REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS

Quezon City

FIRST DIVISION
PEOPLE OF THE PHILIPPINES, CTA Crim. Case No. 0-247
Plaintiff,
For: Failure to Supply Correct and
Accurate Information under
Sections 24 (Income Tax on
-versus- Individuals), 51 (A)(1 )(a) in
relation to Section 255 of the
National Internal Revenue Code
JUAN MIGUEL M. ARROYO , of 1997, as amended.
Accused.
X- - - - - - - - - - - - - - - - - - - - - - - -X
PEOPLE OF THE PHILIPPINES, CTA Crim . Case No. 0-248
Plaintiff,
For: Failure to Supply Correct and
Accurate Information under
Sections 24 (Income Tax on
-versus- Individuals), 51 (A)(1 )(a) in
relation to Section 255 of the
National Internal Revenue Code
JUAN MIGUEL M. ARROYO , of 1997, as amended.
Accused.
X- - - - - - - - - - - - - - - - - - - - - - - -X
PEOPLE OF THE PHILIPPINES, CTA Crim. Case No. 0-249
Plaintiff,
For: Failure to File Income Tax
Return under Sections 24
(Income Tax on Individuals),
51(A)(1)(a) in relation to Section
255 of the National Internal
Revenue Code of 1997, as
-versus- amended.

Members:

Del Rosario , P.J. , Chairperson,

JUAN MIGUEL M. ARROYO , Uy, and
Accused. Mindaro-Grulla, JJ.

Promulgated:
MAR 2 1- 2018 · 0:«"·"'·
X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ~ _7_- - - - - - -Xn(}
- - -~ " I
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 2 of69

DECISION
DEL ROSARIO, P.J.:

These consolidated cases involve three (3) separate

Informations filed on October 6, 2011 against accused Juan Miguel M.
Arroyo, docketed as CTA Grim. Case Nos. 0-247, 0-248 and 0-249.

Accused is charged before this Court for failure to supply correct

and accurate information under Sections 24 (Income Tax on
Individuals), 51 (A)(1 )(a) 1 in relation to Section 255 2 of the National
Internal Revenue Code (NIRC) of 1997, as amended in CTA Grim.
Case Nos. 0-247, and 0-248, and for failure to file an income tax return
under the same provisions of the NIRC in CTA Grim. Case No. 0-249.
The accusatory portion of the three (3) Informations read as follows:

Crim. Case No. 0-247

"That on or about April 15, 2005, in Quezon City and within
the jurisdiction of this Honorable Court, the above-named accused,
an individual and a Filipino citizen residing in the Philippines, and at
that time required by law, rules and regulations to file his annual
income tax return did, then and there, willfully, unlawfully and&\

1 SECTION 51. Individual Return.-

XXX XXX XXX
(1) Except as provided in paragraph (2) of this Subsection, the following
individuals are required to file an income tax return:
(a) Every Filipino citizen residing in the Philippines; xxx.
2 SEC. 255. Failure to File Return, Supply Correct and 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 to pay any tax make a return, keep any record, or supply
correct the 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 (P1 0,000) and suffer imprisonment of not less than
one (1) year but not more than ten (1 0) 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 therefor, be punished by a fine of not less than
Ten thousand pesos (P1 0,000) 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.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 3 of69

substantially fail to supply correct and accurate information with

respect to his true and correct income, as said accused substantially
under declared his income for taxable year 2004 which resulted to
basic deficiency income tax of P21, 717,225.56 for taxable year 2004
exclusive of surcharge and interest, to the damage and prejudice of
the Government of the Republic of the Philippines.
CONTRARY TO LAW." 3
XXX XXX XXX

Crim. Case No. 0-248

"That on or about April 15, 2007, in Quezon City and within
the jurisdiction of this Honorable Court, the above-named accused,
an individual and a Filipino citizen residing in the Philippines, and at
that time required by law, rules and regulations to file his annual
income tax return did, then and there, wilfully, unlawfully and
substantially fail to supply correct and accurate information with
respect to his true and correct income, as said accused substantially
under declared his income for taxable year 2006 which resulted to
basic deficiency income tax of ID3,457,960.00 for taxable year 2006
exclusive of surcharge and interest, to the damage and prejudice of
the Government of the Republic of the Philippines.
CONTRARY TO LAW."4
XXX XXX XXX

Crim. Case No. 0-249

"That on or about April 15, 2008, in Quezon City and within
the jurisdiction of this Honorable Court, the above-named accused,
an individual and a Filipino citizen residing in the Philippines, and at
that time required by law, rules and regulations to file his annual
income tax return for income earned for taxable year 2007 did, then
and there, wilfully, unlawfully and feloniously fail to make and refuse
to file his annual income tax return which resulted to basic deficiency
income tax of P2, 130,129.50 for taxable year 2007 exclusive of
surcharge and interest, to the damage and prejudice of the
Government of the Republic of the Philippines.
CONTRARY TO LAW." 5

Juan Miguel M. Arroyo, the accused, is a Filipino citizen with

residential address at 15 Badjao Street, La Vista Subdivision,
Katipunan, Quezon City. He and his wife, Ma. Angela Montenegro
Arroyo, were married on June 23, 2002. He is a registered taxpayer of
Revenue District Office No. 39, South Quezon City with Taxpayer'st1j

3 CTA Grim. Case No. 0-247 Docket, pp. 4-5.

4 CTA Grim. Case No. 0-248 Docket, pp. 4-5.
5 CTA Grim. Case No. 0-249 Docket, pp. 6-7.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 4 of69

Identification Number (TIN) 914-841-267-000. He was the Vice-

Governor of Pampanga for years 2001 to 2004, and was later elected
as Congressman for the 2nd District of Pampanga for two (2)
consecutive terms from 2004 to 2010. 6

Accused declared in his Statement of Assets Liabilities and

Networth (SALN) as of December 31, 2001 the following: 7

Cash in Bank/Cash on Hand Php 2,608,922.62

Shares of Stock 2, 144,101.17
Jewelry, Watches, Clothes, Other Personal Effects 250,000.00
Total Assets 5, 003,023.79 I

Total Net Worth 5,003,023.79 !

In his Annual Income Tax Return (ITR) for taxable year 2003,
accused declared his compensation, business, professional related
income in the total amount of Php1 ,063,300.28. 8

Accused declared in his SALN as of December 31, 2004 the

following: 9

Cash in Bank/ Cash on Hand Php13,750,970.30

Shares of Stock/Club Shares 25,880,433.66

Jewelry, Clothes, Other Personal Effects 18,000,000.00

House and Lot (Lubao, Pampanga acquired in 4,000,000.00
2004)
Residential House & Lot (La Vista Subd., QC 8,000,000.00
acquired in 2004)
Motor Vehicles 5,900,000.00

Furniture, Appliances & Other Fixtures 1,000,000.00

Total Assets 76,531,403.96

Total Net Worth 76,531,403.96

Accused and his spouse declared in their Joint Annual ITR for
taxable year 2004 as their taxable income the amount of
P2,489,375.00.00
\
6 Pre-Trial Order (PTO), CTA Crim. Case No. 0-247 Docket, p. 754.
7
PTO, CTA Crim. Case No. 0-247 Docket, p. 754.
8 PTO, CTA Crim. Case No. 0-247 Docket, p. 754.
9 PTO, CTA Crim. Case No. 0-247 Docket, p. 755.
10 PTO, CTA Crim. Case No. 0-247 Docket, p. 755.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 5 of69

Accused declared in his SALN as of December 31, 2005 the

following: 11

Cash in Bank/Cash on Hand Php14, 170,970.30

Investments in Stocks (Paid-Up Capital) 25,880,433.66
Residential House and Lot (Lubao, Pampanga 4,000,000.00
acquired in 2004)
Improvement in La Vista Subd. 15,000,000.00
Residential House (La Vista Subd., QC acquired in 8,000,000.00
2004)
Residential House (US acquired in 2005 49,500,000.00
installment sale)
Motor Vehicles 5,900,000.00
Household Furniture & Other Fixtures 6,800,000.00
Total Assets 138,751,403.96
Personal Loan from Relatives 27,150,000.00
Installment Payable (from purchase of house) 34,650,000.00

Total Liabilities 61,800,000.00

Total Net Worth 76,951,403.96

Accused and his spouse declared in their Joint Annual ITR for
taxable year 2005 as their Gross Taxable Compensation Income the
amount of Php378,000.00. 12

Accused declared in his SALN as of December 31, 2006 the

following: 13

Cash in Bank/Cash on Hand Php29, 170,970.30

Investments in Stocks (Paid-Up Capital) 25,880,433.66

Jewelry, Clothes and Other Personal Effects 9,500,000.00
House and Lot (Lubao, Pampanga acquired in 4,000,000.00
2004)
Improvement in La Vista Subd. 15,000,000.00

Residential House (La Vista Subd., QC acquired in 8,000,000.00

2004)
Residential House (US acquired in 2005 63,720,000.00
installment sale)

~
~

11 PTO, CTA Grim. Case No. 0-247 Docket, p. 755.

12 PTO, CTA Grim. Case No. 0-247 Docket, p. 756.
13 PTO, CTA Grim. Case No. 0-247 Docket, pp. 756-757.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 6 of69

Motor Vehicles 5,900,000.00

Household Furniture and Fixture 6,800,000.00
Total Assets 167,971,403.96
Personal Loan from Relatives 27,150,000.00
Installment Payable (from purchase of house) 51,216,000.00
Total Liabilities 78,366,000.00
Total Net Worth 89,605,403.96

Accused declared in his SALN as of December 31, 2006 that he

has the following Business Interest and Other Financial Connections: 14

Name of Address Nature of Date of

Firm/Company Business Acquisition
Interest/
Financial
Connection
Mikey's Horseman Hobbies of Asia, President 24 January
Bar and Grill, Inc. Macapagal 2006
Ave., Pasay City
Visualtoon 85-1 D. Tuazon Shareholder 6 November
Creations, Inc. St., Cubao, 2006
Quezon City
LPG Auto Gas 379 Shaw Blvd., Director 28 March 2007
Brgy. Addition
Hill,
Mandaluyong
City

Accused and his spouse declared in their Joint Annual ITR for
taxable year 2006 as their taxable income the amount of
Php1, 738,500.00. 15

Accused declared in his SALN as of December 31, 2007 the

following: 16

Cash in Bank and Cash on Hand Php46, 700,000.00-

Stock Portfolio 44,332,409.95-

Investments in various companies (Paid-Up 14,740,000.00

Capital)

14
~
PTO, CTA Grim. Case No. 0-247 Docket, p. 757.
15 PTO, CTA Grim. Case No. 0-247 Docket, p. 757.
16 PTO, CTA Grim. Case No. 0-247 Docket, pp. 757-758.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 7 of69

Jewelries, Clothes and Other Personal Effects 9,500,000.00

Residential House and Lot (Lubao, Pampanga 4,000,000.00
acquired in 2004)
Improvement in La Vista Subd. 15,000,000.00
Residential House (La Vista Subd., QC acquired in 8,000,000.00
2004)
Motor Vehicles 5,900,000.00
Household Furniture and Fixture 6,800,000.00
Total Assets 154,972,409.95
Accrued Expenses 1,532,500.00
Advances from Relatives 33,890,000.00
Stock-term Loans 14,350,000.00
Stocks Payable 8,451,976.29
Total Liabilities 58,224,476.29
Total Net Worth 96,747,933.66

Accused declared in his SALN as of December 31, 2007 that he

has the following Business Interest and Other Financial Connections: 17

Name of Address Nature of Date of

Firm/Company Business/ Acquisition
Financial
Connection
Los Manos 2419 JIC Building, Shareholder 24 September
Verdes Syquia cor. Calderon 2007
Incorporated St., Sta. Ana, Manila
Mikey's Hobbies of Asia, President 24 January
Horseman Bar Macapagal Ave., 2006
and Grill, Inc. Pasay City
LPG Auto Gas 379 Shaw Blvd., Director 28 March 2007
Brgy. Addition Hill,
Mandaluyong City
Beach Way Beach Park Blvd., Shareholder
Park California

Subsequently, a Complaint-Affidavit 18 jointly executed on yth day

of April 2011 by Aurora Flor, Maria Lourdes Sante, Virma Clemente
Amelita Aquino, Ferdinand Malonzo, Leonesto Bernal and Sixto Dy,
Jr., the duly designated revenue officers of the Bureau of Internal
Revenue (BIR), who are assigned at the National Investigation Divisio~

17 PTO, CTA Grim. Case No. 0-247 Docket, p. 758.

18 Exhibit "8", CTA Grim. Case No. 0-247 Docket, pp. 511-516.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 8 of69

(NID) to conduct a tax investigation on individuals and entities that may

have committed violations of the provisions of the National Internal
Revenue Code (NIRC) of 1997, recommending that a criminal action
be taken and initiated against the spouses Juan Miguel M. Arroyo and
Ma. Angela M. Arroyo for attempt to evade or defeat tax for taxable
years 2004 to 2009 under Sections 51(A)(1)(a) and 74 in relation to
Section 254 of the NIRC of 1997, and for failure to file return and pay
tax for taxable years 2005, 2008 and 2009 under Section 255 of the
NIRC.

