BEST EVIDENCE OBTAINABLE (Section 6, NIRC)

1. MINDANAO BUS COMPANY vs. THE COLLECTOR OF INTERNAL REVENUE,G.R. No. L-14078

Facts:

 Petitioner is a common carrier engaged in transporting passengers and freight by means of auto-buses in
Northern Mindanao, under certificates of public convenience issued by the Public Service Commission.
Sometime in September, 1953, an agent of the respondent Collector of Internal Revenue examined the books of
accounts of the petitioner and found that the freight tickets used by it do not contain the required documentary
stamp tax.
 Said agent took with him 500 booklets of tickets used by the petitioner
o He counted 1,305 freight tickets.
o Assuming that each freight ticket covers baggage valued at more than P5.00, the Collector of Internal
Revenue, upon recommendation of the agent, assessed against the petitioner the sum of P15,704.16,
exclusive of compromise penalty, as documentary stamp taxes from January 1, 1948 up to September
16, 1953.
 The assessment of the Collector was appealed to the Court of Tax Appeals
 The tax court, modified the decision of the Collector and ordered the petitioner to pay only P15,704.16 as
documentary stamp tax for the period, without any compromise penalty.
 Upon petitioner's motion for reconsideration, the court resolved to reopen the case, for the sole purpose of
allowing the petitioner to present as evidence the 500 booklets and 17 sackful, respectively, of passenger and
freight tickets of the petitioner.
 During the rehearing of the case, the petitioner, however, failed to submit the said evidence; instead it
presented stub tickets, Exhibits "X-1" and "X-2, which were already in its possession during the first hearing.
 The Court of Tax Appeals denied the motion for reconsideration. Hence, this appeal.

ISSUE: Whether or not the computation made by the respondent is based upon the best available evidence, and not on
mere presumptions.

RULING: YES.

 The agent of the Bureau of Internal Revenue who investigated the petitioner's books of accounts found it
impossible to count one by one the freight tickets contained in used booklets dumped inside the petitioner's
bodega, because the booklets were so numerous and most of them were either torn or destroyed.
 The procedure followed by said agent, which is the average method, in ascertaining the total number of freight
tickets used during the period under review, can not be improved because an actual count of the freight tickets
is practically impossible.
 The average method is the only way by which the agent could determine the number of booklets used during
the period in question.
 The agent also correctly assumed that the value of the goods covered by each freight ticket is not less than
P5.00. It is a common practice of passengers in the rural areas not to secure receipts for cargoes of small value
and to demand receipts only for valuable cargo (Interprovincial Autobus Co., Inc. vs. Collector of Internal
Revenue, G.R. No. L-6741, January 31, 1956.)
 If the freight tickets were issued, the baggage carried must have been valuable enough.
 On the other hand, it was the duty of petitioner to present evidence to show inaccuracy in the above method of
assessment, but it failed to do so.

DISPOSITION: WHEREFORE, the decision appealed from should be affirmed, with costs against petitioner-appellant.
2. Sy Po vs. Court of Tax Appeals, No. L-81446, August 18, 1988

Ponente: Sarmiento, J.

Nature of the Case: This case is an appeal from the decision of the CTA – which affirmed the an earlier decision of the
correspondent Commissioner of Internal Revenue (CIR) in assessment letters, which ordered the payment by the petitioner of
deficiency income tax from 1966 to 1970 and deficiency specific tax for January 2, 1964 to January 19, 1972.

FACTS:

 Petitioner Sy Po is the widow of the late Mr. Po Bien Sing who died on September 7, 1980.
 In the taxable years 1964 to 1972, the deceased Po Bien Sing was the sole proprietor of Silver Cup Wine Factory (Silver
Cup) in Talisay, Cebu
o He was engaged in the business of manufacture and sale of compounded liquors, using alcohol and other
ingredients as raw materials.
 On the basis of a denunciation against Silver Cup allegedly “for tax evasion amounting to millions of pesos” the then
Secretary of Finance Cesar Virata directed the Finance-BIR-NBI team constituted under Finance Department Order No. 13-
70 dated February 19, 1971 to conduct the corresponding investigation in a memorandum dated April 2, 1971
 Accordingly, a letter and a subpoena duces tecum dated April 13, 1971 and May 3, 1971, respectively, were issued against
Silver Cup requesting production of the accounting records and other related documents for the examination of the
team.
 Mr. Po Bien Sing did not produce his books of accounts as requested
 This prompted the team with the assistance of the PC Company, Cebu City, to enter the factory bodega of Silver Cup and
seized different brands, consisting of 1,555 cases of alcohol products
 The inventory lists of the seized alcohol products are contained in Volumes I, II, III, IV and V
 On the basis of the team’s report of investigation, the respondent CIR assessed Mr. Po Bien Sing the following:
o Deficiency income tax for 1966 to 1970 in the amount of P7,154,685.16; and
o Deficiency specific tax for January 2, 1964 to January 19, 1972 in the amount of P5,595,003.68
 Petitioner protested the deficiency assessments through letters dated October 9 and October 30, 1972, which protests
were referred for reinvestigation.
 The corresponding report dated August 13, 1981 recommended the reiteration of the assessments in view of the taxpayer’s
persistent failure to present the books of accounts for examination, compelling respondent to issue warrants of distraint
and levy on September 10, 1981
o The warrants were admittedly received by petitioner on October 14, 1981, which petitioner deemed respondent’s
decision denying her protest on the subject assessments
 Hence, this appeal.

