SECOND DIVISION

[C.T.A. CRIM. CASE NO. O-408. September 4, 2019.]

For: Violation of Section 254 in relation to Sections 253 and 256 of the National
Internal Revenue Code, as amended (Attempt to Evade or Defeat Tax)

PEOPLE OF THE PHILIPPINES, plaintiff, vs. ENVIROAIRE, INC.,

represented by TYRONE N. ONG & ARLENE CHUA, accused.

DECISION

CASTAÑEDA, JR., J : p

STATEMENT OF THE CASE

This is a criminal case filed against the accused for Violation of Section 254 in
relation to Sections 253 and 256 of the National Internal Revenue Code of 1997
(NIRC), as amended (Attempt to Evade or Defeat Tax) under the Court's criminal
jurisdiction in Section 7 (b) (1) of Republic Act (RA) No. 1125, as amended by RA
No. 9282 and 9503 1(1) and under Rule 4 Section 3 (b) (1) of the Revised Rules of
the Court of Tax Appeals. 2(2)

STATEMENT OF THE FACTS

The Parties

Plaintiff, People of the Philippines, is represented by the Legal Division of the

Bureau of Internal Revenue, Revenue Region No. 7 under the Commissioner of
Internal Revenue. 3(3)

Accused Enviroaire, Inc. (Enviroaire) is a domestic corporation registered with

the Securities and Exchange Commission (SEC) on March 13, 2002 4(4) and Bureau
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 of Internal Revenue (BIR) Revenue District No. (RDO) 041-Mandaluyong with TIN
No. 218-084-255-000. 5(5) It is primarily engaged in the business of emission testing
and supply of equipment and other related products, including parts and accessories.
6(6)

Accused Tyrone N. Ong (also known as Tyrone N. Arejola) 7(7) and Arlene
Chua are the corporate officers of Enviroaire, as President and Treasurer,
respectively. 8(8)

The Relevant Facts

On April 26, 2012, pursuant to an audit investigation on the purchase of spare

parts and repair and maintenance of light armored vehicles (LAVs) by the Philippine
National Police (PNP) under COA Office Order No. 2011-866 dated December 29,
2011, the Commission on Audit (COA), through COA Director Leonor D. Boado,
issued Subpoena Duces Tecum, which ordered the RDO 41 of Mandaluyong to issue
a Certification as to whether the following amounts were included in the total gross
sales of Enviroaire in its tax returns for calendar year (CY) 2007 and 2008. 9(9)

Official Amount Date Invoice Nos.

Receipt Nos.
7760 P85,179,953.22 January 17, 2008 ER-07-13 to ER-07-25 issued in 2007
7761 P140,531,250.01 January 17, 2008 ER-07-12 issued in 2007
Total P225,711,203.23

On May 14, 2012, the Fraud Audit and Investigation Office (FAIO), Legal
Service Sector (LSS) of COA received a Certification sent by RDO 41 in compliance
with the subpoena. The Certification, addressed to COA Director Leonor D. Boado,
stated that Enviroaire declared gross sales amounting to P12,611,752.93 for taxable
year 2008 per Income Tax Return (BIR Form 1702) and that the aggregate amount of
P225,711,203.23 stated in the Official Receipt Nos. 7760 and 7761 was not included
in Enviroaire's declared gross income. 10(10)

Accordingly, a Letter of Authority (LOA) No. 211-2012000000046 SN:

eLA201100018418 dated June 6, 2012 was issued by Commissioner of Internal
Revenue (CIR) Kim S. Jacinto-Henares authorizing Revenue Officer (RO) Enrico
Omaña and Group Supervisor Jose Pazcoguin, Jr. to examine Enviroaire's books of
accounts and other accounting records under the Run After Tax Evaders (RATE)
Program of the BIR. 11(11) The LOA was received by Enviroraire on June 6, 2012

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 through a certain Leinor Mojica. 12(12)

During the investigation the examiners obtained certified true copies the
following documents relevant to the investigation from the SEC, BIR, the
Ombudsman and COA: 13(13)

Exhibit No. Description

"P-4" SEC Certificate of Incorporation of Enviroaire, Company
Registration No. A200204249 issued on March 13, 2002
"P-4-a" Enviroaire's Articles of Incorporation
"P-5" Enviroaire's General Information Sheet for the Year 2007
"P-6" Enviroaire's Amended Annual Income Tax Return (BIR
Form 1702) for CY 2007
"P-7" Enviroaire's Return Information on the Tax Return for CY
2008
"P-8" Enviroaire's Audited Comparative Financial Reports for CY
2007 and 2008
"P-9" RDO 41 Certification dated May 15, 2012
"P-10" to "P-23" Sales in invoices issued by Enviroaire to PNP, ER-07-12 to
ER-07-25 issued in 2007
"P-24" PNP Check No. 457825 dated December 26, 2007 pay to the
order of Enviroaire, Inc. in the amount of P85,179,953.22
"P-24-a" Enviroaire, Inc.'s Official Receipt No. 7760 dated January
17, 2008 in the amount of P85,179,953.22
"P-25" PNP Check No. 457991 dated December 27, 2007 pay to the
order of Enviroaire, Inc. in the amount of P140,531,250.01
"P-25-a" Enviroaire, Inc.'s Official Receipt No. 7761 dated January
17, 2008 in the amount of P140,531,250.01

Based on the investigation, a comparison of the gross sales declared by

Enviroaire in its ITR for CY 2007 (P27,585,555.35) 14(14) with the amount paid by
the PNP for services rendered and goods sold (P225,711,203.23) 15(15) allegedly
disclosed substantial underdeclaration of sales. 16(16)

On June 7, 2012, after concluding the investigation of Enviroaire, CIR Kim

Jacinto-Henares referred the case to the Department of Justice (DOJ) for preliminary
investigation and the filing of the appropriate information in court. 17(17) Thus, on
even date, the complaint-affidavit of the examiners were filed with the DOJ. 18(18)

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 In a Resolution dated February 24, 2014, the Prosecutor General approved the
recommendation that charges be filed against Tyrone N. Ong and Arlene Chua,
President and Treasurer, respectively, for violation of Section 254 (Attempt to Evade
or Defeat Tax) and 255 (Failure to Supply Correct and Accurate Information) in
relation to Sections 253 and 256 of the NIRC, as amended. 19(19)

After filing the criminal complaint with the DOJ, the examiners also forwarded
the case docket to the Assessment Division for the preparation of the Preliminary
Assessment Notice (PAN) and the Final Assessment Notice (FAN) with Formal
Letter of Demand for the collection of deficiency internal revenue taxes. 20(20)

CTA Proceedings

On June 10, 2014, an Information 21(21) was filed before this Court, accusing
Tyrone N. Ong and Arlene Chua, Enviroaire's President and Treasurer, respectively,
with an Attempt to Evade or Defeat Tax for taxable year 2007, in violation of Section
254 in relation to Sections 253 and 256 of the NIRC, as amended.

On June 24, 2014, the accused moved for an Omnibus Motion for Judicial
Determination of Probable Cause and to Hold in Abeyance Issuance of Warrant of
Arrest and/or to Recall Warrant of Arrest Issued Against Accused Tyrone N. Ong and
Arlene Chua. 22(22) The accused prayed for the outright dismissal of the case
claiming that there is no evidence to establish probable cause against them.

Meanwhile, in the Resolution dated July 1, 2014, 23(23) the Court found that
the:

• Records attached to, and in support of, the Information dated June
10, 2014 were mere photocopies; and,

• Approval of the Commissioner of Internal Revenue (CIR) to file

the criminal case under Section 220 24(24) of the NIRC, as
amended, was not submitted.

Thus, the Court held in abeyance the determination of probable cause while
ordering the prosecution to comply.

On July 21, 2014, the prosecution filed a Compliance 25(25) submitting

therewith the documents required by the Court.

In a Resolution dated August 1, 2014, 26(26) after a careful evaluation of the

Information and its supporting documents, the Court found probable cause to issue
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 warrants of arrest against accused Tyrone N. Ong and Arlene Chua. Accordingly,
Warrants of Arrest 27(27) against the accused were issued on August 12, 2014.

However, as per the Return Slip 28(28) dated September 1, 2014, Warrant
Officer SPO3 Romeo P. Rico claimed that the accused could not be found at the
given addresses. As such, in the Resolution 29(29) dated September 22, 2014, the
Court ordered the issuance of alias warrants of arrest against the accused.
Consequently, Alias Warrants of Arrest 30(30) were issued against Tyrone N. Ong
and Arlene Chua on October 8, 2014.

On February 24, 2015, the prosecution filed a Motion for Leave of Court to
File Amended Information 31(31) to implead the corporation Enviroaire, where the
accused are the responsible officers thereof.

Finding merit, the Motion was granted by this Court as per the Resolution
32(32) dated March 10, 2015, thereby admitting the attached Amended Information.

As such, the accusatory portion of the Amended Information 33(33) dated

January 12, 2015, reads:

"That on or about April 15, 2008, in the city of Mandaluyong,

Philippines, and within the jurisdiction of this Honorable Court, the Accused
TYRONE N. ONG and ARLENE CHUA, being the President and Treasurer,
respectively, of ENVIROAIRE, INC., a domestic corporation registered as a
taxpayer with Revenue District Office (RDO) No. 041-Mandaluyong City under
BIR Tax Identification No. 218-084-255-00, and at the time required by law,
rules and regulations to pay taxes for the said corporation, in conspiracy with
one another, did then and there willfully, unlawfully and feloniously attempt to
evade or defeat the payment of correct income tax, as said accused
under-declared ENVIROAIRE, INC.'s gross sales and income for taxable year
2007 by not including the aggregate amount of P225,711,203.23 as shown in
Official Receipt Nos. 7760 and 7761 issued by ENVIROAIRE, INC. to PNP
Finance Center, in order to conceal ENVIROAIRE, INC.'s true income which
resulted to its basic deficiency income tax of Seventy-Nine Million Three
Hundred Eighty-Three Thousand Two Hundred Twenty-Six Pesos and Ten
Centavos (P79,383,226.10), more or less, for taxable year 2007, exclusive of
surcharge and interests, to the damage and prejudice of the government.

CONTRARY TO LAW."

In a Resolution dated October 15, 2015, 34(34) in view of the Amended

Information and considering that the accused were still at-large, the Court ordered the
issuance of new warrants of arrest against Tyrone N. Ong and Arlene Chua.
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 Accordingly, new Warrants of Arrest 35(35) were issued on October 20, 2015.

However, in the Officer's Return of Warrant of Arrest 36(36) dated November

13, 2015, Police Chief Inspector Rogelio DB De Lumen, Jr., Chief, Warrant and
Subpoena Section of the Criminal Investigation and Detection Unit (WSS-CIDU) of
the Quezon City Police District, claims that the accused cannot be located or found in
the given addresses. Therefore, in the Resolution 37(37) dated December 18, 2015,
this Court again ordered the issuance of alias warrants of arrest against the accused.
Hence, Alias Warrants of Arrest 38(38) against Tyrone N. Ong and Arlene Chua were
again issued on January 14, 2016.

Meanwhile, in the Return of Warrant of Arrest 39(39) dated January 21, 2016,
PO3 Johnny N. Montilla, Warrant Officer of the Madaluyong City Police Station,
stated that the warrants have been served but the subject persons, however, cannot be
found at the given address. The same was noted by this Court in the Resolution
40(40) dated March 1, 2016, which thereby reiterated the issued alias warrants of
arrest.

Thereafter, on March 10, 2016, the accused Tyrone N. Ong and Arlene Chua,
with the assistance of counsel de parte, Atty. J. Ricardo H. Moreño, voluntarily
appeared and submitted themselves to the jurisdiction of this Court. The accused
posted the required bail, via cash bond, for their provisional liberty in the amount of
P20,000.00 each. As such, in the Order 41(41) dated March 10, 2016, this Court
accepted and approved the accused's cash bond thereby lifting and setting aside the
warrants of arrest issued on October 20, 2015 and alias warrants of arrest dated
January 14, 2016. Arraignment of the accused was also set on April 6, 2016 at 9:00
a.m.

After failing to appear in court several times, the accused Tyrone N. Ong and
Arlene Chua, assisted by their counsel de parte, Atty. Yasser Ismail A. Abbas, were
arraigned on June 8, 2016 and entered their pleas of "NOT GUILTY" to the crime
charged. 42(42) After which preliminary conference and pre-trial were scheduled on
July 13, 2016 and September 7, 2016, respectively.

Then, on June 23, 2016, the accused filed a Motion to Dismiss Based on
Forum Shopping. 43(43) The accused prayed that the present case be dismissed
considering that there is another pending action before the CTA Third Division
involving the same parties and originating from the same transaction.

In the meantime, on June 28, 2016, a PAN for taxable year 2007 was issued by
the BIR. It was served by registered mail to Enviroaire's registered addresses:
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 • No. 40 Shaw Boulevard, Bagong Silang, Mandaluyong City; and,

• 8th Floor Galleria Corporate Center, EDSA corner Ortigas

Avenue, Quezon City.

The PAN was also mailed to the accused's address on record: 1440 J. Abad
Santos Street, Tondo, Manila. 44(44)

On July 26, 2016, the FAN and the Formal Letter of Demand (FLD) for
taxable year 2007 were issued and the same were also served by registered mail to the
corporation and the accused officers to their registered addresses. 45(45)

In the Resolution dated September 5, 2016, 46(46) the Court denied the
accused's motion to dismiss explaining that even though originating from the same
transaction, a single act or incident might offend two or more entirely distinct and
unrelated provisions of law, thereby justifying the filing of several charges against the
accused. 47(47)

On September 23, 2016, the accused filed a Motion for Reconsideration of the
Resolution Denying Accused-Movant's Motion to Dismiss. 48(48) The accused
insists that the simultaneous filing of criminal cases against them for violation of
Sections 254 and 255 of the NIRC, as amended, based on the same act constitutes
forum-shopping.

Meanwhile, on October 18, 2016, accused Tyrone N. Ong filed a Very Urgent
Motion for Leave to Travel Abroad 49(49) praying that he be permitted to travel to
Beijing, China on October 20-21, 2016 upon posting of travel bond. Nevertheless, in
the Resolution 50(50) dated October 26, 2016, accused Tyrone N. Ong's motion was
rendered moot and academic considering that there was no reasonable time for the
prosecution to file their comment and also because the intended dates of travel have
already lapsed.

On December 20, 2016, a Resolution 51(51) was promulgated by this Court

denying the accused's Motion for Reconsideration of the Resolution Denying
Accused-Movant's Motion to Dismiss. The Court reiterated its previous ruling that
violation of Sections 254 and 255 required different elements for their commission
which are considered separate acts.

Undaunted, the accused filed a Petition for Certiorari 52(52) with the CTA
Court En Banc on February 17, 2017. The accused elevated the matter to the Court
En Banc claiming that the CTA First Division acted with grave abuse of discretion

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 tantamount to lack or excess of jurisdiction when it denied their motion to dismiss
based on forum shopping.

Shortly thereafter, on February 20, 2017, the accused filed a Motion to

Withdraw Petition for Certiorari 53(53) stating that pursuant to the case of Santos v.
People of the Philippines (585 Phil. 117, 2008) the accused withdraws the Petition
and will instead refile it with the Supreme Court.

Meanwhile, on September 2, 2016, the prosecution filed their Plaintiff's

Pre-Trial Brief 54(54) and, an Amended Pre-Trial Brief 55(55) was subsequently
filed on March 21, 2017. The accused, on the other hand, filed their Pre-Trial Brief
56(56) on March 21, 2017.

After several resetting, the pre-trial conference was held on July 5, 2017, and
the parties were given a period of fifteen (15) days within which to submit their Joint
Stipulation of Facts and Issues (JSFI). 57(57)

Thus, on July 20, 2017, the parties filed their Joint Stipulation of Facts and
Issues, 58(58) which contained, among others, the following admitted facts:

1. The jurisdiction of the Honorable Court over the persons of the

accused.

2. The jurisdiction of the Honorable Court over the offense charged.

3. The identities of the accused, Tyrone N. Ong and Arlene Chua.

4. When the BIR filed the instant case against the accused with the
Department of Justice, it has not yet issued the Preliminary
Assessment Notice (PAN) and the Final Assessment Notice with
Formal Letter of Demand (FAN/FLD) against Enviroaire, Inc.

In the Resolution 59(59) dated August 4, 2017, the Court approved the parties'
JSFI and deemed the pre-trial conference terminated. Consequently, a Pre-Trial Order
60(60) was issued on August 18, 2017.

Prosecution's Evidence

As trial ensued, the prosecution presented and offered the testimony of the
following witnesses: Revenue Officer (RO) Enrico L. Omaña, Atty. Joffre Gil C.
Zapata and Atty. Alma G. Cagat-Cagat.

The prosecutions' first witness, RO Enrico L. Omaña, is a Special

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 Investigator I previously assigned at the Regional Investigation Division of the
BIR-Revenue Region No. 7, Quezon City. His testimony was primarily offered to
prove that Enviroaire sold goods/services to the PNP and that it did not declare the
said sales in its Annual Income Tax Returns for taxable year 2007 and 2008.

In his Judicial Affidavit 61(61) dated August 31, 2017, RO Omaña testified
that as a Special Investigator, he was authorized to investigate taxpayers for internal
revenue tax purposes, submit reports thereon, and recommend their prosecution for
criminal violations of the provisions of the NIRC, as amended, when warranted. His
authority to investigate Enviroaire was derived from the LOA dated June 6, 2012
issued by then Commissioner Kim S. Jacinto-Henares, authorizing him and Jose
Pazcoguin, Jr. to examine Enviroaire's books of accounts and other accounting
records for the period January 1, 2007 to December 31, 2007. The said LOA was
served to the Company on the same day it was issued.