Complainants aver that based on information and documents

gathered during investigation, it was disclosed that Mr. & Mrs. Arroyo
were able to acquire real, personal and other properties for the years
2004 to 2009, which are worth several millions; that among those
properties are residential houses in Lubao, Pampanga & La Vista
Subdivision in Quezon City, motor vehicles, shares of stock, jewelries,
clothes and other personal effects as enumerated in the Statement of
Assets, Liabilities & Net Worth (SALNs) of Mr. Arroyo as of December
31 of the years 2002 to 2009; 19 and that despite the receipt of
substantial amounts of income as shown by their acquisition of
numerous properties, Mr. and Mrs. Arroyo had repeatedly failed to file
any Annual ITR and pay the corresponding taxes; and for the years
that they filed their ITRs, they understated their income. 20

Eventually, with the recommendation of the prosecution in a

Resolution dated September 16, 2011 to indict accused in court, 21 the
aforesaid three (3) separate Informations were filed on October 6,
2011, docketed as CTA Crim. Case Nos. 0-247, 0-248 and 0-249. 22

CTA Crim. Case No. 0-247 was raffled to this Court, while CTA
Crim. Case Nos. 0-248 and 0-249 were raffled to the Third and
Second Divisions Court. This Court confirmed the consolidation of CTA
Crim. Case Nos. 0-248 and 0-249, as granted by the CTA's Third and
Second Divisions, with CTA Crim. Case No. 0-247 in the Resolution
dated October 28, 2011.&\

19 Complaint-Affidavit; Exhibit "B", CTA Grim. Case No. 0-247 Docket, p. 513.
2 °Complaint-Affidavit; Exhibit "B", CTA Grim. Case No. 0-247 Docket, p. 514.
21 CTA Grim. Case No. 0-247 Docket, pp. 6-33; CTA Grim. Case No. 0-248
Docket, pp. 6-33; CTA Grim. Case No. 0-249 Docket, pp. 8-34.
22 CTA Grim. Case No. 0-247 Docket, pp. 4-5; CTA Grim. Case No. 0-248

Docket, pp. 4-5; CTA Grim. Case No. 0-249 Docket, pp. 6-7
23 CTA Grim. Case No. 0-247 Docket, pp. 268-270.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 9 of69

Meanwhile, before the consolidation of cases, this Court found

probable cause for the issuance of a Warrant of Arrest against the
accused in CTA Crim. Case No. 0-247 in the Resolution dated October
21, 2011. 24 With respect to CTA Crim. Case Nos. 0-248 and 0-249,
this Court found probable cause against accused in the Resolution
dated January 5, 2012. 25

As the accused already voluntarily submitted himself to the

jurisdiction of the Court on October 14, 2011 and this Court accepted
and approved his bail with respect to CTA Crim. Case No. 0-247, and
considering further that accused had posted the required cash bail in
CTA Crim. Case Nos. 0-248 and 0-249, which were accepted and
approved by the Third and Second Division Courts in their separate
Resolutions dated October 14, 2011, this Court scheduled the
arraignment of the accused for CTA Crim. Case Nos. 0-248 and 0-
249 on January 11, 2012 together with CTA Crim. Case No. 0-247. 26

Accused filed his Motion to Suspend Proceedings on January 9,

2012, praying that his arraignment scheduled on January 11, 201 [2]
be cancelled and all proceedings be suspended sine die until after the
Secretary of Justice resolves his appeal in NPS Docket No. XVI-INV-
11 D-00149 entitled "Bureau of Internal Revenue vs. Miguel M. Arroyo
and Ma. Angela M. Arroyo". 27

In a Resolution dated January 11, 2012, this Court granted

accused's Motion to Suspend Proceedings pursuant to Sec. 11 (c) of
Rule 116 of the Revised Rules on Criminal Procedure. The
arraignment scheduled on January 11, 2012 was reset to February 29,
2012. 28 The scheduled arraignment was further reset to April18, 2012,
upon agreement of the parties during the hearing held on February 29,
2012. 29

During his arraignment on April 18, 2012, accused entered "NO

PLEA" for the charged crime; thus, the Court entered a plea of "NOT
GUlLTY" for him in accordance with Section 1 (c), Rule 116 of the
Rules of Court. The Court set the preliminary conference on May 16,~

24 CTA Grim. Case No. 0-247 Docket, pp. 239-243.

25
CTA Grim. Case No. 0-247 Docket, pp. 314-319.
26 CTA Grim. Case No. 0-247 Docket, pp. 235-236, and 319.
27 CTA Grim. Case No. 0-247 Docket, pp. 320-323.
28
CTA Grim. Case No. 0-247 Docket, pp. 357-358.
29 February 29, 2012 Resolution, CTA Grim. Case No. 0-247 Docket, pp. 362-

364.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 10 of69

2012 and May 23, 2012, and the Pre-Trial Conference on June 6,
2012. 30

Preliminary Conferences proceeded on May 16, 2012 and on

May 23, 2012, where both parties presented their respective
documents for marking, and specified the names of their respective
witnesses to be presented. 31

The prosecution filed its Pre-Trial Brief on June 14, 2012, 32 and
accused filed his Pre-Trial Brief on June 25, 2012. 33

After several resetting, 34 Pre-Trial Conference proceeded on

September 12, 2012 35 and the same was continued on October 3,
2012. 36

Trial ensued wherein the prosecution presented eleven (11)

witnesses, namely: Atty. Aurora V. Flor, Ms. Victoria V. Santos, Ms.
Lena A. Nuguid, Clavelina S. Nacar, Amador P. Ducut, Josephine S.
Virtucio, Jasmin Y. Cruz, Ma. Gracia R. Bolutano, Arnel P. Larrobis,
Luis A. Rivera, and Amelia P. Bondoc. 37

Atty. Aurora V. Flor is the Assistant Chief of the National

Investigation Division (NID) of the SIR. She testified that she was
instructed through a memorandum by the Chief of the NID to form a
team that will conduct an investigation against the accused and his
spouse; 38 that she was one of the examiners tasked to conduct the ow')

3°CTA Crim. Case No. 0-247 Docket, p. 392-395.

31 CTA Crim. Case No. 0-247 Docket, pp. 491-501.
32 CTA Crim. Case No. 0-247 Docket, pp. 657-679.
33 CTA Crim. Case No. 0-247 Docket, pp. 695-710.
34 Minutes of Preliminary Conference resetting the June 6, 2012 Pre-Trial

Conference to June 20, 2012, CTA Crim. Case No. 0-247 Docket, pp. 606-610;
June 20, 2012 Pre-Trial Conference was reset to July 18, 2012 per Resolution
issued on June 20, 2012, CTA Crim. Case No. 0-247 Docket, pp. 686-687; July
11, 2012 Order resetting Pre-Trial Conference to August 15, 2012, CTA Crim.
Case No. 0-247 Docket, p. 711; August 10, 2012 Resolution granting accused's
Motion to Reset filed on July 24, 2012 and resetting the Pre-Trial Conference to
September 12, 2012, CTA Crim. Case No. 0-247 Docket, pp. 723-724.
35 CTA Crim. Case No. 0-247 Docket, pp. 729-730.
36 CTA Crim. Case No. 0-247 Docket, p. 742.
37 CTA Crim. Case No. 0-247 Docket, pp. 780-781, 497-500, 581-585, 596-597,

610-611, 633-634, 649-650, 740-745; 756-759, 815-818, 826-834, 858-864, 895-

900, 925-926, 943-944, 1022-1025.
38 February 20, 2013 Transcript of Stenographic Notes (TSN), p. 14.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 11 of69

investigation pursuant to a Memorandum dated January 14 and

another Memorandum of Assignment dated January 17, 2011 ;39 in
relation to their investigation, they requested for a copy of the
Statement of Assets Liabilities and Networth (SALN) of the accused for
taxable years 2001 to 2010 but the Ombudsman furnished them only
with a copy of the 2002 SALN, while the House of Representatives
furnished them with the SALN for 2004 to 201 0; 40 in relation to those
documents gathered, they prepared the computation of the unreported
taxable income based on the Net Worth [method]; 41 that after having
prepared the computation, they served the Letter of Authority (LOA)
signed by the Commissioner of Internal Revenue and addressed to the
accused authorizing the Revenue Officers to conduct an investigation
of tax liabilities of the accused; 42 and after service of LOA, they filed a
complaint before the Department of Justice against the accused, 43 the
filing of which was authorized by the CIR by way of a referral letter to
the DOJ Secretary. 44

With respect to their computation, Atty. Flor testified that the

increase in net worth was compared to the reported taxable income
and the resulting discrepancies were considered as unreported income
of the accused for 2004 to 2009 and, thereafter, computed the tax
liability of the accused using the graduated tax table under Section 24
of the Tax Code. 45 She said, however, that a different formula was used
for the year 2003 as they were not able to get a copy of the 2003 SALN
of the accused. 46 She then opted to use the ending net worth of 2002
as the beginning net worth for 2003 and added the 2003 compensation
income per ITR filed by the accused to arrive at the ending net worth
of 2003. 47 The increase in net worth 48 purportedly represented the
unreported income.

For 2006, Atty. Flor said that the increase in net worth is arrived
at after comparing the ending net worth of accused for 2006 and the
ending net worth for 2005, and the increase in net worth was compared
with the taxable income per accused's ITR for 2006 and the difference
is the unreported income. 49 She said that she used the same &J
39 February 20, 2013 TSN, p. 15.
40 June 19, 2013 TSN, pp. 4-5, 16.
41 June 19, 2013 TSN, pp. 19-20, October 2, 2013 TSN, p. 26.
4 2 June 19, 2013 TSN, pp. 21-22.
4 3 June 19, 2013 TSN, p. 27.
44
July 17, 2013 TSN, p. 5.
45 June 19, 2013 TSN, pp. 47, 49, 50.
4 6 June 19,2013 TSN, p. 42.
47 July 17, 2013 TSN, p. 26.
4B June 19,2013 TSN, p. 80.
4
9 July 17, 2013 TSN, pp. 44-46.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 12 of69

procedure for 2007, but since she has not seen the ITR of the accused
for said year and she just relied on the certification from BIR ROO 39
that accused did not file his ITR for 2007, the amount was taken from
the Annual Information Return on Income Tax Withheld on
Compensation filed by the House of Representatives before BIR ROO
39.50

She further testified that they issued a Preliminary Assessment

Notice (PAN) and a Formal Letter of Demand (FLO) with details of
discrepancies after accused's lawyer filed a response to the PAN. She
said that accused's lawyer sent a reply to the FLO questioning the
basis of the assessment [with a statement] that there is still a pending
case before the CTA and the bureau should defer the investigation as
to the civil aspect of the case. 51

She confirmed that every increase in net worth is attributed to

unreported income, 52 but agreed that it is possible that certain items,
like jewelry and watches were gifted to accused, in which case it is the
donor who would have been liable for donor's tax. 53 She testified that
she could not identify/specify the particular item of gross income not
reflected in the ITR, but stated that an income is the source of fund
used to acquire the assets, and that any in-flow or increase in wealth
is considered an income of the accused. 54 She affirmed that the
probable source of income was the fact that accused and his wife are
officers, directors and stockholders of various corporations, 55 but any
monetary benefit in the form of dividends to them as directors and
stockholders is not a taxable income. 56 She said that there is no
indication that there was a donation when they compared the reported
taxable income and the increase in net worth, and they concluded that
it is an unreported income. 57 They reached such a conclusion because
they have a Certification from the BIR that the closest relatives of the
spouses [referring to accused and his wife] did not file a Donor's Tax
Return or Estate Tax Return. 58 She affirmed that based on the SALN,
there is an indication that accused might have borrowed the money, 59
and it is also possible that there was an exchange of values, that is, he
could have sold something and converted it to cash, but she still sticks of]
50 July 17, 2013 TSN, p. 48-50, 56-57.
51
July 17, 2013 TSN, pp. 56-60, 64, 75, 76.
52 July 17, 2013 TSN, p. 77-78.
5 3 July 17, 2013 TSN, p. 79-80.
54 July 17, 2013 TSN, pp. 82, 84, 85, 89.

