FIRST DIVISION

[G.R. No. 197688. March 3, 2021.]

LAPAZ KAW NGO , petitioner, vs. COMMISSIONER OF

INTERNAL REVENUE, respondent.

NOTICE

Sirs/Mesdames :
Please take notice that the Court, First Division, issued a Resolution
dated March 3, 2021 which reads as follows:
"G.R. No. 197688 (Lapaz Kaw Ngo v. Commissioner of Internal
Revenue). — This Petition for Review on Certiorari 1 under Rule 45 of the
Rules of Court assails the Decision 2 dated January 24, 2011 and the
Resolution 3 dated July 15, 2011 of the Court of Appeals (CA) in CA-G.R. SP
No. 99603 setting aside the Resolutions 4 of the Secretary of Justice and
ordering that an Information for tax evasion be filed against petitioner Lapaz
Kaw Ngo.
Facts of the Case
In 2005, the then Commissioner of Internal Revenue (CIR) Jose Mario
Bunag and his revenue officers filed a complaint against Lioni T. Ngo and
Lapaz Kaw Ngo, President and Vice-President/Treasurer, respectively, of
Fishwealth Canning Corporation (Fishwealth), for tax evasion. 5
According to the CIR and the revenue officers, on August 25, 2000, the
CIR issued a Letter of Authority (LOA) No. 00009366 for the examination of
the books of accounts and other accounting records of Fishwealth covering
taxable years 1999 and uninvestigated prior years. Since Fishwealth
unjustifiably refused to present its books of accounts and other accounting
records, they were constrained to proceed with the investigation through a
Third Party Information (TPI) under Section 5 (B), in relation to Section 6 (A)
and (B) of the National Internal Revenue Code (NIRC), as amended. The TPI
allegedly revealed that Fishwealth underdeclared its sales and taxable
income in the amounts of P227,215,251.79 and P18,177,220.14,
respectively, by under-declaring its importation of raw materials for the
taxable year 1999. The aforesaid amounts should have been subjected to
value-added tax (VAT) and income tax, respectively. 6
The CIR and revenue officers evaluated and compared the data
gathered from the Audit Information, Tax Exemption, and Incentives Division
of the Bureau of Internal Revenue (BIR) with the declaration of Fishwealth in
its audited financial statements, annual income tax return, and quarterly VAT
returns and found that Fishwealth deliberately failed to declare its correct
taxable base. The revenue officers believed that the under-declaration was
not a product of mere omission or negligence but a deliberate and
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 calculated effort to illegally reduce its tax liabilities. As a result of the under-
declaration, the revenue officers stated that Fishwealth failed to pay the
amounts of P54,599,824.57 for VAT and P12,997,512.18 for income tax or a
total of P67,597,336.75 for taxable year 1999. 7
For the defense, only Lapaz Kaw Ngo submitted her counter-affidavit
because Lioni Ngo died after the filing of the complaint. Lapaz Kaw Ngo
countered that on May 16, 2000, Fishwealth received LOA No. 00061371 for
the examination of its books of accounts and accounting documents for
taxable year 1999. Fishwealth fully cooperated thereto which led into the
assessment of P2,395,825.88 representing deficiency income tax, VAT,
withholding taxes, and miscellaneous taxes. Fishwealth allegedly paid and
settled the amount on August 30, 2000. However, on September 1, 2000,
Fishwealth received LOA No. 00009366 for the examination of its books of
accounts for the same taxable year and uninvestigated prior years.
According to Lapaz Kaw Ngo, the issuance of the second LOA is prohibited in
the absence of fraud, irregularity, or mistake discovered during the first
investigation. 8 Since Fishwealth refused to submit itself to examination
pursuant to the second LOA, the revenue officers filed a complaint against
them for violation of Section 5 (C) in relation to Section 266 of the NIRC for
failure to obey subpoena. However, the complaint was dismissed by the City
Prosecutor of Quezon City. Fishwealth likewise asserted that contrary to the
finding of the revenue officers that Fishwealth only declared the amount of
P132,078,961.66 as purchases in its financial statement for 1999, the truth
is that, it declared P275,239,044.00. According to Fishwealth, the allegation
of the revenue officers that it had purchases of raw materials amounting to
P325,209,199.00 is false and bloated. Even if Fishwealth indeed made such
purchases, the alleged under-declaration would not be more than 30%.
Hence, it was not substantial under-declaration that would lead to a prima
facie evidence of fraud. 9
Finding of the State Prosecutor
In a Resolution 10 dated November 8, 2005, the state prosecutor
dismissed the complaint for insufficiency of evidence. 11 The state
prosecutor noted that the BIR improperly served the second LOA against
Fishwealth. According to the state prosecutor, the issuance of the second