Witness RO Omaña also explained that Enviroaire was the subject of

investigation because of a Subpoena Duces Tecum dated April 26, 2012 issued by
Director Leonor D. Boado of FAIO-COA. Director Boado ordered RDO
41-Mandaluyong City, to issue a Certification as to whether the amounts of
P85,179,953.22 under Official Receipt No. 7760 dated January 17, 2008, and
P140,531,250.01 under Official Receipt No. 7761 dated January 17, 2008, which
were issued to the PNP Finance Center, were included in the total gross sales declared
by Enviroaire in its tax returns filed for calendar years 2007 or 2008.

As such, RDO 41-Mandaluyong City issued a Certification stating that

Enviroaire had declared gross sales amounting to P12,611,752.93 for taxable year
2008 and that the aggregate amount of P225,711,203.23 under Official Receipt Nos.
7760 and 7761 was not included in the declared gross sales.

RO Omaña further testified that in the course of their investigation, they found
that by comparing the gross sales declared by Enviroaire in its ITR for taxable year
2007 with the amount paid by the PNP for services rendered and goods sold,
Enviroaire substantially underdeclared its sales that year.

In fact, as proof of Enviroaire's gross sales to the PNP, it issued fourteen (14)
invoices to the PNP: Invoice Nos. ER-07-012, ER-07-013, ER-07-014, ER-07-015,
ER-07-016, ER-07-017, ER-07-018, ER-07-019, ER-07-020, ER-07-021, ER-07-022,
ER-07-023, ER-07-024 and ER-07-025.

Furthermore, RO Omaña stated that COA Director Boado furnished them

certified photocopies of Enviroaire's Official Receipt Nos. 7760 and 7761 in the
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 amounts of P85,179,953.22 and P140,531,250.01, respectively, both dated January
17, 2008; and, also, duplicate copies of Check Nos. 457825 dated December 26, 2007
and 457991 dated December 27, 2007 duly issued by PNP.

RO Omaña also confirmed that Enviroaire, with Tax Identification Number

(TIN) 218-084-255-000 and with registered address at 140 Shaw Boulevard, Bagong
Silang, Mandaluyong City, is a registered value added tax (VAT) taxpayer of RDO
41-Mandaluyong City. Omaña testified that names of the accused Tyrone N. Ong and
Arlene Chua with their respective positions as President and Treasurer of Enviroaire,
Inc. with their corresponding signatures are found in the Statement of Management's
Responsibility for Financial Statements.

After concluding their investigation on June 7, 2012, RO Omaña and his team
filed a criminal complaint with the DOJ charging Enviroaire and its officers, accused
Tyrone N. Ong, as President, and Arlene Chua, as Treasurer, for violation of Sections
254 and 255, in relation to Sections 253 and 256 of the NIRC, as amended.

After filing the criminal case, the case docket was forwarded to the Assessment
Division for the preparation of the PAN and Formal FLD/FAN for the collection of
deficiency internal revenue taxes of Enviroaire.

Lastly, RO Omaña stated that a PAN was issued on June 28, 2016 and was
served by registered mail to Enviroaire, Inc.'s registered addresses: No. 40 Shaw
Boulevard, Bagong Silang, Mandaluyong City; and, 8/F Galleria Corporate Center,
EDSA corner Ortigas Avenue, Quezon City. Moreover, a copy of which was also
mailed to the accused's address on records: 1440 J. Abad Santos Street, Tondo,
Manila.

Thereafter, the FAN and FLD for taxable year 2007 were issued on July 26,
2016 and were served by registered mail to the addresses above mentioned.

On cross examination, RO Omaña admitted that he was assigned at BIR

Revenue Region No. 7, Quezon City when the Subpoena Duces Tecum dated April
26, 2012 by COA was issued. Furthermore, he said that he did not personally receive
the Certification issued by the RDO 41-Mandaluyong City, or have personal
knowledge as to the Certification issued by RDO-Mandaluyong City to the COA. He
was only authorized to investigate Enviroaire for the year 2007 pursuant to a LOA
which was served on June 6, 2012 and, incidentally, filed the criminal complaint with
the DOJ the next day, on June 7, 2012. RO Omaña also confirmed that four (4) years
had passed from the time the accused filed their ITR up to when the LOA was issued
and that the PAN and the FAN for 2007 were respectively issued only on June 28,
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 2016 and July 26, 2016 which were eight (8) years after the ITR was filed and four
(4) years after the present criminal case was filed against Enviroaire and its officers.

On re-direct examination, however, RO Omaña clarified that the case was filed
with the DOJ since there was underdeclaration of more than 30% of the income of
Enviroaire.

As to the next prosecution witness, Atty. Alma G. Cagat-Cagat was

previously designated as the Officer-in-Charge (OIC) of the Records Division of the
Office of the Special Prosecutor (OSP), Ombudsman. Her testimony was primarily
offered to prove that she certified as true copies of the originals Enviroaire's Invoice
No. ER-07-012 and Official Receipt No. 7761. In her Judicial Affidavit dated
December 1, 2017, 62(62) she testified that, as OIC at that time, her duties and
responsibilities included: (a) acting as custodian of all the files, documents, records
forwarded for prosecution of cases being handled by the OSP; (b) certifying the
reproduction of the files, records, documents under her custody; (c) supervision and
monitoring over the operation of the Records Division; and, (d) performing any tasks
assigned to her from time to time. She further stated that she recalled having certified
as true copies of the originals, Invoice No. ER-07-012 dated December 27, 2008 and
Official Receipt No. 7761 dated January 17, 2008 relative to Enviroaire.

On cross examination, Atty. Cagat-Cagat confirmed that one of her duties is to

certify the reproduction of the files, records and the documents under her custody.
However, she cannot attest whether the documents under her custody were provided
by the accused to the BIR, and that she also has no personal knowledge whether the
accused paid the right taxes thereto.

During the May 2, 2018 hearing, when the prosecution was about to present
the last witness, Atty. Joffre Gil C. Zapata, the parties' respective counsels instead
offered to stipulate and agreed on the following matters:

Stipulations for the prosecution

1. That Atty. Zapata issued a certified true copy of the Exhibits

"P-11" to "'P-25"; and

2. That these documents were provided by Atty. Zapata to the Bureau

of Internal Revenue (BIR) particularly BIR Region No. 7.

Counter-stipulations for the accused

1. That the witness, Atty. Zapata has no personal knowledge as to the

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 preparation and execution of the said documents; and

2. That likewise Atty. Zapata has no personal knowledge as to the

criminal charge filed before this Honorable Court. 63(63)

On May 4, 2018, the prosecution filed a Formal Offer of Evidence, 64(64)

tendering the following documentary exhibits, viz.:

Exhibits Description
"P-1" Subpoena Duces Tecum signed by Director Leonor D. Boado of the
Fraud Audit and Investigation Office, Legal Services Sector of the
Commission on Audit dated April 26, 2012
"P-2" Revenue District Officer Isabel A. Paulino's Certification in
response to the Subpoena of FAIO LSS COA
"P-3" Letter of Authority No. 211-2012-00046 SN: eLA201100018418
dated June 6, 2012 for taxable year 2007
"P-4" Enviroaire, Inc.'s Certificate of Incorporation with the Securities
and Exchange Commission (SEC) with Company Reg. No.
A200204249 issued on March 13, 2002
"P-4-a" Enviroaire, Inc.'s Articles of Inc. *(65)
"P-5" Enviroaire, Inc.'s General Information Sheet (GIS) for the year
2007 filed with the SEC of October 8, 2007
"P-5-a" Name and position of Tyrone N. Ong as President of Enviroaire,
Inc.
"P-5-b" Name and position of Arlene Chua as CFO of Enviroaire, Inc.
"P-6" Enviroaire, Inc.'s Annual Income Tax Return (BIR Form 1702) for
taxable year 2007
"P-7" Return Information on the Tax Return filed by Enviroaire, Inc. for
taxable year 2008 as received by the BIR
"P-8" Enviroaire, Inc.'s Financial Reports for December 31, 2008 and
2007
"P-8-a" Name and position of Tyrone Ong as President in Enviroaire, Inc.'s
Financial Reports for December 31, 2008 and 2007
"P-8-b" Name and position of Arlene Chua as Treasurer in Enviroaire, Inc.'s
Financial Reports for December 31, 2008 and 2007
"P-9" Certification of then RDO Isabel A. Paulino dated May 15, 2012
that Enviroaire, Inc. is a registered VAT taxpayer
"P-10" Invoice No. ER-07-012
"P-11" Invoice No. ER-07-013
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 "P-12" Invoice No. ER-07-014
"P-13" Invoice No. ER-07-015
"P-14" Invoice No. ER-07-016
"P-15" Invoice No. ER-07-017
"P-16" Invoice No. ER-07-018
"P-17" Invoice No. ER-07-019
"P-18" Invoice No. ER-07-020
"P-19" Invoice No. ER-07-021
"P-20" Invoice No. ER-07-022
"P-21" Invoice No. ER-07-023
"P-22" Invoice No. ER-07-024
"P-23" Invoice No. ER-07-025
"P-24" PNP Check No. 457825 dated December 26, 2007 pay to the order
of Enviroaire, Inc. in the amount of P85,179,953.22
"P-24-a" Enviroaire, Inc.'s Official Receipt No. 7760 dated January 17, 2008
in the amount of P85,179,953.22
"P-25" PNP Check No. 457991 dated December 27, 2007 pay to the order
of Enviroaire, Inc. in the amount of P140,531,250.01
"P-25-a" Enviroaire, Inc.'s Official Receipt No. 7761 dated January 17, 2008
in the amount of P140,531,250.01
"P-26" Preliminary Assessment Notice with Details of Discrepancies dated
June 28, 2016 issued to Enviroaire, Inc. for taxable year 2007
"P-27" Formal Letter of Demand No. 041-B050-07 (50%) dated July 26,
2016 issued to Enviroaire, Inc for taxable year 2007
"P-28" Assessment Notice for Income Tax (IT) for taxable year 2007
"P-28-a" Assessment Notice for Value-Added Tax (VAT) for taxable year
2007
"P-29" Judicial Affidavit of Revenue Officer (RO) Enrico L. Omaña
"P-29-a" Name and Signature of RO Enrico Omaña
"P-31" Judicial Affidavit of Atty. Alma G. Cagat-Cagat — OIC Records
Division Office of the Special Prosecutor, Ombudsman
"P-31-a" Name and Signature of Atty. Alma G. Cagat-Cagat

In the Resolution dated August 1, 2018, 65(66) the Court admitted all of the
prosecution's evidence. Also, as previously manifested during the last hearing, the
accused was granted leave of court to file demurrer to evidence within ten (10) days.

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 On August 7, 2018, the accused filed a Demurrer to Evidence 66(67) praying
that the present case be dismissed since the prosecution's evidence failed to prove
beyond reasonable doubt that the accused are guilty of the crime charged against
them.

However, in the Resolution dated October 5, 2018, 67(68) the Court found
that, based on the evidence offered by the prosecution, there existed a prima facie
case against the accused. The Demurrer to Evidence was denied for lack of merit.

On October 29, 2018, the accused filed a Motion for Reconsideration 68(69)
claiming that the Court committed serious and reversible error when it denied the
accused's demurrer to evidence.

In the Resolution dated January 24, 2019, 69(70) the Court denied the
accused's motion for reconsideration stating that the issues raised therein were already
extensively discussed in the previous resolution. As such, the Court ordered the case
to proceed and set the initial presentation of evidence for the accused.

Meanwhile, on March 13, 2019, the accused filed a Manifestation (With

Urgent Motion to Suspend Proceedings). 70(71) The accused stated that they filed
with the Supreme Court a Certiorari and Prohibition under Rule 65 of the Revised
Rules of Court, seeking to annul, reverse and set aside the Resolutions dated October
5, 2018 and January 24, 2019. Accordingly, the accused requested the Court to
suspended proceedings as a matter of judicial courtesy pending the resolution of the
incident by the Supreme Court.

However, in the Order dated March 18, 2019, 71(72) the Court denied the
accused's urgent motion to suspend proceedings, taking into account the objection
interposed by the prosecution that the filing of a Certiorari and Prohibition with the
Supreme Court is not a ground for suspension of proceedings.

On March 27, 2019, the accused filed a Motion for Reconsideration (Re:
Denial of Motion to Suspend Proceedings) 72(73) reiterating its plea. The same was
denied by the Court for lack of merit in the Order dated April 1, 2019. 73(74)

Accused's Evidence

Thereafter, counsel for the accused presented accused Tyrone N. Ong as its
lone witness.

Accused Tyrone N. Ong testified on direct by way of Judicial Affidavit dated

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 April 10, 2019, 74(75) that while he is the President of Enviroaire, Inc., he also
functions as the Public Relations Officer of the company. As a Public Relations
Officer, he meets and courts potential clients and close deals with them. He also
makes sure that clients are satisfied and pleased with their products. The accused
explained that his company is primarily engaged in the business of emission testing
and supply of equipment and other related products, including parts and accessories,
and is engaged in the refurbishing of Light Armored Vehicles. They recondition and
rehabilitate old Light Armored Vehicles or tanks of the PNP, including supplying the
needed parts thereto.

Accused Ong asserted that the criminal case for alleged tax evasion was
actually initiated by the COA as there was an investigation on the refurbishing of the
Light Armored Vehicles or tanks by the PNP. In fact, he claimed that he only came to
know of the case when he was informed by their previous lawyer that a complaint
was filed with the DOJ. He further explained that he and/or his wife as co-accused
never received the LOA or request for conference from the BIR. He also said that
neither he nor his wife received any communication or assessment notices from the
BIR prior to the filing of the case with the DOJ.

Accused Ong further testified that the LOA was never received by Enviroaire
or any of its authorized representative. It was received by a Leinor Mojica who is not
an officer or authorized representative of Enviroaire, Inc. He claims that the BIR
hastily filed the present case without first conducting a formal investigation as shown
by the fact that although the LOA was issued only on June 6, 2012 immediately on
the next day, June 7, 2012, a criminal complaint was already filed with the DOJ. The
BIR did not give them time to present documents or undergo a formal investigation in
violation of the standard procedure under BIR RMO No. 27-10. He was merely
shown copies of Sales Invoice No. ER-07-012, the Certification by RDO
41-Mandaluyong City, and the Official Receipt dated January 17, 2008 which were
used as basis of the complaint affidavit. In addition, accused Ong claimed that there is
a statement at the bottom of the sales invoice that reads, "this invoice is not
recognized as paid unless covered by an Official Receipt." As such, the sales invoice
is not a proof of payment or receipt of any payment. Lastly, accused Ong asserts that
he has never examined any BIR form of Tax Return line by line. He is not involved
with the finances of the corporation. His wife has zero involvement in the company
and was only named as Treasurer because he is his wife, though he is sure that
Enviroaire filed its Income Tax Return for taxable year 2007.

On cross examination, accused Ong explained that Leinor Mojica is an

ordinary staff and is not an authorized representative of Enviroaire. In addition,

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 although accused Ong was not familiar with Enviroaire's Income Tax Return for the
year 2007, he admitted that Sales Invoice No. ER 07-012 and Official Receipts
previously marked as Exhibits "P-10" and "P-25-a", respectively, were issued by
Enviroaire. 75(76)

Lastly, the Court granted the motion of the defense counsel that it be allowed
to adopt the prosecution's Exhibits "P-10", "P-25-a" and "P-2", as part of the exhibits
of the accused and, thus, be considered as common exhibits. Thereafter, counsel for
the accused also offered Exhibits "A-1", "A-1-A", "P-10", "P-25-a" and "P-2" which
were, likewise, admitted by the Court. The parties were then given a period of thirty
(30) days within which to file their memoranda.

In compliance, the accused filed their Memorandum (For Accused) 76(77) on

May 21, 2019. On the other hand, the prosecution failed to file a memorandum as per
Records Verification dated June 7, 2019. 77(78)

Accordingly, in the Resolution dated June 14, 2019, 78(79) the case was
deemed submitted for decision.

THE ISSUE

The sole issue to be resolved herein, as submitted by the parties 79(80) is

whether accused Ong and Chua are guilty beyond reasonable doubt for the crime of
Attempt to Evade or Defeat Tax, in violation of Section 254, in relation to Sections
253 and 256 of the NIRC, as amended.

THE COURT'S RULING

Summary

The accused were charged with the crime of an attempt to evade or defeat the
payment of income tax for taxable year 2007, pursuant to Section 254 of the NIRC, as
amended. It is the prosecution's theory that the crime was committed by accused Ong
and Chua because they underdeclared Enviroaire's gross sales and taxable income for
2007 by excluding the aggregate amount of P225,711,203.23, evidenced by Official
Receipt Nos. 7760 80(81) and 7761 81(82) issued by Enviroaire to the PNP Finance
Center, in order to conceal its true income which resulted in basic deficiency income
tax of P79,383,226.10, more or less, for taxable year 2007, exclusive of surcharge and
interests.

On the other hand, the accused claimed that there is nothing on record that
would show that the alleged income was gained during the taxable year 2007. They
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 assert that the prosecution failed to establish that Enviroaire actually or constructively
received the amounts indicated in said Official Receipts Nos. 7760 and 7761 during
the taxable year 2007. The accused testified that the official receipts were both issued
on January 17, 2008 and the checks were not received in the year 2007. Furthermore,
the accused pointed out that the sales invoice clearly stated that "this sales invoice is
not recognized as paid unless covered by an Official Receipt." Therefore, there was
no obligation to declare the same in the ITR of Enviroaire for taxable year 2007.