ISSUE: Whether or not the assessments have valid and legal bases.

RULING:

 Yes, the assessments have valid and legal bases.

 The applicable legal provision is Section 16(b) of the National Internal Revenue Code of 1977, as amended.
o Section 16. Power of the Commissioner of Internal Revenue to make assessments. –
xxx xxx xxx
(b) Failure to submit required returns, statements, reports and other documents. –When a report required by
law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time
fixed by law or regulation or when there is reason to believe that any such report is false, incomplete, or
erroneous, the Commissioner of Internal Revenue shall assess the proper tax on the best evidence obtainable.

In case a person fails to file a required return or other document at the time prescribed by law, or willfully or
otherwise, files a false or fraudulent return or other documents, the Commissioner shall make or amend the return
from his own knowledge and from such information as he can obtain through testimony or otherwise, which shall
be prima facie correct and sufficient for all legal purposes.
 (Emphasis added)

 The law is specific and clear.

 The rule on the “best evidence obtainable” applies when a tax report required by law for the purpose of assessment is not
available or when the tax report is incomplete or fraudulent.

Application:

 In this case, the persistent failure of the late Po Bien Sing and the herein petitioner to present their books of accounts for
examination for the taxable years involved left the CIR no other legal option except to resort to the power conferred upon
him under Section 16 of the Tax Code.
 The tax figures arrived at by the CIR are by no means arbitrary.
 This Court reproduced the respondent court’s findings, to wit:
o As thus shown, on the basis of the quantity of bottles of wines seized during the raid and the sworn statements of
former employees Messrs. Nelson S. Po and Alfonso Po taken on May 26, and 27, 1971, respectively, by the
investigating team in Cebu City, it was ascertained that the Silver Cup for the years 1964 to 1970, inclusive, utilized
and consumed in the manufacture of compounded liquors and other products 20,105 drums of alcohol as raw
materials 81,288,787 proof liters of alcohol.
o As determined, the total specific tax liability of the taxpayer for 1964 to 1971 amounted to P5,593,003.68
o Likewise, the team found due from Silver Cup deficiency income taxes for the years 1966 to 1970 inclusive in the
aggregate sum of P7,154,685.16
 The 50% surcharge has been imposed, pursuant to Section 72 of the Tax Code and tax 1/2% monthly interest has likewise
been imposed pursuant to the provisions of Section 51(d) of the Tax Code
o The petitioner assails these assessments as wrong.

 In the case of CIR vs. Reyes, this Court ruled that:

o Where the taxpayer is appealing to the tax court on the ground that the Collector’s assessment is erroneous, it is
incumbent upon him to prove there what is the correct and just liability by a full and fair disclosure of all pertinent
data in his possession.
o Otherwise, if the taxpayer confines himself to proving that the tax assessment is wrong, the tax court proceedings
would settle nothing, and the way would be left open for subsequent assessments and appeals in interminable
succession.
 Tax assessments by tax examiners are presumed correct and made in good faith.
 The taxpayer has the duty to prove otherwise.
 In the absence of proof of any irregularities in the performance of duties, an assessment duly made by BIR examiner and
approved by his superior officers will not be disturbed.
 All presumptions are in favor of the correctness of tax assessments.
 On the whole, we find that the fraudulent acts detailed in the decision under review had not been satisfactorily rebutted by
the petitioner.
 There are indeed clear indications on the part of the taxpayer to deprive the Government of the taxes due.