LOA is contrary to Section 235 of the NIRC prescribing that the examination
of the books of a taxpayer may only be done once in a taxable year except
in the presence of fraud, irregularity, or mistake. In this case, the state
prosecutor is of the belief that the second LOA was not supported by a
finding of fraud, irregularity, or mistake. The state prosecutor observed that
at the time of the issuance of the second LOA, the first examination pursuant
to the first LOA was still in effect. Hence, when the second LOA was issued, it
was not yet premised on the finding of fraud, irregularity, or mistake. The
state prosecutor agreed with Lapaz Kaw Ngo that assuming the revenue
officers are correct, still, the alleged under-declaration does not constitute
30% which would give rise to a prima facie finding of fraud. The state
prosecutor gave credence to the fact that during the issuance of the first
LOA, Fishwealth willingly cooperated with the BIR. It had paid and settled its
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 deficiency taxes. Thus, the state prosecutor concluded that element of willful
or deliberate intent on the part of Fishwealth to under-declare its tax base to
constitute tax evasion is wanting. 12
Finding of the Secretary of Justice
The CIR filed an appeal to the Secretary of Justice (SOJ). In its
Resolution 13 dated December 11, 2006, the SOJ reversed the resolution of
the state prosecutor and ordered the filing of the Information for tax evasion
against Lapaz Kaw Ngo. The SOJ disagreed with the state prosecutor and
held that the issuance by the BIR of the second LOA against Fishwealth is
proper. According to the SOJ, the first LOA was issued for regular
investigation while the second LOA was issued for fraud investigation. In
addition, the SOJ stated that the CIR has the discretion to order the issuance
of a second LOA. The SOJ noted that a taxpayer who maintains an honest,
true, and accurate entries will readily and without hesitation, present its
books of accounts and other accounting records to the BIR. 14
However, on reconsideration, 15 the SOJ reversed himself in its
Resolution 16 dated January 20, 2007, and held that there was no probable
cause to indict Lapaz Kaw Ngo for tax evasion. The SOJ stated that when the
second LOA was issued, it was not yet premised on fraud, irregularities, or
mistake because it was issued during the pendency of the examination
pursuant to the first LOA. The SOJ likewise agreed that assuming there was
under-declaration, it was not more than 30% to constitute prima facie
evidence of fraud. 17
The CIR moved for reconsideration, however, it was denied in a
Resolution 18 dated April 18, 2007. Hence, the CIR filed a Petition for
Certiorari 19 to the CA.
Ruling of the Court of Appeals
On January 24, 2011, the CA rendered its Decision, 20 which granted
the certiorari petition and ordered the filing of Information for tax evasion
against Lapaz Kaw Ngo. 21
According to the CA, there was nothing irregular in the issuance of the
second LOA for examination of the books of accounts and other accounting
records of Fishwealth. While Section 235 of the NIRC provides that an
examination and inspection of the books of accounts of a taxpayer may only
be done once in every taxable year, nevertheless, the provision admits of an
exception. Among the exceptions include the determination by the CIR of
fraud, irregularity, or mistake. The CA likewise ruled that the issuance of the
second LOA enjoys in its favor the presumption of regularity. The CA noted
that in accordance with the findings of the revenue officers, there was
indeed remarkable discrepancy between Fishwealth's Importer's Detail
Report as compared to its audited financial statements and tax returns filed
and submitted to the BIR. The findings of the revenue officers show that
there is sufficient evidence to engender a well-founded belief that Fishwealth
had been concealing some figures in its tax return to evade payment of its
tax liability. 22
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 Aggrieved, Lapaz Kaw Ngo moved for reconsideration but the same
was denied in a Resolution 23 dated July 15, 2011.
Petitioner's Arguments
Thereafter, on September 8, 2011, Lapaz Kaw Ngo filed her Petition for
Review on Certiorari before this Court alleging that the CA erred in
substituting its own determination of the existence of probable cause to that
of the prosecutors, in violation of the settled rule that such determination is
an executive function and the prosecutor's discretion is paramount. 24 Lapaz
Kaw Ngo insists that the issuance of the second LOA against Fishwealth was
illegal and void. 25
Respondent's Arguments
On January 9, 2012, the CIR filed its Comment. 26 The CIR agreed with
the CA that the issuance of the second LOA was valid because it is an
exception to the rule that only one LOA may be issued in a taxable year. 27