The accused, furthermore, maintained that there was no due process afforded
to them. They contended that the prosecution miserably failed to prove that the PAN
82(83) dated June 28, 2016 and FLD/FAN 83(84) dated July 26, 2016 were indeed
received by the accused. The prosecution merely stated that the BIR issued these
notices to the accused through registered mail but there was no proof that the same
were duly received by the accused or any authorized representatives of Enviroaire. As
such, the accused claimed that the assessment had already prescribed considering that
Enviroaire's ITR for 2007 was filed in April 2008, however, records show that the
PAN, FAN and FLD were all issued only in 2016.

General Discussion on Criminal

Law

At the outset, it must be stressed that an assessment is not necessary prior to

the filing of a criminal complaint. In Commissioner of Internal Revenue v. Pascor
Realty and Development Corporation, et al., 84(85) the Supreme Court held that an
assessment is not necessary before the filing of criminal complaint because the latter
is instituted not to demand payment, but to penalize the taxpayer for violation of the
tax code, thus:

"Private respondents maintain that the filing of a criminal complaint

must be preceded by an assessment. This is incorrect because Section 222 of the
NIRC specifically states that in cases where a false or fraudulent return is
submitted or in cases of failure to file a return such as this case, proceedings in
court may be commenced without an assessment. Furthermore, Section 205 of
the same Code clearly mandates that the civil and criminal aspects of the case
may be pursued simultaneously. In Ungab v. Cusi, petitioner therein sought the
dismissal of the criminal Complaints for being premature, since his protest to
the CTA had not yet been resolved. The Court held that such protests could not
stop or suspend the criminal action which was independent of the resolution of
the protest in the CTA. This was because the commissioner of internal revenue
had, in such tax evasion cases, discretion on whether to issue an assessment or
to file a criminal case against the taxpayer or to do both.

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 Private respondents insist that Section 222 should be read in relation to
Section 255 of the NLRC, which penalizes failure to file a return. They add that
a tax assessment should precede a criminal indictment. We disagree. To
reiterate, said Section 222 states that an assessment is not necessary before a
criminal charge can be filed. This is the general rule. Private respondents failed
to show that they are entitled to an exception. Moreover, the criminal charge
need only be supported by a prima facie showing of failure to file a required
return. This fact need not be proven by an assessment.

The issuance of an assessment must be distinguished from the filing of a

complaint. Before an assessment is issued, there is, by practice, a
pre-assessment notice sent to the taxpayer. The taxpayer is then given a chance
to submit position papers and documents to prove that the assessment is
unwarranted. If the commissioner is unsatisfied, an assessment signed by him or
her is then sent to the taxpayer informing the latter specifically and clearly that
an assessment has been made against him or her. In contrast, the criminal
charge need not go through all these. The criminal charge is filed directly with
the DOJ. Thereafter, the taxpayer is notified that a criminal case had been filed
against him, not that the commissioner has issued an assessment. It must be
stressed that a criminal complaint is instituted not to demand payment, but to
penalize the taxpayer for violation of the Tax Code." (Underscoring supplied)

Consistent with this holding, the criminal action was instituted with the filing
the complaint-affidavit at the DOJ on June 7, 2012 85(86) prior to the issuance of a
FAN/FLD on July 26, 2016. 86(87)

The Court shall now proceed to determine whether accused Ong and Chua are
guilty beyond reasonable doubt for the crime of "Attempt to Evade or Defeat Tax"
under Section 254, in relation to Sections 253 and 256 of the NIRC, as amended.

Proof beyond reasonable doubt confers the prosecution with the responsibility
of establishing moral certainty. Section 2, Rule 133 of the Rules on Court explains
the concept of proof beyond reasonable doubt, viz.:

"Rule 133

WEIGHT AND SUFFICIENCY OF EVIDENCE

xxx xxx xxx

SEC. 2. Proof beyond reasonable doubt. — In a criminal case, the

accused is entitled to an acquittal, unless his guilt is shown beyond reasonable
doubt. Proof beyond reasonable doubt does not mean such a degree of proof as,

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 excluding possibility of error, produces absolute certainty. Moral certainty only
is required, or that degree of proof which produces conviction in an
unprejudiced mind." (Underscoring supplied)

Elements of Section 254 in

relation to Sections 253 and 256
of the NIRC, as amended

At the core of this issue are the provisions of Sections 253 (d), 254 and 256 of
the NIRC, as amended, which state:

"TITLE X

STATUTORY OFFENSES AND PENALTIES

xxx xxx xxx

CHAPTER II

CRIMES, OTHER OFFENSES AND FORFEITURES

SEC. 253. General Provisions. —

(a) Any person convicted of a crime penalized by this Code shall, in

addition to being liable for the payment of the tax, be subject to the penalties
imposed herein: Provided, That payment of the tax due after apprehension shall
not constitute a valid defense in any prosecution for violation of any provision
of this Code or in any action for the forfeiture of untaxed articles.

(b) Any person who willfully aids or abets in the commission of a

crime penalized herein or who causes the commission of any such offense by
another shall be liable in the same manner as the principal.

(c) If the offender is not a citizen of the Philippines, he shall be

deported immediately after serving the sentence without further proceedings for
deportation. If he is a public officer or employee, the maximum penalty
prescribed for the offense shall be imposed and, in addition, he shall be
dismissed from the public service and perpetually disqualified from holding any
public office, to vote and to participate in any election. If the offender is a
Certified Public Accountant, his certificate as a Certified Public Accountant
shall, upon conviction, be automatically revoked or cancelled.

(d) In the case of associations, partnerships or corporations, the

penalty shall be imposed on the partner, president, general manager branch
manager treasurer officer-in-charge, and the employees responsible for the
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 violation.

(e) The fines to be imposed for any violation of the provisions of this
Code shall not be lower than the fines imposed herein or twice the amount of
taxes, interest and surcharges due from the taxpayer, whichever is higher.

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 the other penalties provided by
law, upon conviction thereof, be punished by a fine not less than Thirty
thousand pesos (P30,000) but not more than One hundred thousand pesos
(P100,000) and suffer imprisonment of not less than two (2) years but not more
than four (4) years: Provided, That conviction or acquittal obtained under this
Section shall not be a bar to the filing of a civil suit for the collection of taxes.

xxx xxx xxx

SEC. 256. Penal Liability of Corporations. — Any corporation,

association or general co-partnership liable for any of the acts or omissions
penalized under this Code, in addition to the penalties imposed herein upon the
responsible corporate officers, partners, or employees, shall, upon conviction
for each act or omission, be punished by a fine of not less than Fifty thousand
pesos (P50,000) but not more than One hundred thousand pesos (P100,000)."
(Underscoring supplied)

In Commissioner of Internal Revenue v. The Estate of Benigno P. Toda, Jr., et

al., 87(88) the Supreme Court held that tax evasion connotes the integration of three
(3) factors:

1. The end to be achieved, i.e., the payment of less than that known
by the taxpayer to be legally due, or the non-payment of tax when
it is shown that a tax is due;

2. An accompanying state of mind which is described as being "evil",

in "bad faith", "willful", or "deliberate and not accidental"; and,

3. A course of action or failure of action which is unlawful.

Accordingly, to sustain conviction for an attempt to evade or defeat tax under

Section 254 in relation to Sections 253 (d) and 255, the following elements must be
established beyond reasonable doubt:

1. There is a tax is imposed on the corporation under the NIRC;

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 88(89)

2. An attempt in any manner to evade or defeat any tax imposed

under the NIRC or the payment thereof;

3. Such attempt to evade or defeat tax or the payment thereof is

willful; and,

4. In the case of corporations, the penalty shall be imposed on the

president, general manager, branch manager, treasurer,
officer-in-charge, and the employees responsible for the violation.

1ST ELEMENT: There is a tax

imposed on the corporation
under the NIRC

a. Enviroaire is a domestic
corporation subject to
income tax under Section
27(A) in relation to Section
23(E) and Value-Added Tax
(VAT) under Sections 105,
106(A) and 108(A) of the
NIRC, as amended.

In Bureau of Internal Revenue v. Court of Appeals, et al., 89(90) the Supreme

Court reiterated the holding 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.

As a domestic corporation, 90(91) Enviroaire is taxed on income from all

sources, both within and outside the Philippines. 91(92) An income, for it to be
taxable, requires that there must be a gain realized or received by the taxpayer, which
is not excluded by law or treaty from taxation. 92(93)

Specifically, Enviroaire is liable to pay 35% corporate income tax under

Section 27 (A) of the NIRC, as amended. 93(94) As a VAT-registered taxpayer
94(95) engaged in the business of selling goods and services, 95(96) Enviroaire is
also subject to 12% VAT under Sections 105, 106 (A) and 108 (A) of the NIRC, as
amended. 96(97)

b. Enviroaire sold goods and

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 services to PNP in taxable
year 2007.

To establish that Enviroaire sold goods and services to PNP, the prosecution
presented the following pieces of evidence:

1. Fourteen (14) sales invoices issued in 2007:

Exhibit Reference Invoice No. Amount

P-10 Docket, Vol. I, p. 586 ER-07-012 P149,900,000.00
P-11 Docket, Vol. I, p. 587 ER-07-013 P1,365,920.00
P-12 Docket, Vol. I, p. 588 ER-07-014 1,120,000.00
P-13 Docket, Vol. I, p. 589 ER-07-015 2,219,200.00
P-14 Docket, Vol. I, p. 590 ER-07-016 1,957,280.00
P-15 Docket, Vol. I, p. 591 ER-07-017 2,685,600.00
P-16 Docket, Vol. I, p. 592 ER-07-018 1,822,400.00
P-17 Docket, Vol. I, p. 593 ER-07-019 18,195,520.00
P-18 Docket, Vol. I, p. 594 ER-07-020 24,414,720.00
P-19 Docket, Vol. I, p. 595 ER-07-021 4,557,440.00
P-20 Docket, Vol. I, p. 596 ER-07-022 2,439,640.00
P-21 Docket, Vol. I, p. 597 ER-07-023 1,777,500.00
P-22 Docket, Vol. I, p. 598 ER-07-024 27,179,280.00
P-23 Docket, Vol. I, p. 599 ER-07-025 266,960.00
Sub-total P90,001,460.00
TOTAL P239,901,460.00

2. Two (2) Land Bank of the Philippines (LBP) Checks issued by the
PNP pay to the order of Enviroaire, Inc.:

Exhibit Reference Check No. Date Amount

P-24 Docket, Vol. I, p. 600 457825 12/26/2007 P85,179,953.22
P-25 Docket, Vol. I, p. 602 457991 12/27/2007 140,531,250.01
TOTAL P225,711,203.23

3. Two (2) Official Receipts issued by Enviroaire, Inc.:

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 Exhibit Reference OR No. Date Amount
P-24-a Docket, Vol. I, p. 601 7760 1/17/2008 P85,179,953.22
P-25-a Docket, Vol. I, p. 603 7761 1/17/2008 140,531,250.01
TOTAL P225,711,203.23

The defense, as summarized in the Judicial Affidavit of the accused, Tyrone N.

Ong, is founded on two premises:

1. They did not receive the income payments in 2007; 97(98) and,

2. They cannot be held criminally responsible for tax evasion as

president and treasurer of the corporation. 98(99)

First, the Court notes, however, that the accused presented neither evidence nor
legal arguments to support the position that Enviroaire is exempt from income tax and
VAT.

Second, the accused also did not dispute that there were, in fact, sales of goods
and services by Enviroaire to PNP. 99(100) The defense, it should be recalled,
adopted as its evidence 100(101) the following exhibits:

1. Exhibit "P-10", Enviroaire Invoice documenting the P149,900,000

sale of goods and services to PNP; 101(102) and,

2. Exhibit "P-25-a", Enviroaire VAT Official Receipt documenting

the payment of P140,531,250.01, 102(103) which ties up with
Exhibit "P-25", LBP Check No. 0000457991 for the amount of
P140,531,250.01 drawn from the account of Philippine National
Police and paid to the order of Enviroaire, 103(104) the
corporation indicted in this case.

Furthermore, the defense was also silent and failed to refute the legal basis of
the BIR's position that the PNP payments are indeed subject to income tax and VAT.

The Court concludes, therefore, that this element, which is uncontested by the
accused, has been established beyond reasonable doubt by the prosecution.

2ND ELEMENT: An attempt in any

manner to evade or defeat any
tax imposed under the NIRC or
the payment thereof

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 a. Under the accrual method
of accounting, Enviroaire is
obliged to declare and pay
income tax due on the
sales in taxable year 2007.

Under the accrual basis, companies record transactions that change a

company's financial statements in the periods in which the events occur. For example,
using the accrual basis to determine net income means companies recognize revenues
when earned (rather than when they receive cash). It also means recognizing
expenses when incurred (rather than when paid). 104(105)

The accrual method relies upon the taxpayer's right to receive amounts or its
obligation to pay them, in opposition to actual receipt or payment, which
characterizes the cash method of accounting. Amounts of income accrue where the
right to receive them become fixed, where there is created an enforceable liability.
Similarly, liabilities are accrued when fixed and determinable in amount, without
regard to indeterminacy merely of time of payment. 105(106)

An alternative to the accrual basis is the cash basis. Under the cash-basis
accounting, companies record revenue when they receive cash. They record expense
when they pay out cash. The cash basis seems appealing due to its simplicity, but it
often produces misleading financial statements. It fails to record revenue that a
company has earned but for which it has not received the cash. Also, it does not
match expenses with earned revenues. Cash-basis accounting is not in accordance
with the generally accepted accounting principles (GAAP). 106(107)

The revenue recognition principle dictates that companies recognize revenue in

the accounting period in which it is earned. In a service enterprise, revenue is
considered to be earned at the time the service is performed. 107(108)

In Commissioner of Internal Revenue v. Isabela Cultural Corporation,

108(109) the Supreme Court explained the accrual method of accounting, as opposed
to the cash method:

"Accounting methods for tax purposes comprise a set of rules for

determining when and how to report income and deductions. . .

Revenue Audit Memorandum Order No. 1-2000, provides that under the
accrual method of accounting, expenses not being claimed as deductions by a
taxpayer in the current year when they are incurred cannot be claimed as

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 deduction from income for the succeeding year. Thus, a taxpayer who is
authorized to deduct certain expenses and other allowable deductions for the
current year but failed to do so cannot deduct the same for the next year.

The accrual method relies upon the taxpayer's right to receive amounts
or its obligation to pay them, in opposition to actual receipt or payment, which
characterizes the cash method of accounting. Amounts of income accrue where
the right to receive them become fixed, where there is created an enforceable
liability. Similarly, liabilities are accrued when fixed and determinable in
amount, without regard to indeterminacy merely of time of payment.

For a taxpayer using the accrual method, the determinative question is,
when do the facts present themselves in such a manner that the taxpayer must
recognize income or expense? The accrual of income and expense is permitted
when the all-events test has been met. This test requires: (1) fixing of a right to
income or liability to pay; and (2) the availability of the reasonable accurate
determination of such income or liability.

The all-events test requires the right to income or liability be fixed, and
the amount of such income or liability be determined with reasonable accuracy.
However, the test does not demand that the amount of income or liability be
known absolutely, only that a taxpayer has at his disposal the information
necessary to compute the amount with reasonable accuracy. The all-events test
is satisfied where computation remains uncertain, if its basis is unchangeable;
the test is satisfied where a computation may be unknown, but is not as much as
unknowable, within the taxable year. The amount of liability does not have to
be determined exactly; it must be determined with 'reasonable accuracy.'
Accordingly, the term 'reasonable accuracy' implies something less than an
exact or completely accurate amount." (Underscoring supplied)

In the case at bench, evidence points to the fact that Enviroaire adheres to the
accrual method of accounting:

First, an examination of the Enviroaire's Audited Financial Statements for the

year 2008 and 2007 shows that they report receivables, prepayments, payables and
accrued expenses: 109(110)

BALANCE SHEETS
2008 2007
ASSETS
Current Assets
Cash (Note 3) P6,863,266.85 P986,721.69

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Receivables 25,069,812.89
Inventory 531,300.50
Prepayments and other current assets 192,326.74 286,397.55
Total Current Assets 7,055,593.59 26,874,232.63
Noncurrent Assets
Property & Equipment-net (Note 3 & 6) 796,488.50 200,325.48
TOTAL ASSETS P7,852,082.09 P27,074,558.11
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts Payable and accrued expenses (Note 7) P11,828.58 P19,774,986.59
SHAREHOLDERS' EQUITY 7,840,253.52 7,299,571.52
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY P7,852,082.10 P27,074,558.11

Under the Conceptual Framework for Financial Reporting, accrual accounting

captures "the effects of transactions and other events when they occur (and not as
cash or its equivalent is received or paid) and they are recorded in the accounting
records and reported in the financial statements of the periods to which they relate."
110(111)

For this reason, an entity recognizes 111(112) receivables for sales made or
services rendered even without payments received for the period as well as payables
and accrued expenses for purchases made without payments made. The presence of
these accounts clearly reveals that Enviroaire uses the accrual basis of accounting.