55 July 17, 2013 TSN, p. 86.

56 July 17, 2013 TSN, pp. 86-87.
57 October 2, 2013 TSN, p. 16
58 October 2, 2013 TSN, p. 16-17.
59 October 2, 2013 TSN, p. 15.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 13 of69

to her assumption that it was earned. 5° She affirmed that accused hid
his income in his ITR but disclosed the same in his SALN. 61 When
asked about what was not reflected as correct and accurate
information, she said that it may be the deductions as the taxpayer may
have over-claimed it by more than 25% of the actual deduction, and
confirmed that the failure to state correct and accurate information has
something to do with the taxable income. 52

With respect to the filing of their criminal complaint before

accused was able to produce the requested documents, she said that
based on the results of their preliminary investigation, they concluded
that they were ready to file the complaint and their records were
already complete before filing the case. 63 The documents they asked
is with respect to the civil aspect of the case, as they still require the
taxpayer to produce the books of accounts. 64 She confirmed that the
LOA was issued on April 4, 2001 and stated the purpose of an LOA
issuance, which is to preclude amendment of returns. She said that
even if there is no LOA, the BIR can still file a criminal case. 65

She confirmed that the law requires that the sources of income
that were unreported be identified. 66 While she confirmed that accused
and his wife have business interests in several corporations indicating
that they received other income which they did not declare, 67 she
assumed that accused and his wife earned income from corporations
to which they were listed as directors, but she never spoke with any of
these corporations. 68 She confirmed that she assumed that extra
income was earned because accused's ITRs did not match his
SALNs. 69

She confirmed that the formula for computing the net income
subject to tax using the net worth method under RMO 15-95 is not a
simple method of comparing an increase in net worth and declared
income, as increase in net worth will be added to the non-deductible
item less non-taxable income which is subjected to final tax or transfer
tax. 70 She said that there is a possibility that accused received wedding~

60 October 2, 2013 TSN, p. 15.

61 October 2, 2013 TSN, p. 27-28.
62 October 2, 2013 TSN, p. 62, 64.
63 October 2, 2013 TSN, p. 33.
64
October 2, 2013 TSN, p. 35, 62.
65 October 2, 2013 TSN, p. 59, 61
66 December 4, 2013 TSN, p. 30.
67 December 4, 2013 TSN, p. 30.
68 December 4, 2013 TSN, p. 33-37.
69 December 4, 2013 TSN, p. 45.
70
December 4, 2013 TSN, pp. 44-46
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 14 of 69

gifts but she did not make such allowance pertaining thereto since
there was no lead as to the donors. 71 She confirmed that she did not
make allowances for gifts up to one hundred thousand pesos, which
she said to be tax exempt, and that she did not deduct personal and
additional exemption. 72

She read one of the conditions for the application of net worth
method stated under RMO 43-74, which is - that the taxpayer's books
do not clearly reflect his income. She agreed that the law refers to
ledger, journals and accounting books, but in this case, she only
examined the ITR and SALN. She confirmed that she neither tried to
get a copy of the books nor to look at his books because accused's
ITR cannot justify the increase in his net worth; hence, she said, there
was no need for them to check the records. 73

She confirmed that RMO 43-7 4 (net worth method) requires

evidence of possible sources of income as listed in RMO 15-95. 74 She
said that proof of a likely source of income may be shown by any of the
following:

(i) demonstrating that there were specific omissions of

income items by the taxpayer in his ITR;

(ii) showing that the nature of the taxpayer's business is such

that it has the capacity of generating a substantial income;

(iii) proof of under-declaration of income by the existence of

unregistered sales invoices which were not recorded in the
books;

(iv) findings of unrecorded purchases;

(v) existence of business permits, license from government

agencies as to the type of businesses the taxpayer is
engaged;

(vi) keeping separate sets of books, one registered and the

other reflecting the correct transactions of a business;

(vii) use of false invoices or documents; andl1]

71 December 4, 2013 TSN, p. 52-53.

72 December 4, 2013 TSN, p. 54-55.
73
December4, 2013 TSN, pp. 57-61.
74 December 4, 2013 TSN, p. 61, 67.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 15 of69

(viii) willful destruction of accounting records. 75

She eventually belabored to address the requirements of RMO

43-74.

First, about the specific omission of income, she said that it is the
"discrepancy, the unreported income," which she assumed from the
increase in net worth. 76

Second, she revealed that she did not investigate any

businesses of the accused that could have generated the income. 77

Third, she did not find proof of undeclared income to verify the
existence of unregistered invoices. 78

Fourth, she did not find evidence of unrecorded purchases.7 9

Fifth, she did not find any business permits showing that accused
had other businesses, and as to the license of the corporation in which
accused invested or served as a director or president, they were able
to get one, but said that she did not actually have to see the license of
the said corporation because accused declared his investments
therein in the SALN. 80 She confirmed, however, that the mere fact that
the SALN indicated their [accused and his wife] corporate directorships
convinced her that they earned additional income. 81

Sixth, she did not find evidence of double bookings. 82

Seventh, she did not see any false invoices or documents. 83

Eighth, she did not see any evidence of destruction of accounting

records.~

7
5 December 4, 2013 TSN, p. 68-73.
76
December 4, 2013 TSN, p. 68-69.
77
December 4, 2013 TSN, p. 69.
78
December 4, 2013 TSN, p. 70.
79
December 4, 2013 TSN, p. 70.
80 December4, 2013 TSN, p. 71.
81 December 4, 2013 TSN, p. 72.
82 December 4, 2013 TSN, p. 72.
83 December 4, 2013 TSN, p. 72.
84
December 4, 2013 TSN, p. 73
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 16 of69

When pressed about the proof of likely source of income as she

did not find any of the eight indicators, she said that the ITR which
served as the summary of income and expense of accused should at
least justify the increase in net worth of the accused. 85 She even
emphasized that they secured the Monthly Remittance Return filed by
the corporation in which they [accused and his wife] invested or served
as director, but based on the reply of the District, the companies did
not file a Monthly Remittance Return or the Annual Information Return
showing that they withheld the final tax on dividends or the expanded
withholding tax on per dimes paid to director. 86

As to the second element under RMO 15-95, particularly the

existence of competent evidence showing fraud, which is - the
accompanying state of mind variously described as being evil and bad
faith, deliberate and not accidental or willful, 87 when asked as to where
the evil lies since the information used by them came from the SALN
and ITR of the accused, she said that it is in the reporting of income in
the ITR, 88 in view of the fact that the ITR did not justify the increase in
net worth. 89

During her re-direct examination, she testified that they used the
2002 SALN secured from the Office of Ombudsman as a baseline in
computing the tax liabilities of the accused; 90 that she had not find any
other source of income of accused other than those appearing in the
SALN; 91 and that she referred that case to the DOJ before the
expiration of the 10-day period given to accused to present certain
documents because during the preliminary investigation before the
issuance of the LOA, they concluded that the documents are complete
for filing of criminal case before the DOJ. 92

On re-cross examination, she agreed that government

dignitaries would have attended the wedding of accused, but she did
not investigate whether the Speaker of the House, any senator and the
cousins gifted accused and his wife. They proceeded with the
computation since based on the reply of one of the service of the
Bureau, the relatives enumerated in the access letter did not givelJ'l

85 December 4, 2013 TSN, p. 73.

86 December 4, 2013 TSN, p. 74.
87
December 4, 2013 TSN, p. 75-76.
88 December 4, 2013 TSN, p. 77.
89
December 4, 2013 TSN, p. 78.
90 January 15, 2014 TSN, p. 13.
91 January 15, 2014 TSN, pp. 24-26.
92 January 15, 2014 TSN, p. 27.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 17 of69

donation to the accused. 93 She confirmed that she assumed that any
increase in net worth arose from an undeclared income. 94

She clarified that she actually compared the original SALN for
2002 as against the Supplemental SALN as presented to her by the
defense, and after comparison, she disregarded the Supplemental
SALN and stuck to the original SALN obtained from the Office of the
Ombudsman. 95 She confirmed that she did not give it full faith and
credit because to her, it does not exist legally as she could not get a
copy.e6

Ms. Victoria V. Santos is an Assistant Commissioner of the BIR.

In relation to her function as Assistant Commissioner of Information
Systems Operations Service, she recalled having issued a Certification
pertaining to the tax compliance of the accused for 2002 to 2009 based
on the request of Deputy Commissioner Estela V. Sales of the Legal
and Inspection Group. She also recalled having issued a Certification
bearing tax compliance of some of the relatives of the accused based
on the request of Deputy Commissioner for Legal and Inspection
Group. 97

On cross-examination, she confirmed her certification that

accused filed a return for 2004, but she does not know whether an
income tax return contains false or incomplete information. 98 She also
confirmed that accused filed a return for 2006 but she does not know
whether the income tax return is incomplete or contains false
information. 99 She agreed that there is no indication in the certification
that an income tax return was filed for 2007. When asked if she is
certain that an ITR was not filed, she said that they did not find any
record, and that there is no ITR as far as the database is concerned.
She stated that she certified as to the contents of their database. 100
She was of the belief that there are cases of loss of income tax returns
in SIR's possession. 101 She confirmed that accused was included in
the alpha list of employees of the House of Representative, and
pointed out its significance that it is considered as his income tax retur~

93 January 15, 2014 TSN, p. 32-35.

94 January 15, 2014 TSN, p. 35-36.
95 January 15,2014 TSN, p. 44-45.
96 January 15, 2014 TSN, p. 45.
97
February 26, 2014 TSN, p. 4, 6, 13.
98 May 7, 2014 TSN, p. 5-6.
99 May 7, 2014 TSN, p. 6-8.
1oo May 7, 2014 TSN, p. 9-10.
1o1 May 7, 2014 TSN, p. 11.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 18 of69

if he does not have any other income. 102 She is not aware, however, of
any other source of income of accused and she confirmed that she
never investigated such matter as her participation in this case was
only to check the database. 103

Regarding the Certification she issued with respect to the tax

compliance of certain individuals who were linked to accused, she
confirmed that nothing was filed based on their database. 104 She does
not know when capital gains taxes, donor's taxes, and documentary
stamp taxes were due from these individuals. 105

Ms. Lena A. Nuguid is the Chief of Taxpayer's Service Section,

BIR ROO 21 B, San Fernando, Pampanga. In relation to the
performance of her official function, she remembers having issued a
Certification as to the registration status of accused, which she
identified in Court. 106

On cross-examination, she said that she has no personal

knowledge of how much income, wages or other remuneration
accused received, and of any source of income of accused. 107 She
clarified that the TIN was not cancelled but just ceased. She pointed
out that when the Tl N "ceased", it means that it is dissolved because
the taxpayer has still a liability with the BIR while the TIN is "cancelled"
when the taxpayer has no more tax liabilities. 108 She confirmed that
accused has tax liabilities, but she does not know what those tax
liabilities are since they are not allowed to look at that. 109

On re-direct examination, she testified that TIN 210-543-613-000

ceased, not cancelled, on July 29, 2009. She confirmed that the
Certification was issued on April 5, 2011. 110

Clavelina S. Nacar is the OIC-Assistant Regional Director of

Revenue Region No. 9, San Pablo City Laguna. Prior to that post, she
was assigned at Revenue District Office No. 39, South Quezon City as
Revenue District Officer. She testified about having issued ti\
1o2 May 7, 2014 TSN, p. 11.
103 May 7, 2014 TSN, p. 12-13.
104 May 7, 2014 TSN, p. 14, 26.
10 5 May 7, 2014 TSN, p. 27-28.
106 April30, 2014 TSN, p. 9, 12, 13.