 Records show that from January to December 1970, Silver Cup had used in production 189 drums of untaxed distilled
alcohol and 3,722 drums of untaxed distilled alcohol.
o The Assistant Factory Superintendent of Silver Cup testified on the existence of illegal operation
o In the same vein, the factory personnel manager testified that false entries were entered in the official register
book
 The existence of fraud as found by the respondents cannot be lightly set aside absent substantial evidence presented by the
petitioner to counteract such finding.
 The findings of fact of the respondent CTA are entitled to the highest respect.
 Hence, this Court did not find anything in the questioned decision that should disturb this long-established doctrine.

Disposition: Petition denied.

Note: Section 16(b), NIRC of 1977 is now Section 6(B), NIRC of 1997
3. CIR v Hantex – Best Evidence Obtainable

GR 136975, March 31, 2005

Nature:

 This is a petition for review of the Decision of Court of Appeals (CA) which reversed the Decision of the Court of
Tax Appeals (CTA) upholding the deficiency income and sales tax assessments against respondent Hantex Trading
Co., Inc.
Facts:

 Hantex Trading Co is a company organized under the Philippines.

o It is engaged in the sale of plastic products, it imports synthetic resin and other chemicals for the
manufacture of its products.
 For this purpose, it is required to file an Import Entry and Internal Revenue Declaration (Consumption Entry) with
the Bureau of Customs under Section 1301 of the Tariff and Customs Code.
 Sometime in October 1989, Lt. Vicente Amoto, Acting Chief of Counter-Intelligence Division of the Economic
Intelligence and Investigation Bureau (EIIB), received confidential information that the respondent had imported
synthetic resin amounting to P115,599,018.00 but only declared P45,538,694.57.
 Thus, Hantex receive a subpoena to present its books of account which it failed to do.
 The bureau cannot find any original copies of the products Hantex imported since the originals were eaten by
termites.
 Thus, the Bureau relied on the certified copies of the respondent’s Profit and Loss Statement for 1987 and 1988
on file with the SEC, the machine copies of the Consumption Entries, Series of 1987, submitted by the informer,
as well as excerpts from the entries certified by Tomas and Danganan.
 The case was submitted to the CTA which ruled that Hantex have tax deficiency and is ordered to pay, per
investigation of the Bureau.
 The CA ruled that the income and sales tax deficiency assessments issued by the petitioner were unlawful and
baseless since the copies of the import entries relied upon in computing the deficiency tax of the respondent were
not duly authenticated by the public officer charged with their custody, nor verified under oath by the EIIB and
the BIR investigators.
 Petitioner’s arguments:
o Petitioner asserts that since the respondent refused to cooperate and show its 1987 books of account and
other accounting records, it was proper for her to resort to the best evidence obtainable - the photocopies
of the import entries in the Bureau of Customs and the respondent’s financial statement filed with the
SEC.
o The petitioner maintains that these import entries were admissible as secondary evidence under the best
evidence obtainable rule, since they were duly authenticated by the Bureau of Customs officials who
processed the documents and released the cargoes after payment of the duties and taxes due.
o Further, the petitioner points out that under the best evidence obtainable rule, the tax return is not
important in computing the tax deficiency.
o The petitioner avers that the best evidence obtainable rule under Section 16 of the 1977 NIRC, as
amended, legally cannot be equated to the best evidence rule under the Rules of Court; nor can the best
evidence rule, being procedural law, be made strictly operative in the interpretation of the best evidence
obtainable rule which is substantive in character.
o The petitioner posits that the CTA is not strictly bound by technical rules of evidence, the reason being
that the quantum of evidence required in the said court is merely substantial evidence.
o Finally, the petitioner avers that the respondent has the burden of proof to show the correct assessments;
otherwise, the presumption in favor of the correctness of the assessments made by it stands. Since the
respondent was allowed to explain its side, there was no violation of due process
 Respondent’s (Hantex) arguments:
o The respondent, for its part, maintains that the resort to the best evidence obtainable method was illegal.
In the first place, the respondent argues, the EIIB agents are not duly authorized to undertake examination
of the taxpayers accounting records for internal revenue tax purposes. Hence, the respondents failure to
 accede to their demands to show its books of accounts and other accounting records cannot justify resort
to the use of the best evidence obtainable method. Secondly, when a taxpayer fails to submit its tax
records upon demand by the BIR officer, the remedy is not to assess him and resort to the best evidence
obtainable rule, but to punish the taxpayer according to the provisions of the Tax Code.
o In any case, the respondent argues that the photocopies of import entries cannot be used in making the
assessment because they were not properly authenticated, pursuant to the provisions of Sections 24 and
25 of Rule 132 of the Rules of Court. It avers that while the CTA is not bound by the technical rules of
evidence, it is bound by substantial rules. The respondent points out that the petitioner did not even
secure a certification of the fact of loss of the original documents from the custodian of the import entries.
It simply relied on the report of the EIIB agents that the import entry documents were no longer available
because they were eaten by termites. The respondent posits that the two collectors of the Bureau of
Customs never authenticated the xerox copies of the import entries; instead, they only issued
certifications stating therein the import entry numbers which were processed by their office and the date
the same were released.
o The respondent argues that it was not necessary for it to show the correct assessment, considering that
it is questioning the assessments not only because they are erroneous, but because they were issued
without factual basis and in patent violation of the assessment procedures laid down in the NIRC of 1977,
as amended. It is also pointed out that the petitioner failed to use the tax returns filed by the respondent
in computing the deficiency taxes which is contrary to law; as such, the deficiency assessments constituted
deprivation of property without due process of law.