Second, Enviroaire's disclosure in Note 2 of its Audited Financial Statements

states that the company adopted the Philippine Accounting Standards (PAS) 1:
112(113)

"2. BASIS OF PREPARATION AND PRESENTATION OF

FINANCIAL STATEMENTS

xxx xxx xxx

Revised Accounting Standards Effective in 2005

The revised accounting standards that the Company adopted are

as follows:

PAS 1 — Presentation of Financial Statements

This provides a framework within which an entity assesses how

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 to present fairly the effects of transactions and other events. It provides
the base criteria for classifying liabilities as current or non-current,
prohibits the presentation of income from operating activities and
extraordinary items as separate line items in statement of income, and
specifies the disclosures about the judgements made by management in
applying accounting policies, the key sources of estimation uncertainty
at the balance sheet date that have significant risks.

xxx xxx xxx"

The PAS 1 113(114) in turn provides, among others:

"Accrual basis of accounting

25 An entity shall prepare its financial statements, except for

cash flow information, using the accrual basis of accounting.

26 When the accrual basis of accounting is used, items are

recognized as assets, liabilities, equity, income and expenses (the
elements of financial statements) when they satisfy the
definitions and recognition criteria for those elements in the
Framework." (Underscoring supplied)

The guidelines for the recognition of income under the same Conceptual
Framework for Financial Reporting provide:

"Recognition of income

92 Income is recognized in the income statement when increase in

future economic benefits related to an increase in an asset or a
decrease of a liability has arisen that can be measured reliably.
This means, in effect, that recognition of income occurs
simultaneously with the recognition of increases in assets or
decreases in liabilities (for example, the net increase in assets
arising on a sale of goods or services or the decrease in liabilities
arising from the waiver of a debt payable).

93 The procedures normally adopted in practice for recognizing

income, for example, the requirement that revenue should be
earned, are applications of the recognition criteria in this
Framework. Such procedures are generally directed at restricting
the recognition as income to those items that can be measured
reliably and have a sufficient degree of certainty." 114(115)
(Underscoring supplied)

Copyright 2020 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia First Release 2020 27
 Furthermore, under PAS 18 — Revenue:

"Sale of goods

14 Revenue from the sale of goods shall be recognised when all the
following conditions have been satisfied:

(a) the entity has transferred to the buyer the significant risks
and rewards of ownership of the goods;

(b) the entity retains neither continuing managerial

involvement to the degree usually associated with
ownership nor effective control over the goods sold;

(c) the amount of revenue can be measured reliably;

(d) it is probable that the economic benefits associated with

the transaction will flow to the entity; and

(e) the costs incurred or to be incurred in respect of the

transaction can be measured reliably.

Rendering of services

20. When the outcome of a transaction involving the rendering of

services can be estimated reliably, revenue associated with the
transaction shall be recognized by reference to the stage of
completion of the transaction at the balance sheet date. The
outcome of a transaction can be estimated reliably when all the
following conditions are satisfied:

(a) the amount of revenue can be measured reliably;

(b) it is probable that the economic benefits associated with

the transaction will flow to the entity;

(c) the stage of completion of the transaction at the balance

sheet date can be measured reliably; and

(d) the costs incurred for the transaction and costs to

complete the transaction can be measured reliably."
115(116)

In essence, the foregoing PFRS and PAS criteria for income recognition are
congruent to the Supreme Court's all-events test in the Isabela Cultural case.
Copyright 2020 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia First Release 2020 28
 116(117)

Third, for taxation purposes, Enviroaire used the same accrual method of
accounting based on a comparison of the ITR submitted to the BIR and the Audited
Financial Statements. The Court finds that the amounts declared in the Audited
Financial Statements are identical to those in the ITR:

Per ITR Per Audited FS

2008 117(118) 2007 118(119) 2008 2007 120(121)
119(120)
Income/Sales/Revenues P12,611,752.93 P27,585,555.35 P12,611,752.93 P27,585,555.35
Cost of Income/Sales 7,998,555.03 20,356,397.24 7,998,555.03 20,356,397.24
Gross Income 4,613,197.90 7,229,158.11 4,613,197.90 7,229,158.11
Net Income Before Income 1,423,056.59 2,521,070.25 1,423,056.59 2,521,070.25
Tax
Provision for Income 498,069.81 882,374.59 498,069.81 882,374.59
Tax/Income Tax

It should be noted that the goods were delivered and the services were
rendered in 2007, as invoiced by Enviroaire and inspected by the PNP based on the
December 27, 2007 stamp on the invoices. 121(122) Accordingly, in 2007, the value
of the transactions have been reliably measured; the significant risks and rewards of
ownership over the goods have been transferred; Enviroaire has fixed its right to the
economic benefit from the same transactions; and, correspondingly, the PNP has
incurred an obligation to pay. Accordingly, all the income recognition criteria under
the accrual method were satisfied in 2007. Therefore, the income from the sales to
PNP were earned and should have been recognized as taxable income in 2007.

From the foregoing analysis, it is clear that, for both financial reporting and
taxation purposes, Enviroaire is obliged to declare and pay the income tax due on the
sales in taxable year 2007.

b. Enviroaire failed to declare

and pay the income tax due
on the sales in taxable year
2007.

As discussed earlier, the Court finds that the accused's Income from Sales and
Services reported in its Audited Financial Statements for the year 2007 122(123)
matched the Sales/Revenues/Receipts declared in its Annual ITR for the same period
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 in the amount of P27,585,555.35. 123(124)

On the face of these documentary evidence, the declared amount clearly failed
to include the sales to the PNP amounting to P214,197,732.14 as evidenced by the
invoices, checks and official receipts, thus:

Total
Total price P133,839,285.71 P80,358,446.43 P214,197,732.14
Add: 12% VAT 16,060,714.29 9,643,013.57 25,703,727.86
Total invoice amount P149,900,000.00 P90,001,460.00 P239,901,460.00
124(125) 125(126)
Less: 2% & 1% CWT 2,676,785.71 803,584.46 3,480,370.17
5% VAT Withheld 6,691,964.28 4,017,922.32 10,709,886.60
Amount paid P140,531,250.01 P85,179,953.22 P225,711,203.23
126(127) 127(128)

Contrary to the theory of the defense, the income from the PNP sales were
earned in 2007 and should have been recognized as taxable income in 2007.

It is evident, from the comparison with the P12,611,752.93

(2008)/P27,585,555.35 (2007) sales declared per ITR and Audited FS, that the
P214,197,732.14 sales to PNP were never declared by Enviroaire. Other than
insisting that no tax was due in 2007, the accused did not present any evidence at all
to prove that there was even a subsequent payment of the taxes due to the government
from these sales, even past 2007.

3RD ELEMENT: Such attempt to

evade or defeat tax or the
payment thereof is willful

First, Enviroaire asserts that it was not necessary to declare the sales
amounting to P214,197,732.14 in the 2007 ITR because it was only in the year 2008
that the checks were received and encashed, as evidenced by the official receipts
issued. 128(129) With this line of argument, the accused attempts to mislead the
Court in believing that it follows the cash method of accounting. As previously
discussed, the prosecution's evidence proved otherwise.

Second, even if the Court were to accept that, for the sake of argument,
Enviroaire used the cash method, the receipts of cash should nonetheless have been
reported in 2008 when the payments were received and official receipts were issued.
Copyright 2020 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia First Release 2020 30
 However, an examination of the accused's 2008 ITR again showed
Sales/Revenues/Receipts of only P12,611,752.93. 129(130) Likewise, Income from
Sales and Services reported in its 2008 Audited Financial Statements 130(131)
matched the Sales/Revenues/Receipts declared in its Annual ITR for the same taxable
period showing only the amount of P12,611,752.93. 131(132) Clearly, the taxable
sales and income were not declared in 2008 either.

Third, under Section 248 (B) of the NIRC, as amended, there was substantial
underdeclaration of accused's sales, receipts or income for the years 2007 and 2008:

"(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 willfully 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 thirty percent (30%) of actual
deductions, shall render the taxpayer liable for substantial underdeclaration of
taxable sales, receipts or income or for overstatement of deductions, as
mentioned herein." (Underscoring supplied)

In the instant case, undeclared taxable sales of P214,197,732.14 is significantly

higher than 30% at 776.4851% (2007) and at 1,698.3978% (2008) of the declared
taxable sales per ITR of P27,585,555.35 (2007) 132(133) and P12,611,752.93 (2008);
133(134)

776.4851% P214,197,732.14
(2007) = ––––––––––––––––
P27,585,555.35
1,698.3978%
P214,197,732.14
(2008) = ––––––––––––––––
P12,611,752.93

Although mere understatement of tax does not itself prove fraud, 134(135)
under Section 248 (B), substantial underdeclaration shall constitute prima facie
evidence of a false or fraudulent return. Enviroaire's failure to report its sales, receipts
Copyright 2020 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia First Release 2020 31
 or income in an amount far beyond the 30% threshold, which remained unrebutted,
renders it liable for substantial underdeclaration of taxable sales, receipts or income.
This substantial underdeclaration constitute prima facie evidence of a false or
fraudulent return.

Fourth, in Yutivo Sons Hardware Company v. Court of Tax Appeals, et al.,

135(136) the Supreme Court En Banc held that "tax evasion" is a term that connotes
fraud through the use of pretenses and forbidden devices to lessen or defeat taxes.
"Fraud encompasses a wide range of conduct that conceals the true facts of a situation
or creates a false impression upon which the actor seeks a victim to rely to the
victim's harm. The two broad forms of fraud are the knowing misrepresentation of
facts and the intentional concealment of a material fact in order to create a false
impression." 136(137)

Fraud, therefore, under the context of tax evasion encompasses material

misstatements or omissions of material fact which is intended to conceal the true
income of a taxpayer. Furthermore, fraud as a state of mind, need not be proved by
direct evidence but may be inferred from the circumstances attendant in each case.
137(138)

Materiality refers to the magnitude of an omission or misstatement of

accounting data that misleads financial statement readers. 138(139) "An information
is material if its omission or misstatement could influence the economic decisions of
users taken on the basis of the financial statements. Materiality depends on the size of
the item or error judged in the particular circumstances of its omission or
misstatement." 139(140) Furthermore, an item considered material for financial
statement purposes is also considered material for tax purposes. 140(141)

In this case, Enviroaire's ITRs for two consecutive taxable periods have
unfailingly shown material or substantial underdeclarations exceeding 30%.
Enviroaire's omissions to declare the transactions of such scale in 2007 and 2008
certainly mislead third parties who rely on the ITR and the Audited Financial
Statements. This pattern of failing to report material facts demonstrates a conduct
meant to conceal Enviroaire's taxable income to the prejudice of the government. It is
intentional concealment of the Enviroaire's taxable income in order to create a false
impression of tax compliance.

When sales of P214,197,732.14, which were perfected and consummated and

should have been declared in 2007, consistently remain unreported for two
consecutive taxable periods resulting in the substantial underdeclaration of more than
30% of sales or income, there is undoubtedly a willful attempt to evade or defeat tax
Copyright 2020 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia First Release 2020 32
 imposed or the payment thereof, contemplated in Section 254 in relation to Section
253 and 256 of the NIRC, as amended.

4TH ELEMENT: In the case of

corporations, the penalty shall
be imposed on the president,
general manager, branch
manager, treasurer, officer-in-
charge, and the employees
responsible for the violation

The law is clear. The criminal liabilities of the president and the treasurer of a
corporation are plainly delineated in Section 253 (d). It states that the president and
the treasurer who are responsible for the corporate tax evasion under Section 254
shall suffer the penalty imposed.

First, the accused Tyrone N. Ong and Arlene Chua do not deny that they hold
the positions as Enviroaire's President and Treasurer, respectively. They wish to
impress upon the Court, however, that notwithstanding the high-level positions they
assumed, they cannot be held responsible for the acts derived from the exercise of
functions which are reasonably expected of said positions.

Accused Tyrone N. Ong attempts to sidestep the responsibilities of their

corporate positions by stating that his involvement on the financial and tax reporting
is minimal and, in the case of the accused Arlene Chua, absent. In effect, they
disavow knowledge or feign ignorance of the tax obligations of the corporations
declared under oath in the Audited Financial statements and the ITRs: 141(142)

"37. Q: Mr. Witness, have you ever examined thoroughly a tax return in your
life?

A: I have seen a tax return but to be honest, I have never examined a tax return line
by line.

38. Q: Would you if Enviroaire filed its ITR for taxable year 2007?

A: I am sure Enviroaire filed its ITR for taxable year 2007.

39. Q: Are you familiar with the contents of the income tax return for 2007?

A: No. I am not familiar with the contents.

40. Q: Why? Aren't you supposed to look into this matter as President?

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 A: No. I am President but as I said I am actually the PR Officer of the company. I
am tasked with the heavy responsibility of finding clients, delivering what the
client needs building a relationship with them to generate revenue.

On the other hand, the Finance matters are handled by someone else.

41. Q: Mr. Witness, who takes care of the financial aspect of the business?

A: Since Enviroaire is a special project company, we don't have a full-time finance

officer. What we do is we ask the assistance of a Finance Officer from another
company.

42. Q: Do you know the Finance Officer personally?

A: Yes.

43. Q: Do you work with her on finance matters?

A: No, I do not.

44. Q: Do you supervise what the Finance Officer does in Enviroaire?

A: No because the Finance Officer pretty much worked on Enviroaire matters

independent of anyone.

45. Q: Does your wife supervise the Finance Officer?

A: My wife has zero involvement in the company."

The Court is not convinced by this self-serving, almost blanket denial of

responsibility.

The term "responsibility" used in Section 253 (d) denotes the accountability of
a person for ensuring that some action occurs or some condition is satisfied. It is
synonymous to legal liability because one is liable for acts or omissions for which one
is responsible. 142(143) Under the responsible corporate officer doctrine, one who
acts for a business is responsible for such acts. The responsible corporate officer
doctrine creates administrative and criminal liability for each person within a business
entity whose decision in making a policy or executing an act as an officer of the
corporation causes the business entity to violate the law. 143(144)

Second, this evasion of responsibility not only circumvents the obligations

attached to the top corporate positions they occupied but is even belied by their
undertaking in the Statement of Management Responsibility 144(145) which both the
Copyright 2020 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia First Release 2020 34
 accused signed off 145(146) and which expressly state:

"The Management of ENVIROAIRE, INC. is responsible for all

information and representations contained in the Company's financial
statements as of December 31, 2008 and 2007. The financial statements have
been prepared in conformity with the generally accept accounting principles and
reflect the amounts that are based on the best estimates and informed judgement
of management with appropriate consideration to materiality.

In this regard, management maintains a system of accounting reporting

which provides for the necessary internal controls to ensure transactions are
properly authorized and recorded, assets are safeguarded against unauthorized
use or disposition and liabilities are recognized." (Underscoring supplied)

As a matter of record and consistent with his stewardship as President of the

company, accused Tyrone N. Ong himself admitted that he is responsible for "closing
deals," 146(147) managing clients and focusing on "how to generate revenues."
147(148) He even testified on the nature and details of the transactions with PNP:

"8. Q: You mentioned that the company refurbishes Light Armored Vehicles,
what do you mean by refurbish? And who are the parties involved?

A: To refurbish means we reconditioned and rehabilitated the old Light Armored

Vehicles or tanks of the PNP. Basically, we serviced the Light Armored
Vehicles and reconditioned these to make them operational. This service
includes supply of parts."

The idea of a president, the highest official of the company, who closes
transactions, ones dealing with millions of pesos, and who is entrusted with
safeguarding that these revenue streams are recorded properly directly contradicts the
cloak of ignorance worn by the accused to shirk from his financial oversight
functions.

Third, the financial oversight functions of the president and the treasurer are
even more significant when evaluated in the context of materiality. The sales
involved, which the accused do not bother to deny, were valued at P214,197,732.14.
Compared to the financials of the company, this amount eclipses the declared total
assets and the income of the entire company considerably:

Factor Undeclared PNP Sales

2007 Sales per ITR and FS P27,585,555.35 776% P214,197,732.14
2007 Total Assets per FS 27,074,558.11 791% 214,197,732.14

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 2008 Sales per ITR and FS 12,611,752.93 1,698% 214,197,732.14
2008 Total Assets per FS 7,852,082.09 2,728% 214,197,732.14

Materiality refers to the magnitude of an omission or misstatement of

accounting data that misleads financial statement readers. 148(149) Because of the
materiality of the undeclared sales, by the general principle of estoppel, the accused
are prevented from denying their acts, representations or admissions that will
prejudice others who rightfully rely on such representations. More specifically, by
conveniently delegating the responsibility of tax compliance to the Finance Officer,
accused cannot escape the application of "willful blindness" doctrine. This doctrine is
defined as "deliberate avoidance of knowledge of a crime, especially by failing to
make a reasonable inquiry about a suspected wrongdoing despite being aware that it
is highly probable." 149(150)

On this score, Benjamin G. Kintanar v. People of the Philippines 150(151) is

instructive where the CTA En Banc held:

"The Court considers petitioner-accused's complete reliance on his

supposed accountant to file his required ITRs, as a willful act to delegate the
performance of his legal duty to said accountant, tantamount to 'deliberate
ignorance' or 'conscious avoidance' on his part to ensure the filing of his
required income tax returns. Consequently, as said accountant clearly failed to
perform her supposed duties, petitioner-accused must bear the legal
consequences arising from such omission.