The CIR likewise added that even assuming that the second LOA was void,
still, the determination of the existence of probable cause cannot be based
on the validity of the second LOA. The validity of the second LOA is
insignificant for as long as the revenue officers were able to substantiate
their finding of Fishwealth's misdeclaration and under-declaration of its
purchases in the tax returns in violation of the NIRC. 28
Petitioner's Reply
On June 18, 2012, Lapaz Kaw Ngo filed her Reply 29 essentially
reiterating the arguments raised in her petition.
Issue
The issue in this case is whether there was probable cause to indict
Lapaz Kaw Ngo of tax evasion.
Ruling of the Court
After a perusal of the records of the case, this Court resolves to deny
the Petition for Review on Certiorari for failure of Lapaz Kaw Ngo to show
that the CA committed a reversible error in finding the existence of probable
cause for tax evasion against her.
Tax evasion is penalized under Section 254, in relation to Section 255
of the NIRC, to wit:
Section 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
other penalties provided by law, upon conviction thereof, be punished
by a fine not less than Five hundred thousand pesos (P500,000) but
not more than Ten million pesos (P10,000,000) and suffer
imprisonment of not less than six (6) years but not more than Ten
(10) years: Provided, That the conviction or acquittal obtained under
this Section shall not be a bar to the filing of a civil suit for the
collection of taxes.
Section 255. Failure to File Return, Supply Correct and
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 Accurate Information, Pay Tax Withhold and Remit Tax and Refund
Excess Taxes Withheld on Compensation. — Any person required
under this Code or by rules and regulations promulgated thereunder
t o pay any tax, make a return, keep any record , or supply
correct and accurate information, who willfully fails to pay
such tax, make such return, keep such record, or supply
correct and accurate information, or withhold or remit taxes
withheld, or refund excess taxes withheld on compensation,
at the time or times required by law or rules and regulations shall, in
addition to other penalties provided by law, upon conviction thereof,
be punished by a fine of not less than Ten thousand pesos (P10,000)
and suffer imprisonment of not less than one (1) year but not more
than ten (10) years.
Any person who attempts to make it appear for any reason that
he or another has in fact filed a return or statement, or actually files a
return or statement and subsequently withdraws the same return or
statement after securing the official receiving seal or stamp of receipt
of internal revenue office wherein the same was actually filed shall,
upon conviction therefore, be punished by a fine of not less than Ten
thousand pesos (P10,000) but not more than Twenty thousand pesos
(P20,000) and suffer imprisonment of not less than one (1) year but
not more than three (3) years. (Emphasis supplied)
I n Ungab v. Judge Cusi, Jr. , 30 this Court ruled that tax evasion is
deemed complete when the violator has knowingly and willfully filed a
fraudulent return with intent to evade and defeat a part or all the taxes due.
The perpetration of the crime is grounded upon knowledge on the part of the
taxpayer that he has made an inaccurate return. 31
In this case, through a third-party information, the CIR and the revenue
officers found that Fishwealth underdeclared its sales and taxable income in
the amounts of P227,215,251.79 and P18,177,220.14, respectively, by
under-declaring its importation of raw materials for the taxable year 1999.
The revenue officers found that Fishwealth made purchases in the amount of
P325,209,199.00 but it only declared the amount of P132,078,961.55 in its
financial statement for 1999. Hence, Fishwealth failed to pay the amounts of
P54,599,824.57 for VAT and P12,997,512.18 for income tax or a total of
P67,597,336.75. The huge amount undeclared by Fishwealth in its tax
returns led the revenue officers to believe that the same was not a product
of mere omission or negligence but a deliberate and calculated effort to
illegally reduce its tax liabilities. 32
Probable cause has been defined as the existence of such facts and
circumstances as would excite the belief in a reasonable mind, acting on the
facts within the knowledge of the prosecutor, that the person charged was
guilty of the crime for which he was prosecuted. The term does not mean
"actual or positive cause" nor does it import absolute certainty. It is merely
based on opinion and reasonable belief. Thus, a finding of probable cause
does not require an inquiry into whether there is sufficient evidence to
procure a conviction. It is enough that it is believed that the act or omission
complained of constitutes the offense charged. 33

