Farcon vs. BIR
Farcon vs. BIR
Farcon vs. BIR
Issues: 1. Can the BIR estimate Farcon’s tax liability in the absence of accounting records which were
destroyed by the typhoons?
2. Are there limitations to the BIR’s reliance on Best Evidence Obtainable Rule?
Ruling:
1. Yes, Section 6(B) of the Tax Code, as amended, and Section 2.3 of RMC No. 23-2000 provide
the BIR with wide latitude to resort to the Best Evidence Obtainable Rule to make an assessment. The BIR
may determine Farcon’s tax liability through estimation considering the absence of accounting records,
which were destroyed by the typhoons. The BIR is not required to compute such tax liabilities with
mathematical exactness. Approximation in the calculation of the taxes due is justified.
2. Yes, the BIR’s power to estimate Farcon’s tax liability has limits. Citing the case of
Commissioner of Internal Revenue vs. Hantex Trading Co., Inc. (GR No. 136975, March 31, 2005), the
CTA said that such estimation should still be based on sufficient evidence. The CIR failed to present any
evidence which it supposedly procured by resorting to the Best Evidence Obtainable Rule, as basis for the
deficiency tax assessment against Farcon. The rule on 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.
Thus, as held by the Supreme Court in Hantex, the presumption of correctness of an assessment, being a
mere presumption, cannot be made to rest on another presumption.