Moreover, petitioner-accused's admission that he merely signed without

reading all the contents of the subject ITRs further manifests his evident lack of
concern and interest, definitely a voluntary act and an intentional disregard of
his tax responsibilities to the government. Worst, as earlier pointed out,
petitioner-accused presented materially flawed ITRs purporting to be received
by a revenue district of which he is not a resident." (Underscoring supplied)

Moreover, in the consolidated cases of Rogelio A. Tan v. People of the

Philippines, 151(152) the Court En Banc also discussed the nature of the president's
responsibility as part of management and the Section 253 (d) liability that the person
assumes with that position in the filing of the ITRs:

"Accused admits that he was not only the president but also the general
manager of Jadewell in the years 2003 and 2004 when it was still in operation.
As such, he was charged with the management of the company, set policies for
the achievement of its goal and provided directions for the business to ensure its
viability and financial growth. This admission highlighted the fact that as the
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 chief executive, he was the one on top of the operation overseeing if not directly
controlling its daily business concerns. It is therefore incredible that he was not
aware of the filing of the subject fallacious ITRs of Jadewell. Note that the
filing of ITR is a significant incident of any business operation and one that
does not merely involve filing of documents with the BIR but also shelling out
some amounts which if indecent could possibly deplete corporate resources or
even cause a closeshop. Precisely it places top management of any business
enterprise in animation during the tax period. As earlier stated, accused was not
only the president but also the general manager of Jadewell, hence, the
possibility of not knowing the filing of the fallacious ITRs is nil.

Accused cannot also take refuge on the contention that subject ITRs did
not bear his signature or were unsigned or with just the typewritten name of Via
Aguas, who according to him, was not an employee of Jadewell. For one, his
signature need not appear on the subject ITRs for it could be filed for and in
behalf of Jadewell as obtaining in the case at bar.

Also incredulous is accused's claim that Via Aguas was not at all
connected with Jadewell even if her typewritten name appears on Jadewell's
ITR for taxable year 2004. Aside from his self-serving allegation, accused failed
to present any evidence to bolster this defense which is strongly negated by the
fact that Via Aguas as the company's bookkeeper signed several payment forms
pertinent to the Jadewell's tax liability. Amazingly, accused, who was in control
of the management of Jadewell, could not even explain how such incident
occurred under his stewardship.

Likewise sans support in law and jurisprudence is accused's defense that

the 'willful blindness' rule applies only to violation of Section 255 involving
non-filing of tax returns or non-payment of the corresponding taxes and not for
failure to supply correct and accurate information in the returns. Per accused,
'want of knowledge of obligation' or 'good faith' cannot be presumed.

However, none of the cases cited by accused categorically states that the
'willful blindness' doctrine applies only to cases involving non-filing of return
or non-payment of corresponding taxes. Willful blindness, as defined by Black's
Law Dictionary, is the 'deliberate avoidance of knowledge of a crime, esp. by
failing to make a reasonable inquiry about suspected wrongdoing despite being
aware that it is highly probable.' As correctly observed by the Court in Division,
there was 'willful blindness' on the part of accused. As president and general
manager of Jadewell, he should, at the very least, know who was authorized to
sign the ITR and other tax filings for his company, but nay.

Accused also insists that Via Aguas was not an employee of Jadewell or
one authorized to sign and file its ITR and other tax filings. Nothing shows the
Copyright 2020 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia First Release 2020 37
 fallacy of this contention more sharply than accused's presentation and
submission as his own evidence in chief the very same unsigned ITR or one
with merely typewritten name of Via Aguas filed by Jadewell for taxable years
2003 and 2004.

xxx xxx xxx

In his last-ditch attempt to exonerate himself from criminal liability,

accused claims that the act of Via Aguas of signing several payment forms in
settlement of Jadewell's tax liabilities should not prejudice him in the absence of
any evidence that conspiracy exists between them. Moreover, his being the
President and General Manager of Jadewell during the relevant period per se is
not sufficient to justify his conviction for the crimes charged.

But the law is clear. Section 253 (d) of the NIRC of 1997 specifically
imputes the criminal liability for the violation of the law by the association,
partnership or corporation upon 'the partner, president, general manager,
branch manager, treasurer, officer-in-charge, and employees responsible
for the violation.' Accused admits that he was the president and general
manager or the responsible officer of Jadewell while it was still in operation in
2003 and 2004. Interestingly, his name was typewritten on Jadewell's ITR for
taxable year 2003, this for sure contradicts his claimed ignorance regarding the
preparation and filing of such ITR." (Underscoring supplied and citations
omitted)

Finally, good faith, as a question of intention, is determined by outward acts

and proven conduct. 152(153) Good faith also requires that the accused officers in
this case exhibit acts or conduct that demonstrate "an honest belief, the absence of
malice and the absence of design to defraud or to seek an unconscionable advantage"
153(154) and "honesty of intention, and freedom from knowledge of circumstances"
which ought to put them upon inquiry. 154(155)

When viewed in the light of the surrounding facts, the testimony of the
accused Tyrone N. Ong about how they conducted and exercised their official duties
strongly suggests a lack of good faith. Without even denying the taxability of the
transaction, the accused merely exploited an accounting technicality to insist that no
tax was due in 2007. But, in their attempt to justify their omission, they failed to
present any evidence to prove that there was at least a subsequent payment of the tax
lawfully due, as a sign of good faith.

All told, the prosecution's evidence consisting of various source documents

(Enviroaire invoices and official receipts), ITRs and Audited Financial Statements
obtained from reliable third parties such as the BIR, COA, SEC, and the Ombudsman;
Copyright 2020 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia First Release 2020 38
 the nature and functions of the positions held by the accused as President and as
Treasurer; the materiality of the transaction consistently undeclared for two
consecutive years; their statement of management responsibility which they signed
under oath; and, the absence of good faith have established their responsibility
beyond reasonable doubt in Enviroaire's violation under Section 254 in relation to
Section 253 and 256 of the NIRC, as amended.

Civil Aspect of the Case

a. The civil aspect of the case

is impliedly instituted in
the criminal case.

With regard to the civil aspect of this case, the same is deemed simultaneously
instituted pursuant to Section 7 (b) (1) of Republic Act No. 1125, as amended, which
provides that:

"x x x. Any provision of law or the Rules of Court to the contrary

notwithstanding, criminal action and the corresponding civil action for the
recovery of civil liability for taxes and penalties shall at all times be
simultaneously instituted with, and jointly determined in the same proceeding
by the CTA, the filing of the criminal action being deemed to necessarily carry
with it the filing of the civil action, and no right to reserve the filing of such
civil action separately from the criminal action will be recognized."

b. The assessment is void for

failure to prove receipt of
PAN and FAN/FLD.

Section 228 of the NIRC, as amended, describes the procedure in tax

assessments, as follows:

"SEC. 228. Protesting of Assessment. — When the Commissioner or

his duly authorized representative finds that proper taxes should be assessed, he
shall first notify the taxpayer of his findings: Provided, however, That a
preassessment notice shall not be required in the following cases:

xxx xxx xxx

The taxpayers shall be informed in writing of the law and the facts on
which the assessment is made; otherwise, the assessment shall be void.

Within a period to be prescribed by implementing rules and regulations,

Copyright 2020 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia First Release 2020 39
 the taxpayer shall be required to respond to said notice. If the taxpayer fails to
respond, the Commissioner or his duly authorized representative shall issue an
assessment based on his findings.

Such assessment may be protested administratively by filing a request

for reconsideration or reinvestigation within thirty (30) days from receipt of the
assessment in such form and manner as may be prescribed by implementing
rules and regulations. Within sixty (60) days from filing of the protest, all
relevant supporting documents shall have been submitted; otherwise, the
assessment shall become final.

If the protest is denied in whole or in part, or is not acted upon within

one hundred eighty (180) days from submission of documents, the taxpayer
adversely affected by the decision or inaction may appeal to the Court of Tax
Appeals within thirty (30) days from receipt of the said decision, or from the
lapse of the one hundred eighty (180)-day period; otherwise, the decision shall
become final, executory and demandable." (Underscoring supplied)

Implementing this provision are Sections 3.1.2 and 3.1.4 of Revenue

Regulations No. 12-99: 155(156)

"3.1.2 Preliminary Assessment Notice (PAN). — If after review

and evaluation by the Assessment Division or by the Commissioner or his duly
authorized representative, as the case may be, it is determined that there exists
sufficient basis to assess the taxpayer for any deficiency tax or taxes, the said
Office shall issue to the taxpayer, at least by registered mail, a Preliminary
Assessment Notice (PAN) for the proposed assessment, showing in detail, the
facts and the law, rules and regulations, or jurisprudence on which the proposed
assessment is based x x x. If the taxpayer fails to respond within fifteen (15)
days from date of receipt of the PAN, he shall be considered in default, in which
case, a formal letter of demand and assessment notice shall be caused to be
issued by the said Office, calling for payment of the taxpayer's deficiency tax
liability, inclusive of the applicable penalties."

xxx xxx xxx

3.1.4 Formal Letter of Demand and Assessment Notice. — The formal

letter of demand and assessment notice shall be issued by the Commissioner or
his duly authorized representative. The letter of demand calling for payment of
the taxpayer's deficiency tax or taxes shall state the facts, the law, rules and
regulations, or jurisprudence on which the assessment is based, otherwise, the
formal letter of demand and assessment notice shall be void x x x. The same
shall be sent to the taxpayer only by registered mail or by personal delivery. If
sent by personal delivery, the taxpayer or his duly authorized representative
Copyright 2020 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia First Release 2020 40
 shall acknowledge receipt thereof in the duplicate copy of the letter of demand,
showing the following: (a) His name; (b) signature; (c) designation and
authority to act for and in behalf of the taxpayer, if acknowledged received by a
person other than the taxpayer himself; and (d) date of receipt thereof."

The law requires that a taxpayer must be informed in writing of the legal and
factual bases of the tax assessment. The use of the word "shall" in these legal
provisions indicates the mandatory nature of the requirements laid down therein.
156(157)

An assessment contains not only a computation of tax liabilities, but also a

demand for payment within a prescribed period. It also signals the time when
penalties and interests begin to accrue against the taxpayer. To enable the taxpayer to
determine his remedies thereon, due process requires that it must be served on and
received by the taxpayer. 157(158)

When asked concerning the receipt of the PAN and FAN/FLD, Accused
Tyrone N. Ong denied the receipt of any assessment notices:

"14. Q: Did you receive any other notice concerning this from any other
government agency?

A: No.

xxx xxx xxx

19. Q: So Mr. Witness, you mentioned that there was not communication from
the BIR. You mean to say that you also did not receive the Final Assessment
Notice?

A: Never." 158(159)

The Supreme Court held in the case of Barcelon, Roxas Securities, Inc. (now
known as UBP Securities, Inc.) v. Commissioner of Internal Revenue, 159(160) that
while a mailed letter is deemed received by the addressee in the course of mail, this is
merely a disputable presumption subject to controversion and a direct denial thereof
shifts the burden to the party favored by the presumption to prove that the mailed
letter was indeed received by the addressee, viz.:

"Jurisprudence is replete with cases holding that if the taxpayer denies

ever having received an assessment from the BIR, it is incumbent upon the
latter to prove by competent evidence that such notice was indeed received by
the addressee. The onus probandi was shifted to respondent to prove by

Copyright 2020 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia First Release 2020 41
 contrary evidence that the Petitioner received the assessment in the due course
of mail. The Supreme Court has consistently held that while a mailed letter is
deemed received by the addressee in the course of mail, this is merely a
disputable presumption subject to controversion and a direct denial thereof
shifts the burden to the party favored by the presumption to prove that the
mailed letter was indeed received by the addressee (Republic vs. Court of
Appeals, 149 SCRA 351). Thus as held by the Supreme Court in Gonzalo P.
Nova vs. Commissioner of Internal Revenue, 13 SCRA 104, January 30, 1965:

'The facts to be proved to raise this presumption are (a) that the
letter was properly addressed with postage prepaid, and (b) that it was
mailed. Once these facts are proved, the presumption is that the letter
was received by the addressee as soon as it could have been transmitted
to him in the ordinary course of the mail. But if one of the said facts fails
to appear, the presumption does not lie. (VI, Moran, Comments on the
Rules of Court, 1963 ed, 56-57 citing Enriquez vs. Sunlife Assurance of
Canada, 41 Phil 269).'" (Emphases supplied)

To prove that the accused was duly informed of its tax deficiency, the
prosecution presented the PAN 160(161) and FAN/FLD. 161(162)

However, the Court finds that no prosecution witnesses testified as to the fact
of mailing of the PAN and FAN/FLD. The issue could have been settled by RO
Omaña's Judicial Affidavit 162(163) but the testimony merely stated that the PAN
was issued on June 28, 2016 while the FAN/FLD was issued on July 26, 2016 and
that both were served by registered mail to Enviroaire, Inc.'s registered addresses,
thus:

"Q43. After filing the case, what did you do with the case docket?

A: The case docket was forwarded to the Assessment Division for the preparation
of the Preliminary Assessment Notice and Final Assessment Notice with
Formal Letter of Demand for the collection of deficiency internal revenue
taxes of Enviroaire, Inc.

Q44. When was the PAN issued by the BIR?

A: The Preliminary Assessment Notice or PAN for taxable year 2007 was issued
on June 28, 2016. It was served by registered mail to Enviroaire, Inc.'s
registered addresses: No. 40 Shaw Boulevard, Bagong Silang, Mandaluyong
City and 8/F Galleria Corporate Center, EDSA corner Ortigas Avenue,
Quezon City.

The PAN was also mailed to accused's address on record: 1440 J. Abad Santos
Copyright 2020 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia First Release 2020 42
 Street, Tondo, Manila.

Q45. When was the FAN/FLD issued by the BIR?

A: The Final Assessment Notice and Formal Letter of Demand (FAN/FLD) for
taxable year 2007 was issued on July 26, 2016. It was also served by
registered mail to Enviroaire, Inc.'s two registered addresses and accused's
address on record." 163(164)

In the more recent case of Allied Banking Corporation (now Philippines

National Bank) v. Eduardo De Guzman, Sr., et al., 164(165) the Supreme Court held
that when a mail matter was sent by registered mail, a party proving the same must
present sufficient evidence thereof, such as the registry receipt issued by the Bureau
of Posts or the registry return card which would have been signed by the petitioner or
its authorized representative, as follows:

"On the basis of Section 3(v), Rule 131, of the 1997 Rules of Court, the
Court has consistently ruled that when a mail matter was sent by registered
mail, there arises a disputable presumption that it was received in the regular
course of mail. The facts to be proved in order to raise this presumption are: (a)
that the letter was properly addressed with postage prepaid; and (b) that it was
mailed. In Commissioner of Internal Revenue v. Metro Star Superama, Inc.,
citing Barcelon, Roxas Securities, Inc. (now known as UBP Securities, Inc.) v.
Commissioner of Internal Revenue, the Court had the occasion to stress that in
order to prove the fact of mailing, the second requisite above, it is important
that a party proving the same present sufficient evidence thereof, such as the
registry receipt issued by the Bureau of Posts or the registry return card which
would have been signed by the petitioner or its authorized representative, to wit:

On the matter of service of a tax assessment, a further perusal of our

ruling in Barcelon is instructive, viz.:

xxx xxx xxx

x x x. What is essential to prove the fact of mailing is the registry receipt

issued by the Bureau of Posts or the Registry return card which would have
been signed by the Petitioner or its authorized representative. And if said
documents cannot be located, Respondent at the very least, should have
submitted to the Court a certification issued by the Bureau of Posts and any
other pertinent document which is executed with the intervention of the Bureau
of Posts. This Court does not put much credence to the self-serving
documentations made by the BIR personnel especially if they are unsupported
by substantial evidence establishing the fact of mailing. Thus:

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 xxx xxx xxx

The Court agrees with the CTA that the CIR failed to discharge its duty
and present any evidence to show that Metro Star indeed received the PAN
dated January 16, 2002. It could have simply presented the registry receipt or
the certification from the postmaster that it mailed the PAN, but failed. Neither
did it offer any explanation on why it failed to comply with the requirement of
service of the PAN. It merely accepted the letter of Metro Star's chairman dated
April 29, 2002, that stated that he had received the FAN dated April 3, 2002,
but not the PAN; that he was willing to pay the tax as computed by the CIR; and
that he just wanted to clarify some matters with the hope of lessening its tax
liability."

Unfortunately, the prosecution did not present any evidence to prove that the
assessment notices were duly served and received by accused Tyrone N. Ong and
Arlene Chua.

"Basic is the rule that bare allegations, unsubstantiated by evidence, are not
equivalent to proof, i.e., mere allegations are not evidence." 165(166) Accordingly,
the absence of any proof by competent evidence of the receipt of the PAN and
FAN/FLD by the accused, renders the assessments void.

A void assessment bears no valid fruit. The law imposes a substantive, not
merely a formal, requirement. To proceed heedlessly with tax collection without first
establishing a valid assessment is evidently violative of the cardinal principle in
administrative investigations: that taxpayers should be able to present their case and
adduce supporting evidence. 166(167)

Indeed, taxes are the lifeblood of government and should be collected without
hindrance. However, the collection of taxes should be exercised "reasonably and in
accordance with the prescribed procedure." The essential nature of taxes for the
existence of the State grants government with vast remedies to ensure its collection.
However, taxpayers are guaranteed their fundamental right to due process of law, as
articulated in various ways in the process of tax assessment. After all, the State's
purpose is to ensure the well-being of its citizens, not simply to deprive them of their
fundamental rights. 167(168)

Finally, Section 205 (b) of the NIRC, as amended, provides the requisites for
the award of civil liability in criminal case, to wit:

"SEC. 205. Remedies for the Collection of Delinquent Taxes. — The

civil remedies for the collection of internal revenue taxes, fees or charges, and
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 any increment thereto resulting from delinquency shall be:

(a) xxx

(b) By civil or criminal action.

