Source: http://lawlibrary.chanrobles.com/index.php?option=com_content&view=article&id=83900:58633&catid=1589&Itemid=566
Timestamp: 2019-04-24 15:49:37+00:00

Document:
BUREAU OF INTERNAL REVENUE, AS REPRESENTED BY THE COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. COURT OF APPEALS, SPOUSES ANTONIO VILLAN MANLY, AND RUBY ONG MANLY, Respondents.
This Petition for Certiorari2 under Rule 65 of the Rules of Court assails the Decision3 dated October 28, 2010 and the Resolution4 dated May 10, 2011 of the Court of Appeals (CA) in CA-G.R. SP No. 112479.
On April 27, 2005, petitioner Bureau of Internal Revenue (BIR) issued Letter of Authority No. 2001 000123878 authorizing its revenue officers to investigate respondent spouses’ internal revenue tax liabilities for taxable year 2003 and prior years.
Respondent spouses moved for reconsideration32 but the State Prosecutor denied the same in a Resolution33 dated November 29, 2007.
WHEREFORE, the assailed Resolution is hereby REVERSED and SET ASIDE. The Chief State Prosecutor is hereby directed to withdraw the Information filed against [respondent spouses] Antonio Villan Manly and Ruby Ong Manly, if one has been filed, and report the action taken thereon within ten (10) days from receipt hereto.
Petitioner sought reconsideration39 but Acting Justice Secretary Devanadera denied the same in a Resolution40 dated November 5, 2009.
Unfazed, petitioner filed a Petition for Certiorari41 with the CA imputing grave abuse of discretion on the part of Acting Justice Secretary Devanadera in finding no probable cause to indict respondent spouses for willful attempt to evade or defeat tax and willful failure to supply correct and accurate information for taxable years 2000, 2001 and 2003.
IN LIGHT OF ALL THE FOREGOING, the instant petition is hereby DENIED, and the assailed Resolution of the Secretary of Justice dated July 27, 2009 dismissing I.S. No. 2005-573 against private respondents, AFFIRMED. However, the dismissal of the instant case is without prejudice to the refiling by the BIR of a complaint sufficient in form and substance before the appropriate tribunal.
The CA likewise denied petitioner’s Motion for Reconsideration46 in its Resolution47 dated May 10, 2011.
A CATEGORICAL FINDING OF THE EXACT AMOUNT OF TAX DUE FROM THE PRIVATE RESPONDENT SHOULD BE SPECIFICALLY ALLEGED [AND THAT] SINCE THE BIR FAILED TO MAKE SUCH FINDINGS THEY CONSEQUENTLY FAILED TO BUILD A CASE FOR TAX EVASION AGAINST [RESPONDENT SPOUSES] DESPITE THE WELL ESTABLISHED DOCTRINE THAT IN TAX EVASION CASES, A PRECISE COMPUTATION OF THE [TAX] DUE IS NOT NECESSARY.
Petitioner imputes grave abuse of discretion on the part of the CA in affirming the dismissal of the criminal cases against respondent spouses. Petitioner contends that in filing a criminal case for tax evasion, a prior computation or assessment of tax is not required because the crime is complete when the violator knowingly and willfully filed a fraudulent return with intent to evade a part or all of the tax.49 In this case, an analysis of respondent spouses’ income and expenditure shows that their cash expenditure is grossly disproportionate to their reported or declared income, leading petitioner to believe that they underdeclared their income.50 In computing the unreported or undeclared income, which was likely sourced from respondent Antonio’s rental business,51 petitioner used the expenditure method of reconstructing income, a method used to determine a taxpayer’s income tax liability when his records are inadequate or inaccurate.52 And since respondent spouses failed to explain the alleged unreported or undeclared income, petitioner asserts that criminal charges for tax evasion should be filed against them.
Before discussing the merits of this case, we shall first discuss the procedural matter raised by respondent spouses that petitioner availed of the wrong remedy in filing a Petition for Certiorari under Rule 65 of the Rules of Court, instead of a Petition for Review on Certiorari under Rule 45.
In this case, after considering the arguments raised by the parties, we find that there is reason to give due course to the instant Petition for Certiorari as petitioner was able to convincingly show that the CA committed grave abuse of discretion when it affirmed the dismissal of the criminal charges against respondent spouses despite the fact that there is probable cause to indict them.
Grave abuse of discretion is defined as a capricious and whimsical exercise of judgment tantamount to lack or excess of jurisdiction, a blatant abuse of authority so grave and so severe as to deprive the court of its very power to dispense justice, or an exercise of power in an arbitrary and despotic manner, due to passion, prejudice or personal hostility, so patent and gross as to amount to an evasion or to a unilateral refusal to perform the duty enjoined or to act in contemplation of the law.65 Such is the situation in this case.