10 7 April 30,2014 TSN, p. 15-16.

1oa April 30, 2014 TSN, p. 16.
109 April 30, 2014 TSN, p. 17.
11o April 30, 2014 TSN, p. 23-24.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 19 of 69

Certification sometime in April 2011 pertaining to the Annual Income

Tax Return filed by accused. She issued the certification as she
received a communication from Deputy Commissioner Estela Sales.
She recalled that after receiving the request, she instructed the Chief
of the Document Processing Division to look into the records of
accused to verify if accused filed those returns, and to verify if there
are available records on file; and that the Chief of the Document
Processing Division informed her of the result of verification, that is--
that no ITR was filed for taxable year 2001, but ITRs were filed for
2002, 2003 and 2004. 111

On cross-examination, she said that an "ITS" is an Integrated Tax

System of the SIR within which records of the taxpayers are being
stored; that she does not have access on the 1604 OCF being filed by
the employers; that not all of the records can be seen because their
access is limited; and that while their access extends to the taxpayer's
payments and compliance as far as filing of returns are concerned, 112
she nonetheless is not certain if there was no income tax payment for
2007. 113 She confirmed that taxes are withheld at source, and that
accused's employer for 2007 was the House of Representatives. 114
She was not sure if accused's employer withheld the taxes due on
accused's income since while it is the duty of the employer to withhold
and remit the withholding taxes, the details as to who the employees
and from whom the taxes are withheld can only be seen upon
submission by Congress of the 1604CF. She reiterated that she does
not have access to see the details of the 1604CF as her access is
limited. 115 She said that it is Congress which becomes liable if it failed
to withhold and remit the taxes withheld. 116

She also confirmed, upon clarificatory question, that her

Certification is based only on the filing or non-filing of Income Tax
Returns but not with respect to whether or not there has been payment
of taxes for the taxable year. 117

Amador P. Ducut is a retired employee of the BIR and formerly

the OIC, Revenue District Officer of San Fernando, La union. His
testimony was offered for the following purposes: to identify the
Request of Deputy Commissioner Estela Sales and to identify thetY)

111 May 7, 2014 TSN, p. 30, 39, 40, 41, 43, 44.
112 May 7, 2014 TSN, p. 47, 50.
113 May 7, 2014 TSN, p. 52.
114 May 7, 2014 TSN, p. 52.
11s May 7, 2014 TSN, p. 52-53.
116 May 7, 2014 TSN, p. 54.
117 May 7, 2014 TSN, p. 56.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 20 of69

Certification dated April 6, 2011 pertaining to the ITRs filed by the

accused. 118 After the defense stipulated on the existence of those
documents, he was subjected to cross-examination. 119 He confirmed
his Certification that no ITR was filed for taxable year 2006 as far as
his district is concerned, but he said that it is possible that an ITR was
filed in 2006 but not with his office. 120

Josephine Sulla Virtucio is the Revenue District Officer of ROO

43A, East Pasig under Revenue Region No. 7, Quezon City. Prior to
her new assignment, she was the Revenue District Officer of ROO 33,
lntramuros Manila. 121 She remembered having issued a Certification in
compliance with the Letter-Access to record issued by the BIR National
Office. She identified the document which she signed on May 23, 2012,
and the print-outs coming from the Integrated Tax System. 122

On cross-examination, she said that with respect to the original

ITR which was filed in April 2007, accused is registered with ROO 39
but he paid in a bank within the jurisdiction of ROO 33; that it was
transmitted to ROO 39; that there is an office policy for transmittal of
Income Tax Returns received by a district to the district office where
the taxpayer is registered, and she assumed that the policy was
followed; 123 that the 2006 ITR was filed with the Metrobank Branch
under ROO 33 and his ROO Code is ROO 39. 124 She confirmed that
the data in their ITS was lifted from the ITR that was filed, but they do
not know the whereabouts of the original ITR; and she cannot produce
the 2006 ITR. 125 With respect to the encoding of data from the ITR to
the Integrated Tax System, she confirmed that it is possible for BIR
employee to commit human error, but she said that the Revenue Data
Center double checks whether error was made. 126 She does not know
whether or not accused's ITR for 2006 failed to supply correct and
accurate information of his income. She confirmed that she does not
know whether or not accused committed a crime when he filed his ITR
for 2006, and she does not know anything about this case except that
she culled up information from the ITS~

11a May 7, 2014 TSN, p. 64.

119 May 7, 2014 TSN, p. 65, 67.
12o May 7, 2014 TSN, p. 68-69.
121 May 7, 2014 TSN, p. 73-75.
122 May 7, 2014 TSN, p. 76, 77, 80.
123 May 7, 2014 TSN, p. 86-87.
124 May 7, 2014 TSN, p. 91-92.
125 May 7, 2014 TSN, p. 88-89.
126 May 7, 2014 TSN, p. 102-103.
127 May 7, 2014 TSN, p. 117-118.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 21 of 69

Jasmin Y. Cruz is the Assistant Provincial Human Resource

Management Officer (HRMO) of the Province of Pampanga. Prior to
her present assignment, she was an Administrative Officer V and in
relation to the performance of her duties, she remembered having
issued a certified photocopy of a letter signed by Luis Rivera dated
March 29, 2011 and its attachments, which she identified. She also
identified the following documents: a letter to the Office of the
Ombudsman dated April 19, 2002 (certified photocopy on file); a
Certification signed by Jesusa Goseco with the certification by Jasmin
Cruz; and a letter to the Office of the Ombudsman dated June 30, 2003
(certified photocopy on file ). 128 She said that she issued the certified
photocopies based on office file issued by her previous supervisors. 129
She said that their office did not receive a copy of accused's amended
Supplemental SALN but they only have a cover letter. 130

Ma. Gracia R. Bolutano is the OIC-Administrative Section Chief

of the Document Processing Division, Revenue Region 6, Manila. She
remembered having extracted/downloaded a copy of the ITR of
accused for taxable year 2006, and she made a print-out, which she
identified. She said that she extracted a copy as she received
instructions from her superior, Revenue District Officer Josephine S.
Virtucio of ROO 33, that there was an Access to Record letter coming
from the BIR National Office. 131

On cross-examination, she said that their RPS encoder is the

one who entered the data into the BIR database, but she confirmed
that there can be human error in the encoding of data. 132 She said that
the status of the returns she printed out is "suspended" because the
ITR was filed at ROO 33 but accused is registered at ROO 39; and that
the cause of suspension is that it did not match with the registration
database of ROO 33. 133 She confirmed that tax payments was made
by accused amounting to P447,000.00; that the encoder got the data
from the Income Tax Return. 134 When asked about the whereabouts of
the 2006 ITR, she said that it should be at the Administrative Division
of the Region, but she cannot find it there anymore, or maybe, it was
transferred to the Malabon storage area of the region but she did not
ask about it. 135 When shown with a photocopy of Certificate of
Compensation Payment Tax Withheld for taxable year 2006 of theo-')

128 June 25, 2014 TSN, p. 5, 10, 12-15.

12
June
9 25, 2014 TSN, p. 15.
130 June 25, 2014 TSN, p. 29.
13 1 June 25, 2014 TSN, p. 34, 37, 41-42.
132
June 25, 2014 TSN, p. 43-44.
133 June 25, 2014 TSN, p. 44.
134 June 25, 2014 TSN, p. 44-45.
135 June 25, 2014 TSN, p. 46-48.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 22 of69

accused, she said she has not seen it before, but it does not look
irregular. 136 She confirmed that accused earned extra income other
than compensation income for 2006 but he paid taxes on it. She
answered in the negative when she was asked if accused misdeclared
anything in the ITR, underdeclared or underpaid anything, or
committed any crime. 137

During her re-direct examination, she said that she does not have
the capacity [to say] whether the taxpayer misdeclared or filed the
correct tax return; and she has no idea whether the taxpayer filed the
correct gross sales or income earned unless there was an
investigation. She clarified that she does not have the capacity to say
whether accused misdeclared, but based on the document, she
maintained her answer that there was no misdeclaration. 138 She further
stated that her office has no authority to say that on the face of the
documents received or extracted, a violation of the Tax Code has been
committed as they referred it to the Assessment Section. 139

Arnel P. Larrobis is designated as Administrative Assistant II,

SALN in-charge at the Office of the Deputy Ombudsman for Luzon. 140
He remembered having received a request letter from the SIR
requesting for the SALN of the accused for the years 2001 to 2003,
which he identified. 141 After receiving the request letter, he gave a
reply-letter to Atty. Sixto C. Dy, Jr., Division Chief, National
Investigation Division, SIR National Office, Quezon City. He identified
the reply-letter and the certified photocopies of accused's SALN as of
December 31, 2002. 142 He affirmed his Certification that they do not
have on file accused's SALN for 2003. He said that the Office of the
Provincial Governor submitted a transmittal to their office on May 20,
2004 and the name of the accused is not in the list of the transmittal. 143

On cross-examination, he testified as to the manner by which

SALNs are stored in their office files. "He stored them and put them into
folders and the data filer box. 144 He also revealed that he did not
witness the movement of documents from Manila to Quezon City
office, and that he did not conduct a document inventory when they {1j
136 June 25, 2014 TSN, p. 49.
13 7June 24, 2014 TSN, p. 52-53.
138 June 24, 2014 TSN, p. 57.
139 June 24, 2014 TSN, p. 59.
140 July 2, 2014 TSN, p. 6.
141 July 2, 2014 TSN, p. 7.

142 July 2, 2014 TSN, p. 8.

143 July 2, 2014 TSN, p. 17.
144 July 2, 2014 TSN, p. 41-42.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 23 of69

moved. 145 He has no idea regarding the number of documents left in

his office in 2002 when he left Manila as well as the number of
documents seen in Quezon City when he moved nor whether he lost
any document/s. 146 He confirmed that the Supplemental SALN of
accused for 2002 was transmitted to the Office of the Ombudsman and
opined that the document looks original, although he has not seen the
document before. He does not know whether the Office of the
Ombudsman lost it. 147 He confirmed that he just relied on the claim of
the provincial government that no SALN was submitted to them. 148

In his re-direct examination, he was asked about the reason for

their failure to provide the BIR with accused's SALN for 2003 and, in
reply, he said that they do not have it on file, which means that accused
did not submit his SALN to the Office of the Deputy Ombudsman for
Luzon. 149

On re-cross examination, he said that it is not possible that

accused's papers might exist in his office that is not in the three
bunches. 150

On clarificatory questions, he confirmed that when the document

is not existing at the time he issued the Certification, that document
may not be existing at all; 151 that there is no system that would actually
control what document is being pulled out when it is being done by any
staff; and that the staff can pull out other documents without him
knowing it. 152

In line with the directive for the witness to bring the logbook that
would show that the SALNs of the accused for 2001 to 2003 has
actually entered or not entered in his office, 153 as well as the
September 22, 2003 letter of the Provincial Administrator to the
Ombudsman, 154 Mr. Larrobis appeared during the September 10,
2014 hearing. During the hearing, parties' counsels stipulated that the
Supplemental SALN for 2002 is with the Office of the Ombudsman~'

145 July 2, 2014 TSN, p. 47, 48, 50.

146 July 2, 2014 TSN, p. 51-52.
147 July 2, 2014 TSN, p. 54-55.
148 July 2, 2014 TSN, p. 57-58.
149 July 2, 2014 TSN, p. 59.
150 July 2, 2014 TSN, p. 68-69.
151 July 2, 2014 TSN, p. 61.
152 July 2, 2014 TSN, p. 77-78.
153 July 2, 2014 TSN, p. 78.
154 July 2, 2014 TSN, p. 85-86.
155 September 10, 2014 TSN, p. 4, 10.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 24 of69

He confirmed that he has a record of the Supplemental SALN of the

accused for 2002. 156

Mr. Luis Rivera is the Secretary of the Sangguniang

Panlalawigan of Pampanga. 157 He identified the letter he issued to the
Chief of National Investigation Division of the BIR dated May 14, 2012
relative to the existence or non-existence of the SALN of accused. He
testified that the basis of his statement in the letter that "no available
records on file as regards the SALN of accused for 2002 and 2003" is
the certification issued by the previous HRM0. 158

On cross-examination, he said that the stamp at the upper right

hand corner of the [photocopy of SALN of accused for 2003] looks like
the stamp of the HRMO, but he would not know if the stamp is still the
stamp of the HRM0. 159