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 Here, the records of the case and the complaint of the revenue officers,
as held by the CA, support the finding of probable cause for tax evasion
against Lapaz Kaw Ngo. The defenses adduced by Lapaz Kaw Ngo are
matters of evidence which should be best threshed out during the trial of the
case.
The allegation of whether the second LOA issued by the BIR against
Fishwealth was valid or not is immaterial in determining the existence of
probable cause. The state prosecutor and the SOJ erred in basing their
determination of the non-existence of probable cause just because they
found that the issuance of the second LOA was improper. As discussed, the
essence of tax evasion is the knowledge of the taxpayer that he has made
an inaccurate return, regardless of whether another LOA is issued against
him.
Finally, while the determination of the existence of probable cause of
the prosecutor is given weight, nevertheless, this does not preclude the CA
to review the findings of the prosecutors in preliminary investigations. 34
WHEREFORE, the Petition for Review on Certiorari is DENIED. The
Decision dated January 24, 2011 and the Resolution dated July 15, 2011 of
the Court of Appeals in CA-G.R. SP No. 99603 are hereby AFFIRMED.
SO ORDERED."

By authority of the Court:

(SGD.) LIBRADA C. BUENA

Division Clerk of Court

by:

MARIA TERESA B. SIBULO

Deputy Division Clerk of Court

Footnotes
1. Rollo , pp. 8-34.
2. Penned by Associate Justice Jose C. Reyes, Jr. (former Member of this Court),
with the concurrence of Associate Justices Antonio L. Villamor and Ruben C.
Ayson; id. at 39-55.
3. Penned by Associate Justice Jose C. Reyes, Jr. (former Member of this Court),
with the concurrence of Associate Justices Antonio L. Villamor and Elihu A.
Ybañez; id. at 57.

4. Penned by Secretary Raul M. Gonzalez; CA rollo, pp. 30-37, 179-187.

5. Rollo , p. 157.
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 6. Id. at 157-158.

7. Id. at 158.
8. Id. at 159.
9. Id. at 160-161.
10. Penned by State Prosecutor Josefino A. Subia; id. at 157-168.
11. Id. at 168.

12. Id. at 166-167.

13. Id. at 222-230.
14. Id. at 227-230.
15. Id. at 231-251.

16. Id. at 96-101.

17. Id. at 99-101.
18. Id. at 94.
19. Id. at 68-90.
20. Supra note 2.

21. Rollo , pp. 54-55.

22. Id. at 50-53.
23. Supra note 3.
24. Rollo , p. 16.
25. Id. at 23.

26. Id. at 326-337.

27. Id. at 327.
28. Id. at 331-332.
29. Id. at 355-363.

30. 186 Phil. 604 (1980).

31. Id. at 610-611.
32. Rollo , pp. 163-167.
33. Unilever Philippines, Inc. v. Tan, 725 Phil. 486, 498 (2014), citing Metropolitan
Bank & Trust Co. v. Hon. Gonzales, 602 Phil. 1000, 1009 (2009).
34. Commissioner of Internal Revenue v. Hon. Gonzales, 647 Phil. 462, 493 (2010).

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