Having resolved the foregoing procedural matter, we shall now proceed to determine the main issue in this case.
SEC. 254. Attempt to Evade or Defeat Tax. – Any person who willfully attempts in any manner to evade or defeat any tax imposed under this Code or the payment thereof shall, in addition to other penalties provided by law, upon conviction thereof, be punished by a fine of not less than Thirty thousand pesos (P30,000.00) but not more than One hundred thousand pesos (P100,000.00) and suffer imprisonment of not less than two (2) years but not more than four (4) years: Provided, That the conviction or acquittal obtained under this Section shall not be a bar to the filing of a civil suit for the collection of taxes.
SEC. 255. Failure to File Return, Supply Correct and Accurate Information, Pay Tax, Withhold and Remit Tax and Refund Excess Taxes Withheld on Compensation. – Any person required under this Code or by rules and regulations promulgated thereunder to pay any tax, make a return, keep any record, or supply correct and accurate information, who willfully fails to pay such tax, make such return, keep such record, or supply such correct and accurate information, or withhold or remit taxes withheld, or refund excess taxes withheld on compensation at the time or times required by law or rules and regulations shall, in addition to other penalties provided by law, upon conviction thereof, be punished by a fine of not less than Ten thousand pesos (P10,000.00) and suffer imprisonment of not less than one (1) year but not more than ten (10) years.
And since the underdeclaration is more than 30% of respondent spouses’ reported or declared income, which under Section 248(B) of the NIRC constitutes as prima facie evidence of false or fraudulent return, petitioner recommended the filing of criminal cases against respondent spouses under Sections 254 and 255, in relation to Section 248(B) of the NIRC.
The amount of tax due from respondent spouses was specifically alleged in the Complaint-Affidavit.79 The computation, as well as the method used in determining the tax liability, was also clearly explained. The revenue officers likewise showed that the underdeclaration exceeded 30% of the reported or declared income.
Apparently, the revenue officers considered respondent Antonio’s rental business to be the likely source of their unreported or undeclared income due to his unjustified refusal to allow the revenue officers to inspect the building.
Moreover, by just looking at the tables presented by petitioner, there is a manifest showing that respondent spouses had underdeclared their income. The huge disparity between respondent Antonio’s reported or declared annual income for the past several years and respondent spouses’ cash acquisitions for the years 2000, 2001, and 2003 cannot be ignored. In fact, it makes us wonder how they were able to purchase the properties in cash given respondent Antonio’s meager income.
We must make it clear, however, that we are only here to determine probable cause. As to whether respondent spouses are guilty of tax evasion is an issue that must be resolved during the trial of the criminal case, where the quantum of proof required is proof beyond reasonable doubt.
Before we close, we must stress that our ruling in this case should not be interpreted as an unbridled license for our tax officials to engage in fishing expeditions and witch-hunting. They should not abuse their investigative powers, instead they should exercise the same within the bounds of the law. They must properly observe the guidelines in making assessments and investigative procedures to ensure that the constitutional rights of the taxpayers are well protected as we cannot allow the floodgates to be opened for frivolous and malicious tax suits.
WHEREFORE, the Petition is hereby GRANTED. The Decision dated October 28, 2010 and the Resolution dated May 10, 2011 of the Court of Appeals in CA-G.R. SP No. 112479 are hereby REVERSED and SET ASIDE. The Resolutions dated August 31, 2006 and November 29, 2007 of State Prosecutor Ma. Cristina A. Montera-Barot in I.S. No. 2005-573 finding probable cause to indict respondent spouses Antonio Villan Manly and Ruby Ong Manly for Violation of Sections 254 and 255 of the National Internal Revenue Code are hereby REINSTATED.
1Spouses Chua v. Hon. Ang, 614 Phil 416, 432 (2009); Callo-Claridad v. Esteban, G.R. No. 191567, March 20, 2013, 694 SCRA 185, 200; and Alberto v. Court of Appeals, G.R. Nos. 182130 and 182132, June 19, 2013, 699 SCRA 104, 129.
3 CA rollo, pp. 614-629; penned by Associate Justice Franchito N. Diamante and concurred in by Associate Justices Josefina Guevara-Salonga and Mariflor P. Punzalan Castillo.
