COMMISSIONER OF INTERNAL REVENUE vs. FITNESS BY DESIGN, INC.

FACTS: On 09 June 2004, respondent received a copy of the Final Assessment Notice dated 17 March 2004 issued by petitioner notifying the former of its internal revenue tax liabilities for the year 1995. Respondent filed a protest to the said notice pleading prescription. In its Answer, petitioner claimed that its right to assess had not yet prescribed because the 1995 income tax return filed by respondent was false and fraudulent for its alleged intentional failure to reflect its true sales.

ISSUE: Whether or not fraud may be presumed.

HELD: No. The prescriptive period in making an assessment depends upon whether a tax return was filed or whether the tax return filed was either false or fraudulent. When a tax return that is neither false or fraudulent has been filed, the BIR may assess within three years, reckoned from the date of actual filing or from the last day prescribed by law for filing. However, in case of a false or fraudulent return with intent to evade tax, it may assess at anytime within ten years after the discovery of the falsity, fraud or omission.

Fraud is a question of fact that should be alleged and proven. The willful neglect to file the required tax return or the fraudulent intent to evade the payment of taxes, considering the same is accompanied by legal consequences, cannot be presumed. Fraud entails corresponding sanctions under the tax law. Therefore, it is indispensable for the Commissioner of Internal Revenue to include the basis for its allegations of fraud in the assessment notice.