Issue:

Where the December 10, 1991 final assessment of the petitioner (CIR) against the respondent (Hantex) for deficiency
income tax and sales tax for the latters 1987 importation of resins and calcium bicarbonate based on competent
evidence and the law?

Ruling:

 NO
 The petitioner may avail herself of the best evidence or other information or testimony by exercising her power
or authority under paragraphs (1) to (4) of Section 7 of the NIRC:
1. To examine any book, paper, record or other data which may be relevant or material to such inquiry;
2. To obtain information from any office or officer of the national and local governments, government
agencies or its instrumentalities, including the Central Bank of the Philippines and government owned or
controlled corporations;
3. To summon the person liable for tax or required to file a return, or any officer or employee of such person,
or any person having possession, custody, or care of the books of accounts and other accounting records
containing entries relating to the business of the person liable for tax, or any other person, to appear
before the Commissioner or his duly authorized representative at a time and place specified in the
summons and to produce such books, papers, records, or other data, and to give testimony;
4. To take such testimony of the person concerned, under oath, as may be relevant or material to such
inquiry; [66]
 The best evidence envisaged in Section 16 of the 1977 NIRC, as amended, includes the corporate and accounting
records of the taxpayer who is the subject of the assessment process, the accounting records of other taxpayers
engaged in the same line of business, including their gross profit and net profit sales.Such evidence also includes
data, record, paper, document or any evidence gathered by internal revenue officers from other taxpayers who
had personal transactions or from whom the subject taxpayer received any income; and record, data, document
and information secured from government offices or agencies, such as the SEC, the Central Bank of the Philippines,
the Bureau of Customs, and the Tariff and Customs Commission.
  The law allows the BIR access to all relevant or material records and data in the person of the taxpayer. It places
no limit or condition on the type or form of the medium by which the record subject to the order of the BIR is
kept. The purpose of the law is to enable the BIR to get at the taxpayers records in whatever form they may be
kept. Such records include computer tapes of the said records prepared by the taxpayer in the course of business.
In this era of developing information-storage technology, there is no valid reason to immunize companies with
computer-based, record-keeping capabilities from BIR scrutiny. The standard is not the form of the record but
where it might shed light on the accuracy of the taxpayers return.

 In Campbell, Jr. v. Guetersloh the United States (U.S.) Court of Appeals (5th Circuit) declared that it is the duty of
the Commissioner of Internal Revenue to investigate any circumstance which led him to believe that the taxpayer
had taxable income larger than reported. Necessarily, this inquiry would have to be outside of the books because
they supported the return as filed. He may take the sworn testimony of the taxpayer; he may take the testimony
of third parties; he may examine and subpoena, if necessary, traders and brokers accounts and books and the
taxpayers book accounts. The Commissioner is not bound to follow any set of patterns. The existence of
unreported income may be shown by any practicable proof that is available in the circumstances of the particular
situation. Citing its ruling in Kenney v. Commissioner, the U.S. appellate court declared that where the records of
the taxpayer are manifestly inaccurate and incomplete, the Commissioner may look to other sources of
information to establish income made by the taxpayer during the years in question

Application:

 We agree with the contention of the petitioner that the best evidence obtainable may consist of hearsay evidence,
such as the testimony of third parties or accounts or other records of other taxpayers similarly circumstanced as
the taxpayer subject of the investigation, hence, inadmissible in a regular proceeding in the regular courts.
Moreover, the general rule is that administrative agencies such as the BIR are not bound by the technical rules of
evidence. It can accept documents which cannot be admitted in a judicial proceeding where the Rules of Court
are strictly observed. It can choose to give weight or disregard such evidence, depending on its trustworthiness.