On clarificatory question, he confirmed that he made his own

validation of the certification made by his predecessor in office as to
whether accused's SALN was on file with his office; 160 that there is
actually no document which constitutes the SALN of the accused in his
office; 161 and that the SALNs are kept by the HRMO, and once
submitted to the HR, they are eventually submitted to the Office of the
Ombudsman. 162

Ms. Amelia P. Bondoc is the Provincial Human Resource

Management Officer of the Provincial Government of Pampanga. 163
She attested that the document [certification from the Provincial HRM]
exists in the records of the Provincial HRMO, but she cannot testify on
its contents. 164 When asked about the logbook of her office pertaining
to the SALNs of the accused, she said that they do not have available
logbook because [when] they transmit the SALNs to the Office of the
Ombudsman, they just get the receiving copy of the transmittal and
they do not bring along the logbook~

156 September 10, 2014 TSN, p. 7.

157 September 10, 2014 TSN, p. 15.
15 8 September 10, 2014 TSN, p. 21-22.
159 September 10, 2014 TSN, p. 28-29.
16o September 10, 2014 TSN, p. 24.
161 September 10, 2014 TSN, p. 26-27.
162 September 10,2014 TSN, p. 30.
163 March 18, 2015 TSN, p. 6.
164 March 18, 2015 TSN, p. 13, 16.
165 March 18, 2015 TSN, p. 16-17.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 25 of69

On cross-examination, she confirmed that she is the actual

custodian of the folders. She cannot answer the question whether it is
possible that there are other documents floating around somewhere
that belongs to the files of the accused because the documents shown
to her are the only available files when she assumed her duties at the
Provincial Government. 166 She agreed that when the Office of the
Ombudsman says that it has a copy of the SALNs, [their office] must
have transmitted it. 167 She likewise agreed that the transmittal letter to
the Ombudsman does not mention whose SALNs were transmitted. 168

With respect to its documentary evidence, the prosecution filed

its Formal Offer of Evidence 169 consisting of the following exhibits:

Exhibit Description

"A" to "A-3" Original of Letter Referral dated April 6, 2011 issued by Kim
S. Jacinto-Henares, Commissioner of Internal Revenue (CIR)
addressed to Hon. Leila M. De Lima, Secretary of Justice,
Department of Justice (DOJ)

"B" to "B-5" Original of Joint Complaint-Affidavit dated April 7, 2011

consisting of six (6) pages executed by Ma. Lourdes Sante,
Amelita Aquino, Ferdinand Malonzo, Leonesto Bernal, Virma
C. Clemente, Aurora V. Flor and Sixto C. Dy, Jr.

"C" to "C-2" Original of Access Letter dated March 21, 2011 issued by
Estela V. Sales, Deputy Commissioner, Legal Group to ACIR
Victoria V. Santos, Information Systems Operation Service

"D" Original of Access Letter dated March 31, 2011 issued by

James H. Roldan, Assistant Commissioner, Enforcement and
Advocacy Service to Hon. Ma. Merceditas Navarra-Gutierrez,
Office of the Ombudsman
"E" to "EE-1" Original of Access Letter dated March 31, 2011 issued by
James H. Roldan, Assistant Commissioner, Enforcement and
Advocacy Service to Atty. Marilyn B. Yap, Secretary General,
House of Representatives

"F" to "FF-1" Original of Access Letter dated March 31, 2011 issued by
Estela V. Sales, Deputy Commissioner, Legal Group to ROO
Ricardo B. Espiritu, Revenue District Office No. 50, South
Makati

"G" to "G-1" Original of Access Letter dated March 31, 2011 issued by
Estela V. Sales, Deputy Commissioner, Legal Group to ROO
101
166 March 18, 2015 TSN, p. 18-21.
1 7
6 March 22, 2015 TSN, p. 22.
168 March 22, 2015 TSN, p. 23-24.
169
CTA Grim. Case No. 0-247 Docket, pp. 1056-1076.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 26 of69

Clavelina M. Nacar, Revenue District Office No. 39, South

Quezon City

"H" Original of Access Letter dated April 4, 2011 issued by Estela

V. Sales, Deputy Commissioner, Legal Group to Atty. Romulo
L. Aguila, Jr., Regional Director, Revenue Region No. 4, San
Fernando, Pampanga

"I" to "1-4" Certified true copy of Sworn Statements of Assets, Liabilities

and Networth, Disclosure of Business Interest and Financial
Connections, and Identification of Relatives in the
Government Service as of December 31, 2002 of Juan Miguel
M. Arroyo

"J" to "J-2" Certified true copy of Annual Income Tax Return (BIR Form
1701) of Arroyo, Juan Miguel Macapagal for the year 2003

"J-3" to "J-4" Certified true copy of Certificate of Creditable Tax withheld at

Source (BIR Form 2307) of Arroyo, Juan Miguel Macapagal
for the period January 1, 2003 to December 31, 2003

"K" to "K-4" Certified true copy of Annual Income Tax Return (BIR Form
1701) of Arroyo, Juan Miguel M. and Ma. Angela M. Arroyo for
the year 2004

"L" to "L-7" Certified true copy of Sworn Statements of Assets, Liabilities

and Networth, Disclosure of Business Interest and Financial
Connections, and Identification of Relatives in the
Government Service as of December 31, 2004 of Juan Miguel
M. Arroyo

"M" to "M-9" Certified true copy of Sworn Statements of Assets, Liabilities

and Networth, Disclosure of Business Interest and Financial
Connections, and Identification of Relatives in the
Government Service as of December 31, 2005 of Juan Miguel
M. Arroyo
"N" to "N-9" Certified true copy of Sworn Statements of Assets, Liabilities
and Networth, Disclosure of Business Interest and Financial
Connections, and Identification of Relatives in the
Government Service as of December 31, 2006 of Juan Miguel
M. Arroyo
"0" to "0-9" Certified true copy of Sworn Statements of Assets, Liabilities
and Networth, Disclosure of Business Interest and Financial
Connections, and Identification of Relatives in the
Government Service as of December 31, 2007 of Juan Miguel
M. Arroyo

"P" to "P-9" Certified true copy of Sworn Statements of Assets, Liabilities

and Networth, Disclosure of Business Interest and Financial
Connections, and Identification of Relatives in the
Government Service as of December 31, 2008 of Juan Miguel
M. Arroyo

(,'\
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 27 of69

"Q" to "Q-9" Certified true copy of Sworn Statements of Assets, Liabilities

and Networth, Disclosure of Business Interest and Financial
Connections, and Identification of Relatives in the
Government Service as of December 31, 2009 of Juan Miguel
M. Arroyo

"R" to "R-1" Original of Certification dated April 5, 2011 issued by Maria

Lena A. Nuguid, Chief, Taxpayers Service Section, Revenue
District Office No. 21 B, South Pampanga

"S" Original Print-Out from BIR Integrated Tax System (ITS) as to

the registration details of Arroyo, Ma. Angela Montenegro with
Tl N 185-405-985-000

"T" Original of Certification dated April 6, 2011 issued by Ricardo

B. Espiritu, Revenue District Officer, Revenue District Office
No. 50, South Makati

"U" Original of Certification dated April6, 2011 issued by Clavelina

S. Nacar, Revenue District Officer, Revenue District Office No.
39, South Quezon City

"V" Original Copy of Certification dated April 6, 2011 issued by

Amador P. Ducut, OIC-Revenue District Officer, Revenue
District Office No. 21 B, South Pampanga

"W"to "W-4" Original of Certification dated March 22, 2011 issued by

Victoria V. Santos, Assistant Commissioner, Information
Systems Operations Service

"X" Certified true copy of Breakdown of the Increase in Networth

from 2004 to 2009 of Juan Miguel M. Arroyo and Ma. Angela
M. Arroyo

"Y" Certified true copy of Computation of Unreported Taxable

Income based on Networth from 2004 to 2009 of Juan Miguel
M. Arroyo and Ma. Angela M. Arroyo

"Z" Memorandum dated July 15, 2011, consisting of thirty-eight

(38) pages executed by Ma. Lourdes Sante, Amelita Aquino,
Ferdinand Malonzo, Leonesto Bernal, Virma C. Clemente,
Aurora V. Flor and Sixto C. Dy, Jr.

"AA" Original of Access Letter dated May 11, 2012 issued by Sixto
C. Dy, Jr., Chief, National Investigation Division, to Arnel P.
Larrobis, Admin. Assistant 11/SALN-In-Charge, Office of the
Deputy Ombudsman for Luzon

"BB" to "BB-9" Original of Letter dated May 15, 2012, issued by Arnel P.
Larrobis, Admin. Assistant 11/SALN-In-Charge, Office of the
Deputy Ombudsman for Luzon, to Atty. Sixto C. Dy, Jr., Chief,
National Investigation Division and its attached SALN for years
2001 and 2002 of Accused.
.A

~I
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 28 of69

"CC" Original of Access Letter dated May 11, 2012, issued by Sixto
C. Dy, Jr., Chief, National Investigation Division, to Luis A.
Rivera, OIC-HRMO, Provincial Human Resource
Management Office, Provincial Capitol, City of San Fernando,
Pampanga

"DD" to "DD-8" Original of Letter dated May 14, 2012, issued by Luis A.
Rivera, OIC-HRMO, Provincial Human Resource
Management Office, Provincial Capitol, City of San Fernando,
Pampanga, to Atty. Sixto C. Dy, Jr., Chief, National
Investigation Division

"EE" to "EE-9" Certified ITS Print out of Annual Income Tax Return (BIR Form
1701) of Arroyo, Juan Miguel Macapagal, for the year 2005

"FF" to "FF-3" Preliminary Assessment Notice dated September 20, 2011

with Details of Discrepancy signed by James H. Roldan,
Assistant Commissioner for Enforcement Service

"GG" to "GG-3" Formal Letter of Demand dated January 10,2012 with Details
of Discrepancy signed by James H. Roldan, Assistant
Commissioner for Enforcement Service

"GG-4" LBC Express Official Receipt

"II" to "11-3" Letter of Authority No. 211-2011-00000083 dated Apri14, 2011

signed by Kim S. Jacinto-Henares, Commissioner of Internal
Revenue and the attached checklist of requirements

"JJ" to "JJ-3" Letter of Authority No. 211-2011-00000084 dated Apri14, 2011

signed by Kim S. Jacinto-Henares, Commissioner of Internal
Revenue and the attached checklist of requirements

"KK" to "KK-12" Certification dated March 30, 2011 issued by Victoria V.