Either of these remedies or both simultaneously may be pursued in the

discretion of the authorities charged with the collection of such taxes: Provided,
however, That the remedies of distraint and levy shall not be availed of where
the amount of tax involved is not more than One hundred pesos (P100).

The judgment in the criminal case shall not only impose the penalty but
shall also order payment of the taxes subject of the criminal case as finally
decided by the Commissioner.

The Bureau of Internal Revenue shall advance the amounts needed to

defray costs of collection by means of civil or criminal action, including the
preservation or transportation of personal property distrained and the
advertisement and sale thereof, as well as of real property and improvements
thereon." (Underscoring supplied)

In view of the foregoing, without any other evidence presented by the

prosecution as proof for the civil aspect of this case, this Court cannot impose any
civil liability on the accused in this case.

WHEREFORE, premises considered, the Court rules as follows:

1. Accused TYRONE N. ONG and ARLENE CHUA are hereby

found GUILTY BEYOND REASONABLE DOUBT of violating
Section 254 in relation to Section 253 and 256 of the NIRC, as
amended, and are hereby SENTENCED to suffer an indeterminate
penalty of imprisonment of two (2) years as minimum to four (4)
years as maximum, and ORDERED to pay a fine in the amount of
One Hundred Thousand Pesos (P100,000.00), with subsidiary
imprisonment, in case accused have no property with which to
meet such fine, pursuant to Section 280 of the NIRC, as amended.

2. ENVIROAIRE, INC. is found GUILTY BEYOND

REASONABLE DOUBT of violating Section 254 in relation to
Section 256 of the NIRC, as amended, and is ORDERED TO
PAY a fine of One Hundred Thousand Pesos (P100,000.00); and,

3. The Preliminary Assessment Notice dated June 28, 2016, and Final

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 Assessment Notice and Formal Letter of Demand for Income Tax
and Value Added Tax, all dated July 26, 2016, are hereby declared
VOID.

SO ORDERED.

(SGD.) JUANITO C. CASTAÑEDA, JR.

Associate Justice
Cielito N. Mindaro-Grulla and Jean Marie A. Bacorro-Villena, JJ., concur.

Footnotes
1. "SEC. 7. Jurisdiction. — The CTA shall exercise:
xxx xxx xxx
(b) Jurisdiction over cases involving criminal offenses as herein provided:
(1) Exclusive original jurisdiction over all criminal offenses arising from violations
of the National Internal Revenue Code or Tariff and Customs Code and other laws
administered by the Bureau of Internal Revenue or the Bureau of Customs: Provided,
however, That offenses or felonies mentioned in this paragraph where the principal
amount of taxes and fees, exclusive of charges and penalties, claimed is less than One
million pesos (P1,000,000.00) or where there is no specified amount claimed shall be
tried by the regular Courts and the jurisdiction of the CTA shall be appellate. Any
provision of law or the Rules of Court to the contrary notwithstanding, the criminal
action and the corresponding civil action for the recovery of civil liability for taxes
and penalties shall at all times be simultaneously instituted with, and jointly
determined in the same proceeding by the CTA, the filing of the criminal action being
deemed to necessarily carry with it the filing of the civil action, and no right to
reserve the filling of such civil action separately from the criminal action will be
recognized."
2. "SEC. 3. Cases within the jurisdiction of the Court in Divisions. — The Court in
Divisions shall exercise:
xxx xxx xxx
(b) Exclusive jurisdiction over cases involving criminal offenses, to wit:
(1) Original jurisdiction over all criminal offenses arising from violations of the
National Internal Revenue Code or Tariff and Customs Code and other laws
administered by the Bureau of Internal Revenue of the Bureau of Customs, where the
principal amount of taxes and fees, exclusive of charges and penalties, claimed is one
million pesos or more; and"
3. "SEC. 220. Form and Mode of Proceeding in Actions Arising under this Code. —
Civil and criminal actions and proceedings instituted in behalf of the Government
under the authority of this Code or other law enforced by the Bureau of Internal
Revenue shall be brought in the name of the Government of the Philippines and shall
Copyright 2020 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia First Release 2020 46
 be conducted by legal officers of the Bureau of Internal Revenue but no civil or
criminal action for the recovery of taxes or the enforcement of any fine, penalty or
forfeiture under this Code shall be filed in court without the approval of the
Commissioner."
4. Q&A16 to Q&A18, Judicial Affidavit of Enrico L. Omaña, BIR Special Investigator,
Docket, Vol. II, pp. 872-873; Exhibit "P-4", Docket, Vol. I, p. 552.
5. BIR Registration Information, Exhibit "P-7", Docket, Vol. I, p. 572; BIR
Certification, Exhibit "P-9", Docket, Vol. I, p. 585.
6. Q&A16 to Q&A18, Judicial Affidavit of Enrico L. Omaña, BIR Special Investigator,
Docket, Vol. II, pp. 872-873; Exhibit "P-4-a", Docket, Vol. I, p. 553.
7. Urgent Motion for Leave to Travel Abroad, Docket, Vol. III, p. 1479.
8. Q&A19 to Q&A21 and Q&A25 to Q&A27, Judicial Affidavit of Enrico L. Omaña,
BIR Special Investigator, Docket, Vol. III, pp. 872-873, 874; Exhibit "P-4-a",
Treasurer's Affidavit attached to the Article of Incorporation, Docket, Vol. I, p. 559;
Exhibits "P-5-a" and "P-5-b", Docket, Vol. I, p. 563; Exhibits "P-8-a" and "P-8-b",
Docket, Vol. I, p. 574.
9. Exhibit "P-1", Docket, Vol. I, p. 544; Q&A7, Judicial Affidavit of Enrico L. Omaña,
BIR Special Investigator, Docket, Vol. III, p. 871.
10. Q&A10, Judicial Affidavit of Enrico L. Omaña, BIR Special Investigator, Docket,
Vol. II, p. 871; Exhibit "P-2", Docket, Vol. I, p. 545.
11. Q&A13 to Q&A15, Judicial Affidavit of Enrico L. Omaña, BIR Special Investigator,
Docket, Vol. III, p. 872; Exhibit "P-3", Docket, Vol. II, pp. 879 and 842.
12. Id.
13. Judicial Affidavit of Enrico L. Omaña, BIR Special Investigator, Docket, Vol. II, pp.
870-878; Exhibits "P-4" to "P-25-a", Docket, Vol. I, pp. 552-603.
14. Exhibit "P-6", Docket, Vol. I, p. 570.
15. Exhibits "P-24"," P-24-a", "P-25" and "P-25-a", Docket, Vol. I, pp. 600-603.
16. Q&A32, Judicial Affidavit of Enrico L. Omaña, BIR Special Investigator, Docket,
Vol. II, p. 875.
17. Letter to the Secretary of Justice dated June 7, 2012, attachment to July 21, 2014
Compliance, Docket, Vol. I, pp. 342-344.
18. DOJ Resolution dated February 24, 2014, attachment to July 21, 2014 Compliance,
Docket, Vol. I, pp. 361-371.
19. DOJ Resolution dated February 24, 2014, attachment to July 21, 2014 Compliance,
Docket, Vol. I, pp. 345-360.
20. Q&A43, Judicial Affidavit of Enrico L. Omaña, BIR Special Investigator, Docket,
Vol. III, p. 876-877.
21. Docket, Vol. I, pp. 4-7.
22. Id., pp. 178-206.
23. Docket, Vol. I, pp. 335-338.
24. "SEC. 220. Form and Mode of Proceeding in Actions Arising under this Code. —
Civil and criminal actions and proceedings instituted in behalf of the Government
under the authority of this Code or other law enforced by the Bureau of Internal

Copyright 2020 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia First Release 2020 47
 Revenue shall be brought in the name of the Government of the Philippines and shall
be conducted by legal officers of the Bureau of Internal Revenue but no civil or
criminal action for the recovery of taxes or the enforcement of any fine, penalty or
forfeiture under this Code shall be filed in court without the approval of the
Commissioner."
25. Docket, Vol. I, pp. 339-341.
26. Id., pp. 397-398.
27. Id., pp. 405-406.
28. Id., p. 408.
29. Id., p. 412.
30. Id., pp. 413-414.
31. Id., pp. 415-417.
32. Id., pp. 423-425.
33. Id., pp. 418-421.
34. Id., pp. 427-428.
35. Id., pp. 429-430.
36. Id., p. 432.
37. Id., pp. 439-440.
38. Id., pp. 441-443.
39. Id., p. 445.
40. Id., pp. 451-452.
41. Id., pp. 467-469.
42. Order dated June 8, 2016, Id., pp. 511-513; and Certificates of Arraignment, Id., pp.
514-515.
43. Docket, Vol. I, pp. 523-533.
44. Q&A43-Q&A44, Judicial Affidavit of Enrico L. Omaña, BIR Special Investigator,
Docket, Vol. II, pp. 876-877.
45. Q&A45-Q&A46, Judicial Affidavit of Enrico L. Omaña, BIR Special Investigator,
Docket, Vol. II, p. 877.
46. Docket, Vol. II, pp. 649-654.
47. Citing People of the Philippines v. Renato C. Corona, Crim. Case Nos. O-356 to
O-367, April 6, 2015.
48. Docket, Vol. II, pp. 663-668.
49. Id., pp. 678-681.
50. Id., p. 684.
51. Id., pp. 690-693.
52. Id., pp. 700-716.
53. Id., pp. 767-769.
54. Id., pp. 638-642.
55. Id., pp. 775-779.
56. Id., pp. 770-774.
57. Order dated July 5, 2017, id., pp. 843-845.
58. Docket, Vol. II, pp. 849-853.

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 59. Id., p. 856.
60. Id., pp. 858-866.
61. Exhibit "P-29", Docket, Vol. II, pp. 870-878.
62. Exhibit "P-31"; Docket, Vol. II, pp. 896-898.
63. Docket, Vol. II, pp. 1122-1123.
64. Docket, Vol. II, pp. 1124-1132.
65. Docket, Vol. III, pp. 1285-1286.
66. Id., pp. 1294-1315.
67. Id., pp. 1391-1400.
68. Id., pp. 1403-1421.
69. Id., pp. 1555-1557.
70. Docket, Vol. V, pp. 2628-2634.
71. Id., p. 2691.
72. Id., pp. 2693-2699.
73. Id., p. 2701.
74. Exhibit "A-1", Docket, Vol. V, pp. 2702-2714.
75. Transcript of Stenographic Notes (TSN) dated April 22, 2019, pp. 8-9.
76. Docket, Vol. V, pp. 2820-2851.
77. Id., p. 2852.
78. Id., p. 2853.
79. Issue to be Resolved, JSFI, Docket, Vol. II, p. 849.
80. Exhibit "P-24-a", Docket, Vol. I, p. 601.
81. Exhibit "P-25-a", Docket, Vol. I, p. 603.
82. Exhibit "P-26", Docket, Vol. I, pp. 604-607.
83. Exhibit "P-27", Docket, Vol. II, pp. 1133-1136.
84. G.R. No. 128315, June 29, 1999.
85. DOJ Resolution dated February 24, 2014, attachment to July 21, 2014 Compliance,
Docket, Vol. I, pp. 361-371.
86. Q&A45-Q&A46, Judicial Affidavit of Enrico L. Omaña, BIR Special Investigator,
Docket, Vol. II, p. 877.
87. G.R. No. 147188, September 14, 2004.
88. Bureau of Internal Revenue v. Court of Appeals, et al., G.R. No. 197590, November
24, 2014.
89. G.R. No. 197590, November 24, 2014.
90. Exhibit "P-4" and "P-4-a", SEC Certificate of Incorporation and Articles of
Incorporation, Docket, Vol. I, pp. 552-559; Exhibit "P-6", Notes to Audited Financial
Statements, Docket, Vol. I, p. 580; Q&A6, Judicial Affidavit of Tyrone N. Ong,
Exhibit "A-1", Docket, Vol. V, p. 2705.
91. Section 23 (E) of the NIRC states:
"TITLE II
TAX ON INCOME
CHAPTER II
GENERAL PRINCIPLES

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 SEC. 23. General Principles of Income Taxation in the Philippines. — Except when
otherwise provided in this Code:
(A) A citizen of the Philippines residing therein is taxable on all income derived from
sources within and without the Philippines;
(B) A nonresident citizen is taxable only on income derived from sources within the
Philippines;
(C) An individual citizen of the Philippines who is working and deriving income
from abroad as an overseas contract worker is taxable only on income derived from
sources within the Philippines: Provided, That a seaman who is a citizen of the
Philippines and who receives compensation for services rendered abroad as a member
of the complement of a vessel engaged exclusively in international trade shall be
treated as an overseas contract worker;
(D) An alien individual, whether a resident or not of the Philippines, is taxable only
on income derived from sources within the Philippines;
(E) A domestic corporation is taxable on all income derived from sources within and
without the Philippines; and
(F) A foreign corporation, whether engaged or not in trade or business in the
Philippines, is taxable only on income derived from sources within the Philippines."
(Underscoring supplied)
92. Bureau of Internal Revenue, et al. v. Court of Appeals, et al., G.R. No. 197590,
November 24, 2014.
93. "CHAPTER IV
TAX ON CORPORATIONS
SEC. 27. Rates of Income tax on Domestic Corporations. —
(A) In General. — Except as otherwise provided in this Code, an income tax of
thirty-five percent (35%) is hereby imposed upon the taxable income derived during
each taxable year from all sources within and without the Philippines by every
corporation, as defined in Section 22 (B) of this Code and taxable under this Title as
a corporation, organized in, or existing under the laws of the Philippines: Provided,
That effective January 1, 2009, the rate of income tax shall be thirty percent (30%)."
(As amended by R.A. 9337)
94. Exhibit "P-9", Certification of RDO 41 that Enviroaire is a VAT-registered taxpayer,
Docket, Vol. I, p. 585; Exhibit "P-24-a" and Exhibit "P-25-a", Enviroaire VAT
Official Receipts, Docket, Vol. I, pp. 601 and 603.
95. Exhibit "P-4-a", Primary Purpose of the Corporation, Docket, Vol. I, p. 553; Exhibit
"P-5", General Information Sheet for CY 2007, Docket, Vol. I, p. 561.
96. "SEC. 105. Persons Liable. — Any person who, in the course of trade or business,
sells barters, exchanges, leases goods or properties, renders services, and any person
who imports goods shall be subject to the value-added tax (VAT) imposed in
Sections 106 to 108 of this Code.
The value-added tax is an indirect tax and the amount of tax may be shifted or passed
on to the buyer, transferee or lessee of the goods, properties or services. This rule
shall likewise apply to existing contracts of sale or lease of goods, properties or

Copyright 2020 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia First Release 2020 50
 services at the time of the effectivity of Republic Act No. 7716.
The phrase 'in the course of trade or business' means the regular conduct or pursuit
of a commercial or an economic activity, including transactions incidental thereto, by
any person regardless of whether or not the person engaged therein is a non-stock,
nonprofit private organization (irrespective of the disposition of its net income and
whether or not it sells exclusively to members or their guests), or government entity.
The rule of regularity, to the contrary notwithstanding, services as defined in this
Code rendered in the Philippines by nonresident foreign persons shall be considered
as being rendered in the course of trade or business.
xxx xxx xxx
SEC. 106. Value-Added Tax on Sale of Goods or Properties. —
(A) Rate and Base of Tax. — There shall be levied, assessed and collected on every
sale, barter or exchange of goods or properties, value-added tax equivalent to ten
percent (10%) of the gross selling price or gross value in money of the goods or
properties sold, bartered or exchanged, such tax to be paid by the seller or transferor:
Provided, That the President, upon the recommendation of the Secretary of Finance,
shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent
(12%), after any of the following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of
the previous year exceeds two and four-fifth percent (2 4/5%); or
(ii) National Government deficit as a percentage of GDP of the previous year exceeds
one and one-half percent (1 1/2%).
xxx xxx xxx
SEC. 108. Value-Added Tax on Sale of Services and Use or Lease of Properties. —
(A) Rate and Base of Tax. — There shall be levied, assessed and collected, a
value-added tax equivalent to ten percent (10%) 10 of gross receipts derived from the
sale or exchange of services, including the use or lease of properties: Provided, That
the President, upon the recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the value-added tax to twelve percent (12%), after any of the
following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of
the previous year exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds
one and one-half percent (1 1/2%).
The phrase 'sale or exchange of services' means the performance of all kinds of
services in the Philippines for others for a fee, remuneration or consideration,
including those performed or rendered by construction and service contractors; stock,
real estate, commercial, customs and immigration brokers; lessors of property,
whether personal or real; warehousing services; lessors or distributors of
cinematographic films; persons engaged in milling processing, manufacturing or
repacking goods for others; proprietors, operators or keepers of hotels, motels, rest
houses, pension houses, inns, resorts; proprietors or operators of restaurants,
refreshment parlors, cafes and other eating places, including clubs and caterers;

Copyright 2020 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia First Release 2020 51
 dealers in securities; lending investors; transportation contractors on their transport of
goods or cargoes, including persons who transport goods or cargoes for hire another
domestic common carriers by land relative to their transport of goods or cargoes;
common carriers by air and sea relative to their transport of passengers, goods or
cargoes from one place in the Philippines to another place in the Philippines; sales of
electricity by generation companies, transmission, and distribution companies;
services of franchise grantees of electric utilities telephone and telegraph, radio and
television broadcasting and all other franchise grantees except those under section
119 of this Code, and non-life insurance companies (except their crop insurances),
including surety, fidelity, indemnity, and bonding companies; and similar services
regardless of whether or not the performance thereof calls for the exercise or use of
the physical or mental faculties. The phrase "sale or exchange of services" shall
likewise include:
xxx xxx xxx"
97. Nos. 7, 11 and 12, Offer of Testimony, Judicial Affidavit of Tyrone N. Ong, Exhibit
"A-1", Docket, Vol. V, pp. 2703-2704.
98. Nos. 1, 2 and 3, Offer of Testimony, Judicial Affidavit of Tyrone N. Ong, Exhibit
"A-1", Docket, Vol. V, p. 2703.
99. Q&A3-Q&A6 and Q&A8-Q&A9, Judicial Affidavit of Tyrone N. Ong, Docket, Vol.
V, pp. 2705-2706.
100. April 22, 2019 Order, Docket, Vol. V, pp. 2752-2753.
101. Docket, Vol. I, p. 586.
102. Docket, Vol. I, p. 603.
103. Docket, Vol. I, p. 602.
104. Weygandt, Kimmel and Kieso, Accounting Principles, 2010, p. 97.
105. Mertens Law of Fed Income Tax §12A.57.
106. Weygandt, Kimmel and Kieso, Accounting Principles, 2010, p. 97.
107. Id.
108. G.R. No. 172231, February 12, 2007.
109. Exhibit P-8, Docket, Vol. I, p. 576.
110. Philippine Financial Reporting Standards as at December 31, 2006, Part I of II, p.
12-13.
111. Recognition is 'the process of capturing, for inclusion in the statement of financial
position or the statement(s) of financial performance, an item that meets the
definition of an asset, a liability, equity, income or expenses,' Applying IFRS, IASB
Issues Revised Conceptual Framework for Financial Reporting, p. 6, last accessed
August 6, 2019 and downloaded from:
https://www.ey.com/Publication/vwLUAssets/ey-applying-conceptual-framework-ap
ril2018/$FILE/ey-applying-conceptual-framework-april2018.pdf.
112. Exhibit P-8, Docket, Vol. I, p. 580.
113. Philippine Financial Reporting Standards as at December 31, 2006, Part I of II, p.
391.
114. Philippine Financial Reporting Standards as at December 31, 2006, Part I of II, p.

