[ GR No. 197590, Nov 24, 2014 ]BIR v. CA
FACTS:
Respondent Antonio Villan Manly is a stockholder and the
Executive Vice-President of Standard Realty Corporation, a family-owned
corporation. He is also engaged in rental business.
On April 27, 2005, the BIR issued a Letter of Authority authorizing
its revenue officers to investigate respondent spouses' internal revenue tax
liabilities for taxable year 2003 and prior years.
On June 6, 2005, petitioner issued a letter to respondent
spouses requiring them to submit documentary evidence to substantiate the
source of their cash purchase of a 256-square meter log cabin in Tagaytay City
worth P17,511,010.00. Respondent spouses, however, failed to comply with the
letter.
Despite Antonio’s modest declared income, respondent spouse
were able to purchase in cash a luxurious vacation house in Tagatay City, a
Toyota RAV and a Toyota Prado.
Since respondent spouses failed to show the source of their
cash purchases, the revenue officers concluded that respondent Antonio's ITRs
were underdeclared. And since the underdeclaration exceeded 30% of the reported
or declared income, it was considered a prima facie evidence of fraud with
intent to evade the payment of proper taxes due to the government. The revenue
officers, thus, recommended the filing of criminal cases against respondent
spouses.
Respondent spouses denied the accusations hurled against
them and alleged that they used their accumulated savings from their earnings
for the past 24 years in purchasing the properties. They also contended that
the criminal complaint should be dismissed because petitioner failed to issue a
deficiency assessment against them.
ISSUE:
Whether or not respondent spouses should be charged with tax
evasion
RULING:
In Ungab v. Judge Cusi, Jr., the Court ruled that tax
evasion is deemed complete when the violator has knowingly and willfully filed
a fraudulent return with intent to evade and defeat a part or all of the tax.
Corollarily, an assessment of the tax deficiency is not required in a criminal
prosecution for tax evasion. However, in Commissioner of Internal Revenue v.
Court of Appeals, the Court clarified that although a deficiency assessment is
not necessary, the fact that a tax is due must first be proved before one can
be prosecuted for tax evasion.
In the case of income, for it to be taxable, there must be a
gain realized or received by the taxpayer, which is not excluded by law or
treaty from taxation. The government is allowed to resort to all evidence or
resources available to determine a taxpayer's income and to use methods to
reconstruct his income. A method commonly used by the government is the
expenditure method, which is a method of reconstructing a taxpayer's income by
deducting the aggregate yearly expenditures from the declared yearly income.
The theory of this method is that when the amount of the money that a taxpayer
spends during a given year exceeds his reported or declared income and the
source of such money is unexplained, it may be inferred that such expenditures
represent unreported or undeclared income.
In the case at bar, petitioner used this method to determine
respondent spouses' tax liability. Petitioner deducted respondent spouses'
major cash acquisitions from their available funds.
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. 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.
Respondent spouses' defense that they had sufficient savings
to purchase the properties remains self-serving at this point since they have
not yet presented any evidence to support this. And since there is no evidence
yet to suggest that the money they used to buy the properties was from an
existing fund, it is safe to assume that that money is income or a flow of
wealth other than a mere return on capital. It is a basic concept in taxation
that income denotes a flow of wealth during a definite period of time, while
capital is a fund or property existing at one distinct point in time.
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. There is
therefore, probable cause to indict respondent spouses for tax evasion as
petitioner was able to show that a tax is due from them.
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