Santos, Assistant Commissioner for Information systems
Operations Service (ISOS)

"LL to LL-1" Original of Access Letter dated March 28, 2012, issued by
Estela V. Sales, Deputy Commissioner for Legal and
Inspection Group, to Victoria Santos, Assistant Commissioner
for ISOS for CGT, DST, and DT Returns of relatives of
Accused

"MM to MM-18" Certified true copy of letter dated April 1, 2004 signed by
Benalfre Galang, Provincial Administrator of Pampanga,
submitting to the Office of the Ombudsman the SALN of official
and employees of the Provincial government of Pampanga

t1-1
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 29 of69

In a Resolution 170 dated August 11, 2015, the Court admitted all
exhibits in evidence, except Exhibits "II" to "11-3" and "JJ" to JJ-3" for
not being found in the case records. Exhibit "II" was later admitted in
the Court's Resolution dated January 7, 2016. 171

On August 18, 2015, accused filed his Motion for Leave to File
Demurrer to Evidence. 172 The prosecution filed its
Opposition/Comment (To Accused's Motion for Leave to File Demurrer
to Evidence) on September 7, 2015. 173 In a Resolution issued on
January 7, 2016, the Court granted accused's Motion for Leave to File
Demurrer to Evidence. 174

Accused filed his Demurrer to Evidence on January 22, 2016, 175

with the prosecution's Opposition (To Accused's Demurrer to
Evidence) 176 filed on February 1, 2016, and the same was submitted
for resolution on February 10, 2016. 177 Eventually, accused's Demurrer
to Evidence was denied in a Resolution dated on April 26, 2016. 178

Thereafter, accused presented testimonial and documentary

evidence. He presented the following witnesses, namely: (i) Mr. Junjun
C. Molina, who testified during the hearing held on December 7,
2016; 179 (ii) Mr. Ignacio Xavier G. Barranco, who testified during the
hearing held on January 18, 2017 and March 8, 2017; 180 and Atty.
Aurora V. Flor, who testified during the hearing held on April 26,
2017. 181

Mr. Junjun C. Molina used to work with accused as his

Executive Assistant (EA) from 2004 to 2008 and as accused's Chief of
Staff (COS) in Congress from 2008-2010. His duties and
responsibilities as Executive Assistant (which included coordinating
accused's meetings) were the same as when he was COS. 182 When
asked if accused prepared and filed the SALN, he said that he~

17
°CTA Grim. Case No. 0-247 Docket, pp. 1133 to 1134.
171
CTA Crim. Case No. 0-247 Docket, pp. 1219-1226.
172 CTA Crim. Case No. 0-247 Docket, pp. 1141-1145.
173
CTA Crim. Case No. 0-247 Docket, pp. 1159-1161.
174
CTA Crim. Case No. 0-247 Docket, pp. 1211-1218.
175
CTA Crim. Case No. 0-247 Docket, pp. 1230-1291.
176
CTA Crim. Case No. 0-247 Docket, pp. 1298-1310.
177
February 10, 2016 Resolution, CTA Crim. Case No. 0-247 Docket, p. 1316.
178
CTA Crim. Case No. 0-247 Docket, pp. 1353-1364.
179
CTA Crim. Case No. 0-247 Docket, pp. 1503-1509.
18
°
181
CTA Crim. Case No. 0-247 Docket, pp. 1560-1566, and 1600-1608.
CTA Crim. Case No. 0-247 Docket, pp. 1624-1632.
182
December 7, 2016 TSN, p. 18-19
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 30 of69

coordinated the preparation of SALNs during his entire employment

with the accused. He elaborated the term coordinated to mean that he
was the one who talked to accused, who in turn gave the details;
thereafter, he transmitted the same to their secretary 183 who put the
entries in the SALN. 184 He testified that he saw the SALNs after they
were filled-up by the secretary; that he was the one who made accused
sign; and that accused signed his SALN. 185 He recognized accused's
SALNs for 2004, 2005, 2006, 2007, 2008, 2009, 186 and confirmed that
all of these SALNs indicate that either accused or his wife owns shares
of stocks in various corporations. 187 He revealed that he was personally
involved in the two companies [indicated in the SALNs], namely: (i) Los
Manos Gardos, Inc. - engaged in agricultural land; and, (ii) U18
Property, Inc. -a property holdings; that he and accused lose money
from both companies, and he knows this because he was the treasurer
of both companies. 188 When asked about "Mikey's Horseman Bar and
Grill", he is not sure if the same made money, but he said that it was
sold in 2011 as it was actually losing money by then. 189

On cross-examination, he disclosed that he was like a trusted

aide of the accused, and he knows basically all accused's deeds. He
confirmed that he is aware of the SALNs but not with respect to the
accused's ITRs. He confirmed that for 2004-2010 SALNs, he just relied
on the details provided by accused and he has no personal knowledge
as to their correctness. He said that he is not aware of any other
financial dealings of accused aside from Los Manos Gardos, Inc., U18
Property, Inc., and Horseman, and he confirmed that he has no other
idea or personal knowledge as to the other financial capacity of the
accused. 190

Mr. Ignacio Xavier G. Barranco is a Certified Public

Accountant. He was presented as an expert witness. 191 He testified
that he knows the accused as he is the son of former President Gloria
Macapagal Arroyo; that he had been asked to testify as an expert
witness on this matter; that he looked at the SALNs and ITRs of
accused and his wife from 2002 to 2007 and the computation made by
the BIR of the undeclared income using the net worth method; that he~

183
December 7, 2016 TSN, p. 20
1 4
8 December 7, 2016 TSN, p. 25.
185
December 7, 2016 TSN, p. 21.
186
December?, 2016 TSN, p. 21, 23, 25,27-29.
187
December 7, 2016 TSN, p. 29.
188
December 7, 2016 TSN, p. 29-31.
189
December 7, 2016 TSN, p. 32.
190
December 7, 2016 TSN, p. 34-37, 39.
191
January 18, 2017 TSN, p. 3-5.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 31 of69

is familiar with the net worth method as it is an audit tool; 192 that the
BIR determined the net worth increase and deducted the taxable
income from the ITR, and attributed the difference as unrecorded or
undeclared income; 193 that the increase in net worth for 2004 was
treated entirely as taxable; 194 that it is not sound to immediately
conclude that the difference between the two net worths and the
income subjected to tax in the ITR is an undeclared income subject to
tax; that there are pre-requisites before the net worth method is
applied, which he further explained; 195 and that the BIR should have at
least determined if there are some non-deductible items and non-
taxable revenue items. 196

He pointed out through visual illustration that if accused received

donations or got an inheritance during the year, the same is not subject
to the regular income tax imposed on individuals as it is already
subjected to estate tax and donor's tax; 197 that for non-taxable capital
gains, if there was appreciation of assets such as land, the same
should not be considered as income; 198 that there is no income for
[stocks] dividend until it is sold, 199 hence, stock dividends are non-
taxable;200 that interest income from a bank account is subject to final
withholding tax; 201 and that cash dividend is not an item subject of
regular income tax imposed on individuals as it is already subject to
final tax. 202 He further said that the BIR did not go through the correct
process and procedure prescribed under RMC No. 43-74, and as a
result thereof, the error in the· computation for 2004 affects the
computation for the subsequent year, explaining that the ending
balance in a year will become the beginning balance of the succeeding
year; and that the SIR's computation is inaccurate. 203

Atty. Aurora V. Flor confirmed that the Supplemental SALN for

2002 was found out. She recalled that on the basis of such document,
she was asked to re-compute the supposed deficiency taxes of
accused and his wife. 204 She confirmed that she made a reQ«l

192 January 18,2017 TSN, p. 30, 31.

19 3January 18, 2017 TSN, p. 42.
194 January 18, 2017 TSN, p. 42.
195 January 18, 2017 TSN, p. 35
196 January 18, 2017 TSN, p. 44-45.
197 January 18, 2017 TSN, p. 51.
198 January 18, 2017 TSN, p. 52.
199 January 18, 2017 TSN, p. 52-53.
2oo March 8, 2017 TSN, p. 19.
201 January 18, 2017 TSN, p. 54.
202 January 18, 2017 TSN, p. 54.
203 March 18, 2017 TSN, p. 24-26.

204 April 26, 2017 TSN, p. 7.

Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 32 of69

computation in writing, which was marked as Exhibit 60 at the RTC;

that since the missing SALN was eventually discovered, she based the
new computation on the declared net worth in that SALN. 205 She said
that the fraud lies on the increase in net worth which was not supported
by the ITRs filed by the accused, even if she was not able to point out
the possible source of income, since there were business interests
based on accused's SALN. 206 She confirmed that despite her failure to
find any possible source of income, she assumed that there was fraud,
there was criminal intent, and that she has to say that there is fraud as
a government employee. 207

With respect to documentary evidence, accused filed his Formal

Offer of Evidence208 on July 5, 2017, which is within the extended
period, 209 offering the following exhibits:

Exhibit Description
1 Letter referral dated 6 April 2011, from Bureau of
Internal Revenue ["BIR"] Commissioner Henares to
Secretary of Justice De Lima

2 Letter dated 21 March 2011' from Deputy

Commissioner Estela Sales to Victoria V. Santos

3 Letter dated 31 March 2011, from Asst. Commissioner

James Roldan to Omb. Merceditas Navarra-Gutierrez

4 Letter dated 31 March 2011, from Asst. Commissioner

James Roldan to House of Reps. Sec. Gen. Marilyn
Yap

5 Letter dated 31 March 2011, from Dep. Commissioner

Estela Sales to ROO Ricardo Espiritu

6 Letter dated 31 March 2011, from Dep. Commissioner

Estela Sales to ROO Clavelina Nacar

7 Letter dated 4 April 2011, from Dep. Commissioner

Estela Sales to Romulo Aguila, Jr., ROO Reg. 4,
Pampanga

8 Juan Miguel's Sworn Statements of Assets, Liabilities

and Networth ["SALN"] as of 31 December 2002
.J
Q1
2 05April26, 2017 TSN, p. 9-10.
206 April26, 2017 TSN, p. 15.
207 April26, 2017 TSN, p. 15.
2oa 0-247 Docket, pp. 1667-1679.
209 Order issued on July 4, 2017 granting accused until July 5, 2017 to file Formal

Offer of Evidence; CTA Grim. Case No. 0-247 Docket, p. 1665.

Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 33 of69

9 Juan Miguel's Annual Income Tax Return ["ITR"] for tax

year2003

10 Juan Miguel's and Angela's ITR for tax year 2004

11 Juan Miguel's SALN as of 31 December 2004

12 Juan Miguel's SALN as of 31 December 2005

13 Juan Miguel's SALN as of 31 December 2006

14 Juan Miguel's SALN as of 31 December 2007

15 Juan Miguel's SALN as of 31 December 2008

16 Juan Miguel's SALN as of 31 December 2009

17 Certification dated 5 April 2011, issued by Maria Lena

A. Nuguid of ROO So. Pampanga

18 Print-out from BIR Integrated Tax System as to the

Registration details of Ma. Angela M. Arroyo with TIN
185-405-985-000

19 Certification dated 6 April 2011, issued by Ricardo

Espiritu, ROO So. Makati

20 Certification dated 6 April2011, issued by Clavelina M.

Nacar, ROO So. QC

21 Certification dated 6 April 2011, issued by Amado P.

Ducut, ROO SO. Pampanga

22 Certification dated 22 March 2011, issued by Asst.

Comm'r Victoria Santos

23 Letter dated 11 May 2012, from BIR Division Chief

Sixto Dy Jr. to Arnel P. Larrobis

24 Larrobis' reply to BIR Div. Chief Sixto Dy dated 15 May

2012

25 Letter dated 11 May 2012, from BIR Division Chief

Sixto Dy to HRM Pampanga Luis A. Rivera

26 Luis Rivera's reply to Atty. Sixto Dy, dated 14 May

2012

27 Counter-Affidavit of Juan Miguel M. Arroyo and Ma.

Angela M. Arroyo dated 27 June 2011

28 Certificate of Compensation Paymentffax Withheld for

taxable year 2005

~
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 34 of69

29 Juan Miguel M. Arroyo's Annual Income Tax Return for

the year 2005

30 Certificate of Compensation Paymentffax Withheld for

taxable year 2008

31 Certificate of Compensation Paymentffax Withheld for

taxable year 2009

32 Juan Miguel's SALN as of 31 December 2003

34 Juan Miguel's SALN as of 31 December 2006

35 Juan Miguel's Reply Memorandum dated 29 July 2011

36 Juan Miguel's Motion for Reconsideration dated 14

October 2011

37 BIR Preliminary Assessment Notice dated 20

September 2011

39 Juan Miguel's and Angela's Petition for Review dated

14 December 2011

40 Juan Miguel's Motion for Reconsideration dated 4 April

2012

41 Juan Miguel's SALN as of 14 May 2001

42 Juan Miguel's ITR for tax year 2001

43 Juan Miguel's Supplemental SALN as of 31 December

2002

44 Juan Miguel's ITR for tax year 2002

45 Office of Vice-Governor's letter to the Pampanga

Provincial Legal Officer dated 27 August 2003

45-a Letter to the Provincial Human Resources

Management Office dated 19 September 2003

45-b Letter to the Office of the Ombudsman dated 22

September 2005

46 Juan Miguel's SALN as of 31 December 2003

47 Juan Miguel's SALN as of 31 July 2004

48 Juan Miguel's ITR for tax year 2005

49 Certificate of Compensation Paymentffax Withheld for

tax year 2006

~
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 35 of69

50 Juan Miguel's SALN as of 31 July 2007

51 Certificate of Compensation Paymentffax Withheld for

taxable year 2007

52 Certificate of Compensation Paymentffax Withheld for

taxable year 2008

53 Certificate of Compensation Paymentffax Withheld for

taxable year 2009

54 Juan Miguel's SALN as of 31 June 2010

55 Certificate of Compensation Paymentffax Withheld for

tax year 2010

56 LOA to House of Representatives dated 4 April 2011

57 Formal Letter of Demand dated 10 January 2012

58 Access Letter to Victoria Santos re: Donor's Tax

Return and Capital Gains Tax Return

59 Computer Extract of MMA 2006 ITR

60 Recomputation after Considering the 2002

Supplemental SALN

61 Breakdown of Increase in Net Worth for Taxable Years

2004 to 2009 after considering Juan Miguel's
Supplemental SALN

62 Breakdown of Increase in Net Worth for Taxable Years

2004 to 2009 without Juan Miguel's Supplemental
SALN

63 Computation of Taxable Income without Juan Miguel's

Supplemental SALN

A-63 Illustrative Computation of Mr. Ignacio Xavier Barranco

Plaintiff filed its Comment (to the Accused' Formal Offer of

Evidence) on August 4, 2017, 210 and accused's Formal Offer of
Evidence was submitted for resolution on August 14, 2017.

