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CIR Vs Fitness by Design - Case Digest

The document discusses a case between CIR vs. Fitness By Design regarding the validity of a Final Assessment Notice (FAN) issued in 2002 for tax deficiencies relating to Fitness By Design's 1995 tax return. CIR argued the FAN was valid and the assessment period had not expired, while Fitness By Design argued the assessment period had expired and the FAN was invalid because it lacked a definite payment due date. The CTA initially ruled in favor of Fitness By Design that the assessment period had expired. Upon appeal, the CTA En Banc affirmed this ruling. The CIR then appealed to the Supreme Court.

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221 views2 pages

CIR Vs Fitness by Design - Case Digest

The document discusses a case between CIR vs. Fitness By Design regarding the validity of a Final Assessment Notice (FAN) issued in 2002 for tax deficiencies relating to Fitness By Design's 1995 tax return. CIR argued the FAN was valid and the assessment period had not expired, while Fitness By Design argued the assessment period had expired and the FAN was invalid because it lacked a definite payment due date. The CTA initially ruled in favor of Fitness By Design that the assessment period had expired. Upon appeal, the CTA En Banc affirmed this ruling. The CIR then appealed to the Supreme Court.

Uploaded by

Karen Mae Servan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Topic: Assessment/Prescription

CIR vs. Fitness By Design, Inc.


GR No. 215957, November 9, 2016

Important Concepts:
 Final Assessment Notice (FAN) is not valid if it does not contain a definite due date for payment by the
taxpayer;

 The prescriptive period in making assessment depends upon whether a tax return was filed or whether the
tax return filed was either false or fraudulent

Codal Provisions:
 Sec. 228, 222

FACTS:

Fitness by Design Inc (Fitness) filed its 1995 ITR on April 11, 1996 which allegedly, was in its pre-operating stage
during the said period. In 2002, Fitness received a FAN assessing it for tax deficiency amounting to P10,647,529.69.
The said FAN provided for the complete details of the deficiency taxes. It further imposed 50% surcharge and 20%
interest pursuant to Secs. 248 and 249 (B) of NIRC. It also indicated that the interest and the total amount due will
have to be adjusted if paid prior or beyond April 15, 2004.

Fitness filed its protest to FAN contending that the period to assess had already prescribed and that the assessment
was without basis. CIR then issued a Warrant of Distraint and/or Levy which prompted Fitness to file a petition for
Review with the CTA First Division. CIR countered that its right to assess has not yet prescribed since Fitness’ 1995
ITR was false and fraudulent, hence it may be assessed at anytime within 10 years.

CTA First Division granted Fitness’ Petition on the ground that the period for assessment already prescribed. On
appeal, CTA En Banc ruled in favor of Fitness and affirmed the Decision of CTA First Division. In this instant
Petition, CIR argued that the FAN was valid as it was compliant to Sec 228 of NIRC and RR 12-99 stating that thye
taxpayer shall be informed in writing of the facts, jurisprudence and law on which the assessment is based. CIR
further argued that the said law does not provide that due date for payment is a substantive requirement for the
validity of the FAN.

Fitness for its part, argued that the FAN was merely a request and not a demand for payment of tax liabilities. The
FAN cannot be considered as a final deficiency assessment because it deprived

ISSUE:

1. WON the FAN issued against Fitness is a valid assessment;


2. WON the period to assess already prescribed.

RULING:

Issue No. 1 – Power to make an Assessment

CTA has no jurisdiction to make an assessment in the first instance since its jurisdiction is merely appellate. The
power to assess national internal revenue taxes is lodged with the BIR as provided under Sec. 2 and Sec. 6 of the
NIRC. The BIR has to make an assessment first and the taxpayer is allowed to dispute such assessment. Should it be
unfavorable to the taxpayer or the BIR fails to act on the dispute, the BIR’s decision or inaction may be brought to
the CTA on appeal. That is when the CTA acquires jurisdiction over the case.
The CTA reviews the correctness of the BIR’s assessment and decision where it has to make its own determination
of the tax liability. However, the CTA cannot make such determination before the BIR makes its assessment and
before a dispute is brought to it on appeal.
NIRC also vests jurisdiction over BIR’s inaction on a taxpayer’s claim for refund. The CTA may take cognizance on
cases that have nothing to do with assessments or decisions such as claim for refund where the BIR fails to act.

In this case, there was no assessment but the BIR failed to act on the claim for refund. The inaction is within the
CTA’s jurisdiction. Truly, the CTA has no assessment powers, but in stating that SMI-Ed is liable for CGT, it was not
making assessment but determining the proper category of tax that the petitioner should have paid. This
determination is an incidental matter necessary for the resolution of WON SMI-Ed is entitled to refund.

However, any liability in excess of the refundable amount may not be collected in a case resolving issue of
entitlement to refund. It should be subject to assessment procedures and rules on prescription.

Issue No. 2 – Prescription

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