COMMISSIONER OF INTERNAL REVENUE v. FITNESS BY DESIGN, INC. G.R. No. 215957, November 09, 2016 Final Assessment Notice, Due Process of Law, Lifeblood Doctrine


On April 11, 1996, Fitness filed its Annual Income Tax Return for the taxable year of 1995. According to Fitness, it was still in its pre-operating stage during the covered period.

On June 9, 2004, Fitness received a copy of the Final Assessment Notice issued under a Letter of Authority which assessed that Fitness had a tax deficiency in the amount of P10,647,529.69.

Fitness filed a protest to the Final Assessment Notice, contending that the Commissioner’s period to assess had already prescribed. Further, the assessment was without basis since the company was only incorporated on May 30, 1995.

The Commissioner later issued a Warrant of Distraint and/or Levy to Fitness.

Fitness filed before the First Division of the Court of Tax Appeals (CTA) a Petition for Review (With Motion to Suspend Collection of Income Tax, Value Added Tax, Documentary Stamp Tax and Surcharges and Interests).

The Commissioner, in its Answer to Fitness’ Petition, posited that the Warrant of Distraint and/or Levy was issued in accordance with law, and that its right to assess had not yet prescribed under Section 222(a)16 of the National Internal Revenue Code (NIRC). Because the 1995 Income Tax Return filed by Fitness was false and fraudulent for its alleged intentional failure to reflect its true sales, Fitness’ respective taxes may be assessed at any time within 10 years from the discovery of fraud or omission.

The Commissioner asserted further that the assessment already became final and executory for Fitness’ failure to file a protest within the reglementary period.

The alleged fraudulent return was discovered through a tip from a confidential informant.

Through the report, the revenue officers recommended the filing of a civil case for collection of taxes and a criminal case for failure to declare Fitness’ purported sales in its 1995 Income Tax Return. Hence, a criminal complaint against Fitness was filed before the Department of Justice.

The CTA First Division granted Fitness’ Petition on the ground that the assessment has already prescribed. It cancelled and set aside the Final Assessment Notice, as well as the Warrant of Distraint and/or Levy issued by the Commissioner, for failure to comply with the requirements of Section 228 of the NIRC.

The Commissioner’s Motion for Reconsideration and Supplemental Motion for Reconsideration were denied by the CTA First Division.

Aggrieved, the Commissioner filed an appeal before the CTA En Banc, which affirmed the Decision of the CTA First Division.

Hence, this Petition for Review.


Whether the Final Assessment Notice issued against respondent Fitness by Design, Inc. is a valid assessment under Section 228 of the National Internal Revenue Code.


The Petition has no merit.

The disputed Final Assessment Notice is not a valid assessment.

First, it lacks the definite amount of tax liability for which respondent is accountable. It does not purport to be a demand for payment of tax due, which a final assessment notice should supposedly be. 

Second, there are no due dates in the Final Assessment Notice. This negates petitioner’s demand for payment.

Thus, the Warrant of Distraint and/or Levy is void since an invalid assessment bears no valid effect.

An assessment “refers to the determination of amounts due from a person obligated to make payments.” 

“In the context of national internal revenue collection, it refers to the determination of the taxes due from a taxpayer under the NIRC.”

The assessment process starts with the filing of tax return and payment of tax by the taxpayer. 

The initial assessment evidenced by the tax return is a self-assessment of the taxpayer. 

After filing a return, the Commissioner or his or her representative may allow the examination of any taxpayer for assessment of proper tax liability. 

The Commissioner or his or her authorized representative is responsible for the “appropriate review and issuance of a deficiency tax assessment, if warranted.”

If, after a review conducted, there exists sufficient basis to assess the taxpayer with deficiency taxes, the officer shall issue a preliminary assessment notice showing in detail the facts, jurisprudence, and law on which the assessment is based. 

The taxpayer is given 15 days from receipt of the pre-assessment notice to respond. If the taxpayer fails to respond, he or she will be considered in default, and a formal letter of demand and assessment notice will be issued.

The formal letter of demand and assessment notice shall state the facts, jurisprudence, and law on which the assessment was based; otherwise, these shall be void. The taxpayer or the authorized representative may administratively protest the formal letter of demand and assessment notice within 30 days from receipt of the notice.

The indispensability of affording taxpayers sufficient written notice of his or her tax liability is a clear definite requirement. 

Section 228 of the National Internal Revenue Code and Revenue Regulations No. 12-99, as amended, transparently outline the procedure in tax assessment.

The word “shall” in Section 228 of the National Internal Revenue Code and Revenue Regulations No. 12-99 means the act of informing the taxpayer of both the legal and factual bases of the assessment is mandatory. The law requires that the bases be reflected in the formal letter of demand and assessment notice.83 This cannot be presumed. 

The rationale behind the requirement that taxpayers should be informed of the facts and the law on which the assessments are based conforms with the constitutional mandate that no person shall be deprived of his or her property without due process of law.

Between the power of the State to tax and an individual’s right to due process, the scale favors the right of the taxpayer to due process.

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.

The petition is denied.

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