In a Resolution issued on October 3, 2017, the Court admitted

accused's Exhibits 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16,
17, 18, 19,20,21,22,23,24,25,26,27,28,29,30,31,32,34,35,37~

21 °CTA Grim. Case No. 0-247 Docket, pp. 1686-1700.

Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 36 of69

39, 40, 41, 42, 43, 44, 45, 45-a, 45-b, 46, 47, 48, 49, 50, 51, 52, 53,
54, 55, 60, 61, 62, and 63. Exhibits 36, 56, 57, 58, and 59 were denied
for failure to submit the duly marked exhibits, while Exhibit A-63 was
likewise denied, for not being found in the records of the case.

Plaintiff filed its Memorandum on November 7, 2017, while

accused filed his Memorandum on December 6, 2017. The case was
submitted for decision on December 20, 2017.

PARTIES' ARGUMENTS

Plaintiff's arguments

Plaintiff, in its Memorandum, argues that accused, being a

resident citizen of the Philippines earning income, is mandated by law
to declare his income for each taxable year and file the required tax
returns and pay the corresponding taxes due thereon as required by
Sections 24(A)(1 )(a), 51 (A)(1 )(a) and 74(A) of the NIRC of 1997, and
that as an elected public official from 2001 to 2010, he is mandated
under RA No. 6713 to accomplish and annually submit declarations
under oath of his Statement of Assets, Liabilities and Net Worth
(SALN), including that of his spouse and children under 18 years of
age who are living in their household.

It asserts that based on the SALNs filed for 2004, 2006 and 2007,
accused was able to acquire real and personal properties for the years
2004, 2006 and 2007 worth several millions, among which are
residential houses in Lubao, Pampanga and La Vista Subdivision in
Quezon City, motor vehicles, shares of stock, jewelries, clothes and
other personal effects as enumerated in his SALNs as of December 31
of the years 2004, 2006 and 2007; and that despite the receipt of
substantial amounts of income for 2004, 2006 and 2007, as shown by
his acquisitions of numerous properties, he failed to file his AnnuaiiTR
for 2007, and for the years that he filed his ITRs, he understated his
income by not supplying the correct and accurate information as to his
income in his ITRs for 2004 and 2006, thereby paying lesser amounts
of income tax.

It explains that through the use of the Net Worth Method of tax
investigation, accused had substantially underdeclared his income for
taxable years 2004 and 2006, and did not file his ITR for 2007; and that
using that Net Worth Method, his unreported income was established
by a comparison between the increase in net worth and the reported
taxable income. It adds that the Net Worth Method of proof is a longOI)
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 37 of69

established indirect method of proof regularly used in establishing

taxable income in criminal tax cases, and this method of proof is useful
in reconstructing taxable income when the government is unable to
establish income through direct evidence. It traces the first use of the
Net Worth Method in the United States of America in the case of
Capone v. United States, while in the Philippines, it was accordingly
sanctioned by the Supreme Court in the cases of Eugenio Perez vs.
CTA & C/R, 211 Jose Ave/ina vs. C/R, 212 CIR vs. William Li Yao, 213 and
Maria B. Castro vs. C/R. 214

It further points out that the method is a re-statement of a basic

accounting principle which states that assets minus liabilities equals
networth. Thus, under this method, taxpayer's net worth is determined
both at the beginning and at the end of the same taxable year. The
increase or decrease in net worth is adjusted by adding all non-
deductible items and subtracting therefrom non-taxable receipts. The
resultant figure is the taxable net income before statutory personal and
additional exemptions. The general theory underlying this method is
that the taxpayer's money and other assets in excess of liabilities, after
accurate and proper adjustment of non-deductible and non-taxable
items not accounted for in his tax return, is deemed to be unreported
income. Otherwise stated, the theory is that the unexplained increase
in networth of a taxpayer is presumed to be derived from taxable
1ncome.

It contends that the difference between the declared income of

accused per his ITRs for taxable years 2004 and 2006 and the total
amount of unreported/undeclared income for 2007 showed a
substantial underdeclaration of more than thirty (30°/o) percent, which
constituted a prima facie evidence of a fraudulent return under Sec.
248(8) of the NIRC of 1997. The act of accused of not filing his ITR for
taxable year 2007 is evident of his fraudulent scheme to defeat
payment of taxes. According to plaintiff, such continuous and
deliberate failure of accused to supply/declare true, correct and
accurate information as to his income in his ITRs for 2004 and 2006
and his failure to file his ITR for 2007 demonstrated his propensity and
willful intent to evade the payment of correct taxes due the
government.&\

2 11 G.R. No. L-10507, May 30, 1958.

212 G.R. No. L-14847, September 19, 1961, and G.R. No. L-17715, July 31, 1963.
213 G.R. No. L-11875, December 28, 1963.

2 14 G.R. No. L-12174, April20, 1962.

215 Plaintiff's Memorandum filed on November 7, 2017, CTA Grim. Case No. 0-

247 Docket, unpaginated.

Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 38 of69

Accused's counter-arguments

Accused prays for a judgment of acquittal. He argues that for six

(6) long years of litigation, the SIR has failed to prove its case, much
less his guilt beyond reasonable doubt; that during trial, not a single
prosecution witness testified that he acquired other taxable income that
he did not declare.

He stresses that Net Worth Method is not a simple arithmetic

computation as it is governed by the SIR's own Revenue Memorandum
Circular (RMC) No. 43-74. He claims that none of the conditions as
provided under Section 3 of RMC No. 43-74 are present in this case to
warrant the use of the Net Worth Method. Relatedly, accused asserts
the following:

(1) despite issuance of a Letter of Authority, the SIR did not

conduct an actual examination of accused's records to ascertain if
there was any undeclared income, thereby failing to establish: (a) that
accused's books of accounts do not truly reflect his income; (b) that
accused does not maintain any books of accounts; or (c) that accused
refused to produce his books of accounts;

(2) the SIR did not attempt to investigate the likely source of
unreported income as the SIR never spoke with anyone in the
corporations in which accused and his wife hold stock;

(3) Sec. 3(c) of RMC No. 43-74 stresses the importance of a

correct opening of net worth, but the SIR simply made unauthorized
assumptions on what accused's starting net worth should be;

(4) Sec. 3(d) of RMC No. 43-74 requires proper adjustment in

order that the Net Worth Method conforms with the income tax laws,
but no adjustment was made to exclude items which are non-taxable
as the SIR computed the undeclared taxable income by merely
comparing the increase in net worth during the year and the reported
taxable income per ITR, and considered the entire difference derived
as undeclared taxable income; and,

(5) even if the Net Worth Method could be legally applied, the
SIR deliberately ignored the formula that Revenue Memorandum
Order (RMO) No. 15-95 prescribed for computing the net taxable
income. Accused states that had the SIR only followed the rules
governing the use of the net worth method, they would have come upot)
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 39 of69

with a dramatically different result, and this case would not have been
filed.

Accused further stresses that even if the prosecution had been

able to prove that he owed some tax, he would still be entitled to an
acquittal as a matter of law. The crux of the indictment is fraudulent
intent and willfulness, whether in accused's alleged failure to file a
return or in the alleged omission to declare true facts, albeit nothing in
the evidence indicates the fraud that he allegedly employed.

ISSUES

1. Whether or not accused willfully, unlawfully and

substantially failed to supply correct and accurate
information with respect to his true and correct income
for taxable years 2004 [CTA Crim. Case No. 0-247]
and 2006 [CTA Crim. Case No. 0-248];

2. Whether or not accused is required by law, rules and

regulations to file his Annual Income Tax Return for
income earned for taxable year 2007 [CTA Crim. Case
No. 0-249];

3. Whether or not accused willfully, unlawfully and

feloniously failed to make and refused to file his Annual
Income Tax Return for taxable year 2007 [CTA Crim.
Case No. 0-249;

4. Whether or not a prior assessment of the tax liability of

accused is required prior to the criminal prosecution for
tax evasion;

5. Whether or not the use by the BIR of the "Net Worth

Method" in computing the alleged deficiency taxes of
accused is appropriate;

6. Whether or not the BIR is barred from assessing

deficiency taxes for the taxable years 2004 to 2007 on
the ground of prescription;

7. Whether or not accused and his wife Ma. Angela

Montenegro-Arroyo earned income in addition to his
compensation income as Vice-Governor and Member
of the House of Representatives;~
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 40 of69

a) In the affirmative, whether or not there was a duty to

declare that additional income and to pay income
tax thereon;

b) In the affirmative, whether or not there was criminal

intent to declare and evade taxes; and

c) Whether or not accused is liable to pay the alleged

deficiency taxes. 216

THE COURT'S RULING

The three (3) Informations allege that accused violated Section

255 of the National Internal Revenue Code (NIRC) of 1997, in relation
to Sections 24 and 51 (A)(1 )(a) of the NIRC of 1997, as amended, by:

a) Failing to supply correct and accurate information in his

income tax returns for the years 2004 and 2006 (CTA Crim.
Case No. 0-247 and CTA Crim. Case No. 0-248); and,

b) Failing to file his income tax return for the year 2007 (CTA
Crim. Case No. 0-249).

Section 255 of the NIRC of 1997, as amended, provides:

"SEC. 255. Failure to File Return, Supply Correct and

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 to pay any tax make a return, keep any record, or
supply correct the 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
(P1 0,000) and suffer imprisonment of not less than one (1) year but
not more than ten (1 0) 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 therefor, be punished by a fine of nota')

216 PTO, CTA Grim. Case No. 0-247 Docket, pp. 752-779, 760-761.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 41 of69

less than Ten thousand pesos (P1 0,000) 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." (Boldfacing &
underscoring supplied)

Parenthetically, to sustain a conviction for the offenses, as

charged under Section 255 of the NIRC of 1997, as amended, the
following elements must be established by the prosecution beyond
reasonable doubt:

1. Accused is required under the NIRC or its rules

and regulations to pay any tax or make a return,
or to supply correct and accurate information in
the return;

2. Accused failed to pay the required tax, or make

a return, or supply correct and accurate
information at the time required by law or rules
and regulations; and

3. Accused's failure to pay the required tax or to

make a return, or to supply correct and accurate
information at the time required by law or rules
and regulations is willful.

To begin with, the second and third elements under Section 255
of the NIRC of 1997, as amended, are dependent on the first element,
that is - - the taxpayer is required to pay tax and/or to file a return, or
to supply correct and accurate information in the return as required by
the NIRC. In other words, there can be no willful failure to pay a tax
and/or to file a return, or to supply correct and accurate information, if
there is in fact no requirement to do so.

To prove the first element of the offense under Section 255 of the
NIRC of 1997, as amended, the prosecution is burdened to establish
two (2) essential components, namely: (1) that accused is a resident
of the Philippines as alleged in the Informations; and (2) the source of
income of the accused in taxable years 2004, 2006 and 2007 including
the taxable income derived therefrom, which income was not declared
in the corresponding Income Tax Returns (ITRs). These elements are
indispensable to establish that there was failure to supply correct and
accurate information for years 2004 and 2006, or that accused did not
file an ITR for 2007.cf\
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 42 of69

The NIRC of 1997, as amended, requires a Filipino citizen

residing in the Philippines to file an Income Tax Return and to pay
income tax on income from within and without the Philippines. This
requirement is evident from the provisions of Sections 23, 24 and 51
of the NIRC of 1997, as amended, viz.:

"SEC. 23. General Principles of Income Taxation in

the Philippines- Except when otherwise provided in this
Code: (A) A citizen of the Philippines residing therein
is taxable on all income derived from sources within
and without the Philippines; (B) A nonresident citizen is
taxable only on income derived from sources within the
Philippines; (C) An individual citizen of the Philippines who
is working and deriving income from abroad as an
overseas contract worker is taxable only on income
derived from sources within the Philippines: Provided, That
a seaman who is a citizen of the Philippines and who
receives compensation for services rendered abroad as a
member of the complement of a vessel engaged
exclusively in international trade shall be treated as an
overseas contract worker; (D) An alien individual, whether
a resident or not of the Philippines, is taxable only on
income derived from sources within the Philippines;(E) A
domestic corporation is taxable on all income derived from
sources within and without the Philippines; and (F) A
foreign corporation, whether engaged or not in trade or
business in the Philippines, is taxable only on income
derived from sources within the Philippines."

