities.”40
Estoppel similarly applies in this case.
Indeed, the Bureau of Internal Revenue was at fault when it
accepted respondent’s Waivers despite their non-compliance
with the requirements of RMO No. 20-90 and RDAO No. 05-01.
Nonetheless, respondent’s acts also show its implied admission
of the validity of the waivers. First, respondent never raised the
invalidity of the Waivers at the earliest opportunity, either in its
Protest to the PAN, Protest to the FAN, or Supplemental Protest
to the FAN.41 It thereby impliedly recognized these Waivers’ validity
and its representatives’ authority to execute them. Respondent
only raised the issue of these Waivers’ validity in its Petition for
Review filed with the Court of Tax Appeals.42 In fact, as pointed
out by Justice Del Rosario, respondent’s Protest to the FAN
clearly recognized the validity of the Waivers,43 when it stated:
This has reference to the Final Assessment Notice (“[F]AN”) issued
by your office, dated November 28, 2008. The said letter was received
by Transitions Optical Philippines[,] Inc. (TOPI) on December 5,
2008, five days after the waiver we issued which was valid until
November 30, 2008 had prescribed. 44 (Emphasis supplied)

39
Id. at 444-445.
40
Id. at 445.
41
Rollo, p. 124.
42
Id. at 184-188.
43
Id. at 91.
44
Id. at 167.
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Second, respondent does not dispute petitioner’s assertion 45

that respondent repeatedly failed to comply with petitioner’s
notices, directing it to submit its books of accounts and related
records for examination by the Bureau of Internal Revenue.
Respondent also ignored the Bureau of Internal Revenue’s request
for an Informal Conference to discuss other “discrepancies”
found in the partial documents submitted. The Waivers were
necessary to give respondent time to fully comply with the Bureau
of Internal Revenue notices for audit examination and to respond
to its Informal Conference request to discuss the discrepancies.46
Thus, having benefitted from the Waivers executed at its instance,
respondent is estopped from claiming that they were invalid
and that prescription had set in.
II
But, even as respondent is estopped from questioning the
validity of the Waivers, the assessment is nonetheless void
because it was served beyond the supposedly extended period.
The First Division of the Court of Tax Appeals found that
“the date indicated in the envelope/mail matter containing the
FAN and the FLD is December 4, 2008, which is considered
as the date of their mailing.”47 Since the validity period of the
second Waiver is only until November 30, 2008, prescription
had already set in at the time the FAN and the FLD were actually
mailed on December 4, 2008.
For lack of adequate supporting evidence, the Court of Tax
Appeals rejected petitioner’s claim that the FAN and the FLD
were already delivered to the post office for mailing on November
28, 2008 but were actually processed by the post office on
December 2, 2008, since December 1, 2008 was declared a
Special Holiday.48 The testimony of petitioner’s witness, Dario

45
Id. at 44-45.
46
Id. at 45.
47
Id. at 118.
48
Id. at 119.
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VOL. 821, NOVEMBER 22, 2017 679

Commissioner of Internal Revenue vs. Transitions Optical
Philippines, Inc.

A. Consignado, Jr., that he brought the mail matter containing

the FAN and the FLD to the post office on November 28, 2008
was considered self-serving, uncorroborated by any other
evidence. Additionally, the Certification presented by petitioner
certifying that the FAN issued to respondent was delivered to
its Administrative Division for mailing on November 28, 2008
was found insufficient to prove that the actual date of mailing
was November 28, 2008.
This Court finds no clear and convincing reason to overturn
these factual findings of the Court of Tax Appeals.
Finally, petitioner’s contention that the assessment required
to be issued within the three (3)-year or extended period provided
in Sections 203 and 222 of the National Internal Revenue Code
refers to the PAN is untenable.
Considering the functions and effects of a PAN vis à vis a
FAN, it is clear that the assessment contemplated in Sections
203 and 222 of the National Internal Revenue Code refers to
the service of the FAN upon the taxpayer.
A PAN merely informs the taxpayer of the initial findings
of the Bureau of Internal Revenue.49 It contains the proposed
assessment, and the facts, law, rules, and regulations or
jurisprudence on which the proposed assessment is based.50 It
does not contain a demand for payment but usually requires
the taxpayer to reply within 15 days from receipt. Otherwise,
the Commissioner of Internal Revenue will finalize an assessment
and issue a FAN.
The PAN is a part of due process.51 It gives both the taxpayer
and the Commissioner of Internal Revenue the opportunity to
settle the case at the earliest possible time without the need for
the issuance of a FAN.

49
TAX CODE, Sec. 228; Commissioner of Internal Revenue v. Menguito,
587 Phil. 234 (2008) [Per J. Austria-Martinez, Third Division].
50
Revenue Regulation No. 12-99, Sec. 3.1.2.
51
See Commissioner of Internal Revenue v. Metro Star Superama, Inc.,
652 Phil. 172 (2010) [Per J. Mendoza, Second Division].
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680 PHILIPPINE REPORTS

Commissioner of Internal Revenue vs. Transitions Optical
Philippines, Inc.

On the other hand, a FAN contains not only a computation

of tax liabilities but also a demand for payment within a
prescribed period.52 As soon as it is served, an obligation arises
on the part of the taxpayer concerned to pay the amount assessed
and demanded. It also signals the time when penalties and
interests begin to accrue against the taxpayer. Thus, the National
Internal Revenue Code imposes a 25% penalty, in addition to
the tax due, in case the taxpayer fails to pay the deficiency tax
within the time prescribed for its payment in the notice of
assessment.53 Likewise, an interest of 20% per annum, or such
higher rate as may be prescribed by rules and regulations, is to
be collected from the date prescribed for payment until the amount
is fully paid. 54 Failure to file an administrative protest within
30 days from receipt of the FAN will render the assessment
final, executory, and demandable.
WHEREFORE, the Petition is DENIED. The June 7, 2016
Decision and September 26, 2016 Resolution of the Court of
Tax Appeals En Banc in CTA EB No. 1251 are AFFIRMED.
SO ORDERED.
Bersamin* (Acting Chairperson), Martires, and Gesmundo,
JJ., concur.
Velasco, Jr., J., on official leave.

52
Revenue Regulation No. 12-99, Sec. 3.1.4.
53
TAX CODE, Sec. 248 (A)(3).
54
TAX CODE, Sec. 249.
*
Designated Acting Chairperson per S.O. No. 2514 dated November
8, 2017.