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 25-26.
115. Philippine Financial Reporting Standards as at December 31, 2006, Part I of II, pp.
643-644.
116. G.R. No. 172231, February 12, 2007.
117. Exhibit "P-2", Docket, Vol. I, p. 546.
118. Exhibit "P-6", Docket, Vol. I, p. 570.
119. Exhibit "P-8", Docket, Vol. I, p. 577.
120. Id.
121. Exhibits P-10 to P-23, Docket, Vol. I, pp. 586-599.
122. Statement of Income, Exhibit P-8, Docket, Vol. I, p. 577.
123. Line 15, Exhibit P-6, Docket, Vol. I, pp. 570-571.
124. Exhibit P-10, Docket, Vol. I, p. 586.
125. Exhibits P-11 to P-23, Docket, Vol. I, pp. 587-599.
126. Exhibits P-25 and P-25-a, Docket, Vol. I, pp. 602-603.
127. Exhibits P-24 and P-24-a., Docket, Vol. I, pp. 600-601.
128. Memorandum, Docket, Vol. V, pp. 2826-2829.
129. Line 17, Exhibit P-2, Docket, Vol. I, pp. 545-548.
130. Statement of Income, Exhibit P-8, Docket, Vol. I, p. 577.
131. 2008 ITR, Exhibit "P-2", Docket, Vol. I, p. 546.
132. Exhibit "P-6", Docket, Vol. I, p. 570.
133. Exhibit "P-2", Docket, Vol. I, p. 546.
134. Yutivo Sons Hardware Company v. Court of Tax Appeals and Collector of Internal
Revenue, G.R. No. L-13203, January 28, 1961.
135. G.R. No. L-13203, January 28, 1961.
136. Bouvier Law Dictionary, Compact Edition (2011), p. 444.
137. Liberty Insurance Corporation v. The Honorable Court of Appeals, et al., G.R. No.
104405, May 13, 1993.
138. Barron's Dictionary of Accounting Terms, Fourth Edition (2005), p. 290.
139. Philippine Financial Reporting Standards as at December 31, 2006, Part I of II, p. 14.
140. Mertens Law of Fed Income Tax §12A.100.
141. Exhibit "A-1", Judicial Affidavit of Tyrone N. Ong, Docket, Vol. V, pp. 2710-2711.
142. Bouvier Law Dictionary, Compact Edition 2011, p. 961.
143. Bouvier Law Dictionary, Compact Edition 2011, p. 757.
144. Exhibit "P-8", Audited Financial Statements, Docket, Vol. I, p. 574.
145. Exhibits "P-8-a" and "P-8-b", Audited Financial Statements, Docket, Vol. I, p. 574.
146. Q&A4 and Q&A5, Judicial Affidavit of Tyrone N. Ong, Docket, Exhibit "A-1", Vol.
V, p. 2705.
147. Q&A7, Judicial Affidavit of Tyrone N. Ong, Docket, Vol. V, pp. 2705-2706.
148. Barron's Dictionary of Accounting Terms, Fourth Edition (2005), p. 290.
149. People of the Philippines v. Benjamin Kintanar, CTA Crim. Case Nos. O-031 &
O-032, Resolution dated February 23, 2011 affirmed in CTA EB Crim. Case No. 012,
May 7, 2012.
150. CTA EB Crim. Case No. 012, May 7, 2012.

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 151. CTA EB Crim. Cases Nos. 022 and 023, November 18, 2014.
152. Jerome K. Solco v. Megaworld Corporation, G.R. No. 213669, March 5, 2018.
153. The Heirs of Victorino Sarili v. Pedro F. Lagrosa, G.R. No. 193517, January 15,
2014.
154. Id.
155. "IMPLEMENTING THE PROVISIONS OF THE NATIONAL INTERNAL
REVENUE CODE OF 1997 GOVERNING THE RULES ON ASSESSMENT OF
NATIONAL INTERNAL REVENUE TAXES, CIVIL PENALTIES AND
INTEREST AND THE EXTRA-JUDICIAL SETTLEMENT OF A TAXPAYER'S
CRIMINAL VIOLATION OF THE CODE THROUGH PAYMENT OF A
SUGGESTED COMPROMISE PENALTY," September 6, 1999.
156. Commissioner of Internal Revenue v. Enron Subic Power Corporation, G.R. No.
166387, January 19, 2009.
157. Lucas G. Adamson, et al. v. Court of Appeals, et al., G.R. Nos. 120935 and 124557,
May 21, 2009.
158. Exhibit "A-1", Docket, Vol. V, p. 2707.
159. G.R. No. 157064, August 7, 2006.
160. Exhibit "P-26", Docket, Vol. I, pp. 604-607.
161. Exhibits "P-27" and "P-28", Docket, Vol. II, pp. 1133-1136 and 1137-1138.
162. Exhibit "P-29", Docket, Vol. II, pp. 876-877.
163. Id., Docket (Vol. II), pp. 876-877.
164. G.R. No. 225199, July 9, 2018.
165. Mirasol Castillo v. Republic of the Philippines, et al., G.R. No. 214064, February 6,
2017.
166. See Commissioner of Internal Revenue v. Pilipinas Shell Petroleum Corporation,
G.R. Nos. 197945 and 204119-20, July 9, 2018.
167. Commissioner of Internal Revenue v. Fitness by Design, Inc., G.R. No. 215957,
November 9, 2016.

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 Endnotes

1 (Popup - Popup)
1. "SEC. 7. Jurisdiction. — The CTA shall exercise:
xxx xxx xxx
(b) Jurisdiction over cases involving criminal offenses as herein provided:
(1) Exclusive original jurisdiction over all criminal offenses arising from violations
of the National Internal Revenue Code or Tariff and Customs Code and other laws
administered by the Bureau of Internal Revenue or the Bureau of Customs: Provided,
however, That offenses or felonies mentioned in this paragraph where the principal
amount of taxes and fees, exclusive of charges and penalties, claimed is less than One
million pesos (P1,000,000.00) or where there is no specified amount claimed shall be
tried by the regular Courts and the jurisdiction of the CTA shall be appellate. Any
provision of law or the Rules of Court to the contrary notwithstanding, the criminal
action and the corresponding civil action for the recovery of civil liability for taxes
and penalties shall at all times be simultaneously instituted with, and jointly
determined in the same proceeding by the CTA, the filing of the criminal action being
deemed to necessarily carry with it the filing of the civil action, and no right to
reserve the filling of such civil action separately from the criminal action will be
recognized."

2 (Popup - Popup)
2. "SEC. 3. Cases within the jurisdiction of the Court in Divisions. — The Court in
Divisions shall exercise:
xxx xxx xxx
(b) Exclusive jurisdiction over cases involving criminal offenses, to wit:
(1) Original jurisdiction over all criminal offenses arising from violations of the
National Internal Revenue Code or Tariff and Customs Code and other laws
administered by the Bureau of Internal Revenue of the Bureau of Customs, where the
principal amount of taxes and fees, exclusive of charges and penalties, claimed is one
million pesos or more; and"

3 (Popup - Popup)
3. "SEC. 220. Form and Mode of Proceeding in Actions Arising under this Code. —
Civil and criminal actions and proceedings instituted in behalf of the Government
under the authority of this Code or other law enforced by the Bureau of Internal
Revenue shall be brought in the name of the Government of the Philippines and shall
be conducted by legal officers of the Bureau of Internal Revenue but no civil or
criminal action for the recovery of taxes or the enforcement of any fine, penalty or

Copyright 2020 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia First Release 2020 55
 forfeiture under this Code shall be filed in court without the approval of the
Commissioner."

4 (Popup - Popup)
4. Q&A16 to Q&A18, Judicial Affidavit of Enrico L. Omaña, BIR Special Investigator,
Docket, Vol. II, pp. 872-873; Exhibit "P-4", Docket, Vol. I, p. 552.

5 (Popup - Popup)
5. BIR Registration Information, Exhibit "P-7", Docket, Vol. I, p. 572; BIR
Certification, Exhibit "P-9", Docket, Vol. I, p. 585.

6 (Popup - Popup)
6. Q&A16 to Q&A18, Judicial Affidavit of Enrico L. Omaña, BIR Special Investigator,
Docket, Vol. II, pp. 872-873; Exhibit "P-4-a", Docket, Vol. I, p. 553.

7 (Popup - Popup)
7. Urgent Motion for Leave to Travel Abroad, Docket, Vol. III, p. 1479.

8 (Popup - Popup)
8. Q&A19 to Q&A21 and Q&A25 to Q&A27, Judicial Affidavit of Enrico L. Omaña,
BIR Special Investigator, Docket, Vol. III, pp. 872-873, 874; Exhibit "P-4-a",
Treasurer's Affidavit attached to the Article of Incorporation, Docket, Vol. I, p. 559;
Exhibits "P-5-a" and "P-5-b", Docket, Vol. I, p. 563; Exhibits "P-8-a" and "P-8-b",
Docket, Vol. I, p. 574.

9 (Popup - Popup)
9. Exhibit "P-1", Docket, Vol. I, p. 544; Q&A7, Judicial Affidavit of Enrico L. Omaña,
BIR Special Investigator, Docket, Vol. III, p. 871.

10 (Popup - Popup)
10. Q&A10, Judicial Affidavit of Enrico L. Omaña, BIR Special Investigator, Docket,

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 Vol. II, p. 871; Exhibit "P-2", Docket, Vol. I, p. 545.

11 (Popup - Popup)
11. Q&A13 to Q&A15, Judicial Affidavit of Enrico L. Omaña, BIR Special Investigator,
Docket, Vol. III, p. 872; Exhibit "P-3", Docket, Vol. II, pp. 879 and 842.

12 (Popup - Popup)
12. Id.

13 (Popup - Popup)
13. Judicial Affidavit of Enrico L. Omaña, BIR Special Investigator, Docket, Vol. II, pp.
870-878; Exhibits "P-4" to "P-25-a", Docket, Vol. I, pp. 552-603.

14 (Popup - Popup)
14. Exhibit "P-6", Docket, Vol. I, p. 570.

15 (Popup - Popup)
15. Exhibits "P-24"," P-24-a", "P-25" and "P-25-a", Docket, Vol. I, pp. 600-603.

16 (Popup - Popup)
16. Q&A32, Judicial Affidavit of Enrico L. Omaña, BIR Special Investigator, Docket,
Vol. II, p. 875.

17 (Popup - Popup)
17. Letter to the Secretary of Justice dated June 7, 2012, attachment to July 21, 2014
Compliance, Docket, Vol. I, pp. 342-344.

18 (Popup - Popup)
18. DOJ Resolution dated February 24, 2014, attachment to July 21, 2014 Compliance,
Docket, Vol. I, pp. 361-371.
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 19 (Popup - Popup)
19. DOJ Resolution dated February 24, 2014, attachment to July 21, 2014 Compliance,
Docket, Vol. I, pp. 345-360.

20 (Popup - Popup)
20. Q&A43, Judicial Affidavit of Enrico L. Omaña, BIR Special Investigator, Docket,
Vol. III, p. 876-877.

21 (Popup - Popup)
21. Docket, Vol. I, pp. 4-7.

22 (Popup - Popup)
22. Id., pp. 178-206.

23 (Popup - Popup)
23. Docket, Vol. I, pp. 335-338.

24 (Popup - Popup)
24. "SEC. 220. Form and Mode of Proceeding in Actions Arising under this Code. —
Civil and criminal actions and proceedings instituted in behalf of the Government
under the authority of this Code or other law enforced by the Bureau of Internal
Revenue shall be brought in the name of the Government of the Philippines and shall
be conducted by legal officers of the Bureau of Internal Revenue but no civil or
criminal action for the recovery of taxes or the enforcement of any fine, penalty or
forfeiture under this Code shall be filed in court without the approval of the
Commissioner."

25 (Popup - Popup)
25. Docket, Vol. I, pp. 339-341.

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 26 (Popup - Popup)
26. Id., pp. 397-398.

27 (Popup - Popup)
27. Id., pp. 405-406.

28 (Popup - Popup)
28. Id., p. 408.

29 (Popup - Popup)
29. Id., p. 412.

30 (Popup - Popup)
30. Id., pp. 413-414.

31 (Popup - Popup)
31. Id., pp. 415-417.

32 (Popup - Popup)
32. Id., pp. 423-425.

33 (Popup - Popup)
33. Id., pp. 418-421.

34 (Popup - Popup)
34. Id., pp. 427-428.

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 35 (Popup - Popup)
35. Id., pp. 429-430.

36 (Popup - Popup)
36. Id., p. 432.

37 (Popup - Popup)
37. Id., pp. 439-440.

38 (Popup - Popup)
38. Id., pp. 441-443.

39 (Popup - Popup)
39. Id., p. 445.

40 (Popup - Popup)
40. Id., pp. 451-452.

41 (Popup - Popup)
41. Id., pp. 467-469.

42 (Popup - Popup)
42. Order dated June 8, 2016, Id., pp. 511-513; and Certificates of Arraignment, Id., pp.
514-515.

43 (Popup - Popup)
43. Docket, Vol. I, pp. 523-533.
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 44 (Popup - Popup)
44. Q&A43-Q&A44, Judicial Affidavit of Enrico L. Omaña, BIR Special Investigator,
Docket, Vol. II, pp. 876-877.

45 (Popup - Popup)
45. Q&A45-Q&A46, Judicial Affidavit of Enrico L. Omaña, BIR Special Investigator,
Docket, Vol. II, p. 877.

46 (Popup - Popup)
46. Docket, Vol. II, pp. 649-654.

47 (Popup - Popup)
47. Citing People of the Philippines v. Renato C. Corona, Crim. Case Nos. O-356 to
O-367, April 6, 2015.

48 (Popup - Popup)
48. Docket, Vol. II, pp. 663-668.

49 (Popup - Popup)
49. Id., pp. 678-681.

50 (Popup - Popup)
50. Id., p. 684.

51 (Popup - Popup)
51. Id., pp. 690-693.

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 52 (Popup - Popup)
52. Id., pp. 700-716.

53 (Popup - Popup)
53. Id., pp. 767-769.

54 (Popup - Popup)
54. Id., pp. 638-642.

55 (Popup - Popup)
55. Id., pp. 775-779.

56 (Popup - Popup)
56. Id., pp. 770-774.

57 (Popup - Popup)
57. Order dated July 5, 2017, id., pp. 843-845.

58 (Popup - Popup)
58. Docket, Vol. II, pp. 849-853.

59 (Popup - Popup)
59. Id., p. 856.

60 (Popup - Popup)
60. Id., pp. 858-866.

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 61 (Popup - Popup)
61. Exhibit "P-29", Docket, Vol. II, pp. 870-878.

62 (Popup - Popup)
62. Exhibit "P-31"; Docket, Vol. II, pp. 896-898.

63 (Popup - Popup)
63. Docket, Vol. II, pp. 1122-1123.

64 (Popup - Popup)
64. Docket, Vol. II, pp. 1124-1132.

65 (Popup - Popup)
* Note from the Publisher: Copied verbatim from the official copy.

66 (Popup - Popup)
65. Docket, Vol. III, pp. 1285-1286.

67 (Popup - Popup)
66. Id., pp. 1294-1315.

68 (Popup - Popup)
67. Id., pp. 1391-1400.

69 (Popup - Popup)
68. Id., pp. 1403-1421.

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 70 (Popup - Popup)
69. Id., pp. 1555-1557.

71 (Popup - Popup)
70. Docket, Vol. V, pp. 2628-2634.

72 (Popup - Popup)
71. Id., p. 2691.