13 Total Acquisition Cost; id. at 49.
20 SEC. 254. Attempt to Evade or Defeat Tax. – Any person who willfully attempts in any manner to evade or defeat any tax imposed under this Code or the payment thereof shall, in addition to other penalties provided by law, upon conviction thereof, be punished by a fine of not less than Thirty thousand pesos (P30,000.00) but not more than One hundred thousand pesos (P100,000.00) and suffer imprisonment of not less than two (2) years but not more than four (4) years: Provided, That the conviction or acquittal obtained under this Section shall not be a bar to the filing of a civil suit for the collection of taxes.
21 SEC. 255. Failure to File Return, Supply Correct and Accurate Information, Pay Tax, Withhold and Remit Tax and Refund Excess Taxes Withheld on Compensation. – Any person required under this Code or by rules and regulations promulgated thereunder to pay any tax, make a return, keep any record, or supply correct and accurate information, who willfully fails to pay such tax, make such return, keep such record, or supply such correct and accurate information, or withhold or remit taxes withheld, or refund excess taxes withheld on compensation at the time or times required by law or rules and regulations shall, in addition to other penalties provided by law, upon conviction thereof, be punished by a fine of not less than Ten thousand pesos (P10,000.00) and suffer imprisonment of not less than one (1) year but not more than ten (10) years.
(B) In case of willful neglect to file the return within the period prescribed by this Code or by rules and regulations, or in case a false or fraudulent return is wilfully made, the penalty to be imposed shall be fifty percent (50%) of the tax or of the deficiency tax, in case any payment has been made on the basis of such return before the discovery of the falsity or fraud: Provided, That a substantial underdeclaration of taxable sales, receipts or income, or a substantial overstatement of deductions, as determined by the Commissioner pursuant to the rules and regulations to be promulgated by the Secretary of Finance, shall constitute prima facie evidence of a false or fraudulent return: Provided, further, That failure to report sales, receipts or income in an amount exceeding thirty percent (30%) of that declared per return, and a claim of deductions in an amount exceeding (30%) of actual deductions, shall render the taxpayer liable for substantial underdeclaration of sales, receipts or income or for overstatement of deductions, as mentioned herein.
29 Id. at 290-303. The Resolution bears the recommending approval of Assistant Chief State Prosecutor Miguel F. Gudio, Jr. and the approval of Chief State Prosecutor Jovencito R. Zuño.
30 Id. at 463-481. Seven separate Informations were filed against respondent spouses before the Court of Tax Appeals, the Regional Trial Court, and the Metropolitan Trial Court, which were subsequently dismissed without prejudice (See pp. 496-498, 542-546, 556, 558-564, 565, and 730-731).
37 Id. at 374-383; penned by Acting Justice Secretary Agnes VST Devanadera.
41 CA rollo, pp. 1-31.
58Chua v. Santos, 483 Phil. 392, 400-401 (2004).
59Beluso v. Commission on Elections, G.R. No. 180711, June 22, 2010, 621 SCRA 450, 456.
60Teh v. Tan, G.R. No. 181956, November 22, 2010, 635 SCRA 593, 604.
61Associated Anglo-American Tobacco Corporation v. Court of Appeals, G.R. No. 167237, April 23, 2010, 619 SCRA 250, 257; Bausa v. Heirs of Juan Dino, 585 Phil. 526, 532 (2008); Galzote v. Briones, G.R. No. 164682, September 14, 2011, 657 SCRA 535, 541; Santos v. Orda, Jr., G.R. No. 189402, May 6, 2010, 620 SCRA 375, 384.
62Elma v. Jacobi, G.R. No. 155996, June 27, 2012, 675 SCRA 20, 56-57.
63Callo-Claridad v. Esteban, supra note 1 at 189.
64Elma v. Jacobi, supra note 62 at 57.
65People v. Lagos, G.R. No. 184658, March 6, 2013, 692 SCRA 602, 608-609.
66 186 Phil. 604 (1980).
69 327 Phil. 1 (1996).
71Chamber of Real Estate and Builders’ Associations, Inc. v. Romulo, G.R. No. 160756, March 9, 2010, 614 SCRA 605, 627.
72Li Yao v. Collector of Internal Revenue, 119 Phil. 207, 222 (1963).
73Collector of Internal Revenue v. Jamir, 114 Phil. 650, 651-652 (1962).
74 See Annex “A” of Revenue Memorandum Order No. 15-95, Guidelines and Investigative Procedures in the Development of Tax Fraud Cases for Internal Revenue Officers.
78 CA rollo, p. 627.
81Chamber of Real Estate and Builders’ Associations, Inc. v. Romulo, supra note 71.
82Advincula v. Court of Appeals, 397 Phil. 641, 650 (2000).
83Alberto v. Court of Appeals, supra note 1 at 130-131.
84Aguilar v. Department of Justice, G.R. No. 197522, September 11, 2013, 705 SCRA 629, 639.

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