 However, the best evidence obtainable under Section 16 of the 1977 NIRC, as amended, does not include mere
photocopies of records/documents. The petitioner, in making a preliminary and final tax deficiency assessment
against a taxpayer, cannot anchor the said assessment on mere machine copies of records/documents. Mere
photocopies of the Consumption Entries have no probative weight if offered as proof of the contents thereof. The
reason for this is that such copies are mere scraps of paper and are of no probative value as basis for any deficiency
income or business taxes against a taxpayer. Indeed, in United States v. Davey, the U.S. Court of Appeals (2nd
Circuit) ruled that where the accuracy of a taxpayers return is being checked, the government is entitled to use
the original records rather than be forced to accept purported copies which present the risk of error or tampering.

 In Collector of Internal Revenue v. Benipayo, the Court ruled that the assessment must be based on actual facts.
The rule assumes more importance in this case since the xerox copies of the Consumption Entries furnished by
the informer of the EIIB were furnished by yet another informer. While the EIIB tried to secure certified copies of
the said entries from the Bureau of Customs, it was unable to do so because the said entries were allegedly eaten
by termites. The Court can only surmise why the EIIB or the BIR, for that matter, failed to secure certified copies
of the said entries from the Tariff and Customs Commission or from the National Statistics Office which also had
copies thereof. It bears stressing that under Section 1306 of the Tariff and Customs Code, the Consumption Entries
shall be the required number of copies as prescribed by regulations. The Consumption Entry is accomplished in
sextuplicate copies and quadruplicate copies in other places. In Manila, the six copies are distributed to the Bureau
of Customs, the Tariff and Customs Commission, the Declarant (Importer), the Terminal Operator, and the Bureau
of Internal Revenue. Inexplicably, the Commissioner and the BIR personnel ignored the copy of the Consumption
Entries filed with the BIR and relied on the photocopies supplied by the informer of the EIIB who secured the same
from another informer. The BIR, in preparing and issuing its preliminary and final assessments against the
respondent, even ignored the records on the investigation made by the District Revenue officers on the
respondents importations for 1987.
 The original copies of the Consumption Entries were of prime importance to the BIR. This is so because such
entries are under oath and are presumed to be true and correct under penalty of falsification or perjury.
Admissions in the said entries of the importers documents are admissions against interest and presumptively
correct

 In fine, then, the petitioner acted arbitrarily and capriciously in relying on and giving weight to the machine copies
of the Consumption Entries in fixing the tax deficiency assessments against the respondent.

 The rule is that in the absence of the accounting records of a taxpayer, his tax liability may be determined by
estimation. The petitioner is not required to compute such tax liabilities with mathematical exactness.
Approximation in the calculation of the taxes due is justified. To hold otherwise would be tantamount to holding
that skillful concealment is an invincible barrier to proof. However, the rule does not apply where the estimation
is arrived at arbitrarily and capriciously.

 We agree with the contention of the petitioner that, as a general rule, tax assessments by tax examiners are
presumed correct and made in good faith. All presumptions are in favor of the correctness of a tax assessment. It
is to be presumed, however, that such assessment was based on sufficient evidence. Upon the introduction of the
assessment in evidence, a prima facie case of liability on the part of the taxpayer is made.[80] If a taxpayer files a
petition for review in the CTA and assails the assessment, the prima facie presumption is that the assessment
made by the BIR is correct, and that in preparing the same, the BIR personnel regularly performed their duties.
This rule for tax initiated suits is premised on several factors other than the normal evidentiary rule imposing proof
obligation on the petitioner-taxpayer: the presumption of administrative regularity; the likelihood that the
taxpayer will have access to the relevant information; and the desirability of bolstering the record-keeping
requirements of the NIRC.

 However, the prima facie correctness of a tax assessment does not apply upon proof that an assessment is utterly
without foundation, meaning it is arbitrary and capricious. Where the BIR has come out with a naked assessment,
i.e., without any foundation character, the determination of the tax due is without rational basis. In such a
situation, the U.S. Court of Appeals ruled that the determination of the Commissioner contained in a deficiency
notice disappears. Hence, the determination by the CTA must rest on all the evidence introduced and its ultimate
determination must find support in credible evidence.