73 (Popup - Popup)
72. Id., pp. 2693-2699.

74 (Popup - Popup)
73. Id., p. 2701.

75 (Popup - Popup)
74. Exhibit "A-1", Docket, Vol. V, pp. 2702-2714.

76 (Popup - Popup)
75. Transcript of Stenographic Notes (TSN) dated April 22, 2019, pp. 8-9.

77 (Popup - Popup)
76. Docket, Vol. V, pp. 2820-2851.

78 (Popup - Popup)
77. Id., p. 2852.

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 79 (Popup - Popup)
78. Id., p. 2853.

80 (Popup - Popup)
79. Issue to be Resolved, JSFI, Docket, Vol. II, p. 849.

81 (Popup - Popup)
80. Exhibit "P-24-a", Docket, Vol. I, p. 601.

82 (Popup - Popup)
81. Exhibit "P-25-a", Docket, Vol. I, p. 603.

83 (Popup - Popup)
82. Exhibit "P-26", Docket, Vol. I, pp. 604-607.

84 (Popup - Popup)
83. Exhibit "P-27", Docket, Vol. II, pp. 1133-1136.

85 (Popup - Popup)
84. G.R. No. 128315, June 29, 1999.

86 (Popup - Popup)
85. DOJ Resolution dated February 24, 2014, attachment to July 21, 2014 Compliance,
Docket, Vol. I, pp. 361-371.

87 (Popup - Popup)
86. Q&A45-Q&A46, Judicial Affidavit of Enrico L. Omaña, BIR Special Investigator,
Docket, Vol. II, p. 877.

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 88 (Popup - Popup)
87. G.R. No. 147188, September 14, 2004.

89 (Popup - Popup)
88. Bureau of Internal Revenue v. Court of Appeals, et al., G.R. No. 197590, November
24, 2014.

90 (Popup - Popup)
89. G.R. No. 197590, November 24, 2014.

91 (Popup - Popup)
90. Exhibit "P-4" and "P-4-a", SEC Certificate of Incorporation and Articles of
Incorporation, Docket, Vol. I, pp. 552-559; Exhibit "P-6", Notes to Audited Financial
Statements, Docket, Vol. I, p. 580; Q&A6, Judicial Affidavit of Tyrone N. Ong,
Exhibit "A-1", Docket, Vol. V, p. 2705.

92 (Popup - Popup)
91. Section 23 (E) of the NIRC states:
"TITLE II
TAX ON INCOME
CHAPTER II
GENERAL PRINCIPLES
SEC. 23. General Principles of Income Taxation in the Philippines. — Except when
otherwise provided in this Code:
(A) A citizen of the Philippines residing therein is taxable on all income derived from
sources within and without the Philippines;
(B) A nonresident citizen is taxable only on income derived from sources within the
Philippines;
(C) An individual citizen of the Philippines who is working and deriving income
from abroad as an overseas contract worker is taxable only on income derived from
sources within the Philippines: Provided, That a seaman who is a citizen of the
Philippines and who receives compensation for services rendered abroad as a member
of the complement of a vessel engaged exclusively in international trade shall be
treated as an overseas contract worker;
Copyright 2020 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia First Release 2020 66
 (D) An alien individual, whether a resident or not of the Philippines, is taxable only
on income derived from sources within the Philippines;
(E) A domestic corporation is taxable on all income derived from sources within and
without the Philippines; and
(F) A foreign corporation, whether engaged or not in trade or business in the
Philippines, is taxable only on income derived from sources within the Philippines."
(Underscoring supplied)

93 (Popup - Popup)
92. Bureau of Internal Revenue, et al. v. Court of Appeals, et al., G.R. No. 197590,
November 24, 2014.

94 (Popup - Popup)
93. "CHAPTER IV
TAX ON CORPORATIONS
SEC. 27. Rates of Income tax on Domestic Corporations. —
(A) In General. — Except as otherwise provided in this Code, an income tax of
thirty-five percent (35%) is hereby imposed upon the taxable income derived during
each taxable year from all sources within and without the Philippines by every
corporation, as defined in Section 22 (B) of this Code and taxable under this Title as
a corporation, organized in, or existing under the laws of the Philippines: Provided,
That effective January 1, 2009, the rate of income tax shall be thirty percent (30%)."
(As amended by R.A. 9337)

95 (Popup - Popup)
94. Exhibit "P-9", Certification of RDO 41 that Enviroaire is a VAT-registered taxpayer,
Docket, Vol. I, p. 585; Exhibit "P-24-a" and Exhibit "P-25-a", Enviroaire VAT
Official Receipts, Docket, Vol. I, pp. 601 and 603.

96 (Popup - Popup)
95. Exhibit "P-4-a", Primary Purpose of the Corporation, Docket, Vol. I, p. 553; Exhibit
"P-5", General Information Sheet for CY 2007, Docket, Vol. I, p. 561.

97 (Popup - Popup)
96. "SEC. 105. Persons Liable. — Any person who, in the course of trade or business,
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 sells barters, exchanges, leases goods or properties, renders services, and any person
who imports goods shall be subject to the value-added tax (VAT) imposed in
Sections 106 to 108 of this Code.
The value-added tax is an indirect tax and the amount of tax may be shifted or passed
on to the buyer, transferee or lessee of the goods, properties or services. This rule
shall likewise apply to existing contracts of sale or lease of goods, properties or
services at the time of the effectivity of Republic Act No. 7716.
The phrase 'in the course of trade or business' means the regular conduct or pursuit of
a commercial or an economic activity, including transactions incidental thereto, by
any person regardless of whether or not the person engaged therein is a non-stock,
nonprofit private organization (irrespective of the disposition of its net income and
whether or not it sells exclusively to members or their guests), or government entity.
The rule of regularity, to the contrary notwithstanding, services as defined in this
Code rendered in the Philippines by nonresident foreign persons shall be considered
as being rendered in the course of trade or business.
xxx xxx xxx
SEC. 106. Value-Added Tax on Sale of Goods or Properties. —
(A) Rate and Base of Tax. — There shall be levied, assessed and collected on every
sale, barter or exchange of goods or properties, value-added tax equivalent to ten
percent (10%) of the gross selling price or gross value in money of the goods or
properties sold, bartered or exchanged, such tax to be paid by the seller or transferor:
Provided, That the President, upon the recommendation of the Secretary of Finance,
shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent
(12%), after any of the following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of
the previous year exceeds two and four-fifth percent (2 4/5%); or
(ii) National Government deficit as a percentage of GDP of the previous year exceeds
one and one-half percent (1 1/2%).
xxx xxx xxx
SEC. 108. Value-Added Tax on Sale of Services and Use or Lease of Properties. —
(A) Rate and Base of Tax. — There shall be levied, assessed and collected, a
value-added tax equivalent to ten percent (10%) 10 of gross receipts derived from the
sale or exchange of services, including the use or lease of properties: Provided, That
the President, upon the recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the value-added tax to twelve percent (12%), after any of the
following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of
the previous year exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds
one and one-half percent (1 1/2%).
The phrase 'sale or exchange of services' means the performance of all kinds of
services in the Philippines for others for a fee, remuneration or consideration,
including those performed or rendered by construction and service contractors; stock,

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 real estate, commercial, customs and immigration brokers; lessors of property,
whether personal or real; warehousing services; lessors or distributors of
cinematographic films; persons engaged in milling processing, manufacturing or
repacking goods for others; proprietors, operators or keepers of hotels, motels, rest
houses, pension houses, inns, resorts; proprietors or operators of restaurants,
refreshment parlors, cafes and other eating places, including clubs and caterers;
dealers in securities; lending investors; transportation contractors on their transport of
goods or cargoes, including persons who transport goods or cargoes for hire another
domestic common carriers by land relative to their transport of goods or cargoes;
common carriers by air and sea relative to their transport of passengers, goods or
cargoes from one place in the Philippines to another place in the Philippines; sales of
electricity by generation companies, transmission, and distribution companies;
services of franchise grantees of electric utilities telephone and telegraph, radio and
television broadcasting and all other franchise grantees except those under section
119 of this Code, and non-life insurance companies (except their crop insurances),
including surety, fidelity, indemnity, and bonding companies; and similar services
regardless of whether or not the performance thereof calls for the exercise or use of
the physical or mental faculties. The phrase "sale or exchange of services" shall
likewise include:
xxx xxx xxx"

98 (Popup - Popup)
97. Nos. 7, 11 and 12, Offer of Testimony, Judicial Affidavit of Tyrone N. Ong, Exhibit
"A-1", Docket, Vol. V, pp. 2703-2704.

99 (Popup - Popup)
98. Nos. 1, 2 and 3, Offer of Testimony, Judicial Affidavit of Tyrone N. Ong, Exhibit
"A-1", Docket, Vol. V, p. 2703.

100 (Popup - Popup)

99. Q&A3-Q&A6 and Q&A8-Q&A9, Judicial Affidavit of Tyrone N. Ong, Docket, Vol.
V, pp. 2705-2706.

101 (Popup - Popup)

100. April 22, 2019 Order, Docket, Vol. V, pp. 2752-2753.

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 102 (Popup - Popup)
101. Docket, Vol. I, p. 586.

103 (Popup - Popup)

102. Docket, Vol. I, p. 603.

104 (Popup - Popup)

103. Docket, Vol. I, p. 602.

105 (Popup - Popup)

104. Weygandt, Kimmel and Kieso, Accounting Principles, 2010, p. 97.

106 (Popup - Popup)

105. Mertens Law of Fed Income Tax §12A.57.

107 (Popup - Popup)

106. Weygandt, Kimmel and Kieso, Accounting Principles, 2010, p. 97.

108 (Popup - Popup)

107. Id.

109 (Popup - Popup)

108. G.R. No. 172231, February 12, 2007.

110 (Popup - Popup)

109. Exhibit P-8, Docket, Vol. I, p. 576.

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 111 (Popup - Popup)
110. Philippine Financial Reporting Standards as at December 31, 2006, Part I of II, p.
12-13.

112 (Popup - Popup)

111. Recognition is 'the process of capturing, for inclusion in the statement of financial
position or the statement(s) of financial performance, an item that meets the
definition of an asset, a liability, equity, income or expenses,' Applying IFRS, IASB
Issues Revised Conceptual Framework for Financial Reporting, p. 6, last accessed
August 6, 2019 and downloaded from:
https://www.ey.com/Publication/vwLUAssets/ey-applying-conceptual-framework-ap
ril2018/$FILE/ey-applying-conceptual-framework-april2018.pdf.

113 (Popup - Popup)

112. Exhibit P-8, Docket, Vol. I, p. 580.

114 (Popup - Popup)

113. Philippine Financial Reporting Standards as at December 31, 2006, Part I of II, p.
391.

115 (Popup - Popup)

114. Philippine Financial Reporting Standards as at December 31, 2006, Part I of II, p.
25-26.

116 (Popup - Popup)

115. Philippine Financial Reporting Standards as at December 31, 2006, Part I of II, pp.
643-644.

117 (Popup - Popup)

116. G.R. No. 172231, February 12, 2007.

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 118 (Popup - Popup)
117. Exhibit "P-2", Docket, Vol. I, p. 546.

119 (Popup - Popup)

118. Exhibit "P-6", Docket, Vol. I, p. 570.

120 (Popup - Popup)

119. Exhibit "P-8", Docket, Vol. I, p. 577.

121 (Popup - Popup)

120. Id.

122 (Popup - Popup)

121. Exhibits P-10 to P-23, Docket, Vol. I, pp. 586-599.

123 (Popup - Popup)

122. Statement of Income, Exhibit P-8, Docket, Vol. I, p. 577.

124 (Popup - Popup)

123. Line 15, Exhibit P-6, Docket, Vol. I, pp. 570-571.

125 (Popup - Popup)

124. Exhibit P-10, Docket, Vol. I, p. 586.

126 (Popup - Popup)

125. Exhibits P-11 to P-23, Docket, Vol. I, pp. 587-599.

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 127 (Popup - Popup)
126. Exhibits P-25 and P-25-a, Docket, Vol. I, pp. 602-603.

128 (Popup - Popup)

127. Exhibits P-24 and P-24-a., Docket, Vol. I, pp. 600-601.

129 (Popup - Popup)

128. Memorandum, Docket, Vol. V, pp. 2826-2829.

130 (Popup - Popup)

129. Line 17, Exhibit P-2, Docket, Vol. I, pp. 545-548.

131 (Popup - Popup)

130. Statement of Income, Exhibit P-8, Docket, Vol. I, p. 577.

132 (Popup - Popup)

131. 2008 ITR, Exhibit "P-2", Docket, Vol. I, p. 546.

133 (Popup - Popup)

132. Exhibit "P-6", Docket, Vol. I, p. 570.

134 (Popup - Popup)

133. Exhibit "P-2", Docket, Vol. I, p. 546.

135 (Popup - Popup)

134. Yutivo Sons Hardware Company v. Court of Tax Appeals and Collector of Internal
Revenue, G.R. No. L-13203, January 28, 1961.
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 136 (Popup - Popup)
135. G.R. No. L-13203, January 28, 1961.

137 (Popup - Popup)

136. Bouvier Law Dictionary, Compact Edition (2011), p. 444.

138 (Popup - Popup)

137. Liberty Insurance Corporation v. The Honorable Court of Appeals, et al., G.R. No.
104405, May 13, 1993.

139 (Popup - Popup)

138. Barron's Dictionary of Accounting Terms, Fourth Edition (2005), p. 290.

140 (Popup - Popup)

139. Philippine Financial Reporting Standards as at December 31, 2006, Part I of II, p. 14.

141 (Popup - Popup)

140. Mertens Law of Fed Income Tax §12A.100.

142 (Popup - Popup)

141. Exhibit "A-1", Judicial Affidavit of Tyrone N. Ong, Docket, Vol. V, pp. 2710-2711.

143 (Popup - Popup)

142. Bouvier Law Dictionary, Compact Edition 2011, p. 961.

144 (Popup - Popup)

143. Bouvier Law Dictionary, Compact Edition 2011, p. 757.
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 145 (Popup - Popup)
144. Exhibit "P-8", Audited Financial Statements, Docket, Vol. I, p. 574.

146 (Popup - Popup)

145. Exhibits "P-8-a" and "P-8-b", Audited Financial Statements, Docket, Vol. I, p. 574.

147 (Popup - Popup)

146. Q&A4 and Q&A5, Judicial Affidavit of Tyrone N. Ong, Docket, Exhibit "A-1", Vol.
V, p. 2705.

148 (Popup - Popup)

147. Q&A7, Judicial Affidavit of Tyrone N. Ong, Docket, Vol. V, pp. 2705-2706.

149 (Popup - Popup)

148. Barron's Dictionary of Accounting Terms, Fourth Edition (2005), p. 290.

150 (Popup - Popup)

149. People of the Philippines v. Benjamin Kintanar, CTA Crim. Case Nos. O-031 &
O-032, Resolution dated February 23, 2011 affirmed in CTA EB Crim. Case No. 012,
May 7, 2012.

151 (Popup - Popup)

150. CTA EB Crim. Case No. 012, May 7, 2012.

152 (Popup - Popup)

151. CTA EB Crim. Cases Nos. 022 and 023, November 18, 2014.

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 153 (Popup - Popup)
152. Jerome K. Solco v. Megaworld Corporation, G.R. No. 213669, March 5, 2018.

154 (Popup - Popup)

153. The Heirs of Victorino Sarili v. Pedro F. Lagrosa, G.R. No. 193517, January 15,
2014.

155 (Popup - Popup)

154. Id.

156 (Popup - Popup)

155. "IMPLEMENTING THE PROVISIONS OF THE NATIONAL INTERNAL
REVENUE CODE OF 1997 GOVERNING THE RULES ON ASSESSMENT OF
NATIONAL INTERNAL REVENUE TAXES, CIVIL PENALTIES AND
INTEREST AND THE EXTRA-JUDICIAL SETTLEMENT OF A TAXPAYER'S
CRIMINAL VIOLATION OF THE CODE THROUGH PAYMENT OF A
SUGGESTED COMPROMISE PENALTY," September 6, 1999.

157 (Popup - Popup)

156. Commissioner of Internal Revenue v. Enron Subic Power Corporation, G.R. No.
166387, January 19, 2009.

158 (Popup - Popup)

157. Lucas G. Adamson, et al. v. Court of Appeals, et al., G.R. Nos. 120935 and 124557,
May 21, 2009.

159 (Popup - Popup)

158. Exhibit "A-1", Docket, Vol. V, p. 2707.

160 (Popup - Popup)

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 159. G.R. No. 157064, August 7, 2006.

161 (Popup - Popup)

160. Exhibit "P-26", Docket, Vol. I, pp. 604-607.

162 (Popup - Popup)

161. Exhibits "P-27" and "P-28", Docket, Vol. II, pp. 1133-1136 and 1137-1138.

163 (Popup - Popup)

162. Exhibit "P-29", Docket, Vol. II, pp. 876-877.

164 (Popup - Popup)

163. Id., Docket (Vol. II), pp. 876-877.

165 (Popup - Popup)

164. G.R. No. 225199, July 9, 2018.

166 (Popup - Popup)

165. Mirasol Castillo v. Republic of the Philippines, et al., G.R. No. 214064, February 6,
2017.

167 (Popup - Popup)

166. See Commissioner of Internal Revenue v. Pilipinas Shell Petroleum Corporation,
G.R. Nos. 197945 and 204119-20, July 9, 2018.

168 (Popup - Popup)

167. Commissioner of Internal Revenue v. Fitness by Design, Inc., G.R. No. 215957,
November 9, 2016.

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