XXX XXX XXX

"SEC. 24. Income Tax Rates -

(A) Rates of Income Tax on Individual Citizen and

Individual Resident Alien of the Philippines.

(1) An income tax is hereby imposed: (a) On the

taxable income defined in Section 31 of this Code, other
than income subject to tax under Subsections (B), (C) and
(D) of this Section, derived for each taxable year from all
sources within and without the Philippines by every
individual citizen of the Philippines residing therein;
(b) On the taxable income defined in Section 31 of this
Code, other than income subject to tax under Subsections
(B), (C) and (D) of this Section, derived for each taxable
year from all sources within the Philippines by an individual
citizen of the Philippines who is residing outside of the
Philippines including overseas contract workers referred to
in Subsection(C) of Section 23 hereof; and (c) On the
taxable income defined in Section 31 of this Code, other
than income subject to tax under Subsections (b), (C) and
(D) of this Section, derived for each taxable year from all(10
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 43 of69

sources within the Philippines by an individual alien who is

a resident of the Philippines."

XXX XXX XXX

"SEC. 51. Individual Return. -

(A) Requirements. -

(1) Except as provided in paragraph (2) of this

Subsection, the following individuals are required to
file an income tax return: (a) Every Filipino citizen
residing in the Philippines; (b) Every Filipino citizen
residing outside the Philippines, on his income from
sources within the Philippines; (c) Every alien residing in
the Philippines, on income derived from sources within the
Philippines; and (d) Every nonresident alien engaged in
trade or business or in the exercise of profession in the
Philippines.

(2) The following individuals shall not be required to

file an income tax return; (a) An individual whose gross
income does not exceed his total personal and additional
exemptions for dependents under Section 35: Provided,
That a citizen of the Philippines and any alien individual
engaged in business or practice of profession within the
Philippine shall file an income tax return, regardless of the
amount of gross income; (b) An individual with respect to
pure compensation income, as defined in Section 32
(A)(1 ), derived from sources within the Philippines, the
income tax on which has been correctly withheld under the
provisions of Section 79 of this Code: Provided, That an
individual deriving compensation concurrently from two or
more employers at any time during the taxable year shall
file an income tax return: Provided, further, That an
individual whose compensation income derived from
sources within the Philippines exceeds Sixty thousand
pesos (P60,000) shall also file an income tax return; (c) An
individual whose sole income has been subjected to final
withholding tax pursuant to Section 57(A) of this Code; and
(d) An individual who is exempt from income tax pursuant
to the provisions of this Code and other laws, general or
special. xxx." (Boldfacing & underscoring supplied)

The aforequoted provisions also require a non-resident citizen of

the Philippines to file an ITR and pay income tax on taxable income
derived only from within the Philippines. Thus, a resident citizen and
a non-resident citizen are required to file ITR and pay income tax, albeit
the taxable base is different, that is, on income from all sources (within
and without the Philippines) for resident citizen and on income derived
from within the Philippines for non-resident citizen.~
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 44 of69

Accused was a resident Filipino

citizen in 2004, 2006 & 2007

In these consolidated cases, the Informations allege that

accused is a resident of the Philippines for 2004, 2006 and 2007.

The parties admitted during the Pre-Trial Conference that

accused is a Filipino citizen with residence at No. 15 Badjao Street, La
Vista Subdivision, Katipunan Avenue, Quezon City; and, that he was
the Vice-Governor of Pampanga for 2001 to 2004 and elected as
Congressman for the 2nd District of Pampanga from 2004 to 2010. 217

The parties' judicial admission in the course of the proceedings

are conclusive and the facts subject thereof do not require evidence. 218
Accused, an elected public official who filed the requisite SALNs219
during the concerned period, was a resident citizen of the Philippines
required to pay tax or make a return, or to supply correct and accurate
information in the return.

Failure to Supply Correct and Accurate

Information

There is no dispute that accused filed his ITRs for 2004 and
2006. The prosecution, however, claims that accused failed to supply
correct and accurate information therein.

The prosecution argues that the declarations in accused's

SALNs for 2004, 2006 and 2007 prove the following:

i) Accused was able to acquire real and personal

properties for the concerned years worth several millions,
which include residential houses in Lubao, Pampanga & La
Vista Subdivision in Quezon City, motor vehicles, shares
of stock, jewelries, clothes and other personal effects as
enumerated in his SALNs for the years 2004, 2006 and
2007;~

217 PTO, CTA Crim. Case No. 0-247 Docket, pp. 753-754.
218
Philippine Long Distance Telephone Company (PLOT) vs. Pingol, G.R. No.
182622, September 8, 2010
219 Exhibits "L", "N", "0", "11 ", "13", "14"; CTA Crim. Case No. 0-247 Docket, pp.

532-533, 536-537, 538-539.

Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 45 of69

ii) Despite the receipt of substantial amounts of

income in 2004, 2006 and 2007, as shown by his
acquisitions of numerous properties, he failed to file his
AnnuaiiTR for 2007, while in the ITRs he filed for 2004 and
2006, accused understated his income by not supplying
correct and accurate information; and,

iii) Accused has unreported income, consisting of the

difference between the increase in his net worth and his
reported taxable income.

In determining the alleged unreported income of the accused, the

prosecution utilized the net worth method which the CIR is allowed to
employ in computing the income of a taxpayer pursuant to Section 43
of the NIRC of 1997, as amended. 220

In criminal cases, as in the cases at bar, the prosecution is

burdened to identify the likely source of the unreported or
undeclared income of the accused in order to sustain a
conviction. On this point, the teachings in Bureau of Internal
Revenue vs. Court of Appeals221 are instructive:

"In Ungab v. Judge Cusi, Jr., we 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 of the tax. Corollarily, an assessment of the tax
deficiency is not required in a criminal prosecution for tax
evasion. However, in Commissioner of Internal Revenue
v. Court of Appeals, we clarified that although a
deficiency assessment is not necessary, the fact that a
tax is due must first be proved before one can be
prosecuted for tax evasion.

In the case of income, for it to be taxable, there must

be a gain realized or received by the taxpayer, which is not
excluded by law or treaty from taxation. The government is
allowed to resort to all evidence or resources available to
determine a taxpayer's income and to use methods to
reconstruct his income. A method commonly used by the
government is the expenditure method, which is a method of(Jt')

220
SEC. 43. General Rule. -The taxable income shall be computed upon the basis
of the taxpayer's annual accounting period (fiscal year or calendar year, as the
case may be) in accordance with the method of accounting regularly employed in
keeping the books of such taxpayer, but if no such method of accounting has been
so employed, or if the method employed does not clearly reflect the income, the
computation shall be made in accordance with such method as in the opinion of
the Commissioner clearly reflects the income.
221
G.R. No. 197590, November 24, 2014.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 46 of69

reconstructing a taxpayer's income by deducting the

aggregate yearly expenditures from the declared yearly
income. The theory of this method is that when the amount of
the money that a taxpayer spends during a given year
exceeds his reported or declared income and the source of
such money is unexplained, it may be inferred that such
expenditures represent unreported or undeclared income.

In the case at bar, petitioner used this method to

determine respondent spouses' tax liability. Petitioner
deducted respondent spouses' major cash acquisitions from
their available funds.

XXX XXX XXX

And since the underdeclaration is more than 30%of

respondent spouses' reported or declared income, which
under Section 248(8) of the NIRC constitutes as prima facie
evidence of false or fraudulent return, petitioner
recommended the filing of criminal cases against respondent
spouses under Sections 254 and 255, in relation to Section
248(8) of the NIRC.

The CA, however, found no probable cause to indict

respondent spouses for tax evasion. It agreed with Acting
Justice Secretary Devanadera that petitioner failed to
make "a categorical finding of the exact amount of tax
due from [respondent spouses]" and "to show sufficient
proof of a likely source of [respondent spouses'] income
that enabled them to purchase the real and personal
properties adverted to x x x." We find otherwise.

The amount of tax due from respondent spouses was

specifically alleged in the Complaint-Affidavit. The
computation, as well as the method used in determining the
tax liability, was also clearly explained. The revenue officers
likewise showed that the under declaration exceeded 30% of
the reported or declared income.

The revenue officers also identified the likely

source of the unreported or undeclared income in their
Reply-Affidavit. The pertinent portion reads:

'7. X X X X

[Respondent spouses] are into rental business

and the net profit for six (6) years before tax summed
only to ~1 ,238,938.32 (an average of more or less
Php200,000.00 annually). We asked respondent
[Antonio] if we can proceed to his rented property to
[appraise] the earning capacity of the building [for]
lease/ rent, but he declined our proposition. Due to
such refusal made by the respondent, [petitioner], thru
its examiners, took pictures of the subject property and c{)
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 47 of69

came up with the findings that indeed the

unexplained funds sought to have been used in
acquiring the valuable property in Tagaytay x x x
came from the underdeclaration of rental income.'

Apparently, the revenue officers considered

respondent Antonio's rental business to be the likely
source of their unreported or undeclared income due to
his unjustified refusal to allow the revenue officers to
inspect the building." (Boldfacing and underscoring
supplied)

Aside from the likely source of income, jurisprudence also

requires evidence showing, with reasonable certainty, an opening
net worth to serve as a starting point, from which to calculate future
increases in the taxpayer's assets; and that the net worth increases are
attributable to taxable income. 222

The requisites for the use of the net worth method are stated in
Revenue Memorandum Circular (RMC) No. 43-74, pertinent part of
which provides:

(1 )That the taxpayer's books do not clearly reflect his

income or the taxpayer has no books, or if he has books,
he refuses to produce them;

(2)That there is evidence of a possible source or sources

of income to account for the increases in net worth or
the expenditures;

(3)That there is a fixed starting point or opening net worth,

i.e., a date beginning with a taxable year or prior to it, at
which time the taxpayer's financial condition can be
affirmatively established with some definiteness; and

(4 )That the circumstances are such that the method does

reflect the taxpayer's income with reasonable accuracy
and certainty, and proper and just additions of personal
expenses and other non-deductible expenditures were
made, and correct, fair and equitable credit adjustments
were given by way of eliminating non-taxable items.

The conjunctive word "and" is used in the above-quoted RMC.

Such conjunctive word is not without legal significance. It means "in
addition to". The word "and", whether used to connect words, phrases~

222 Perez vs. Court of Tax Appeals, G.R. No. L-10507, May 30, 1958.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 48 of69

or full sentences, must be accepted as "binding together" and as

"relating to one another". In statutory construction, the word "and"
implies conjunction or union. 223 The import of the use of the term "and"
means that all of the elements mentioned above must concur224 in
order to justify the use of the net worth method in determining the
correct income of a taxpayer.

As to the first condition under RMC 43-74, the evidence

presented by the prosecution failed to establish that accused's books
do not clearly reflect his income, or that accused has no books at all,
or accused refuses to produce his books. These books may reasonably
pertain to a journal, ledger and subsidiary books referred to in the
NIRC. 225

Records disclose that the LOA, dated April 4, 2011, was served
on April 5, 2011, 226 and that the joint Complaint-Affidavit227 dated April
7, 2011 was referred to the then Secretary of Justice by the
Commissioner of Internal Revenue (CIR) in a letter dated April 6,
2011 and received by the Prosecution Staff Docket Section on
April 7, 2011. 228 The proximity of the dates from the issuance of the
LOA up to the filing of the joint Complaint-Affidavit before the DOJ
shows that the BIR failed to consider the books of the accused,
which is a vital pre-requisite for the use of the net worth method.
Such utter disregard of the mandatory requirement has been
highlighted during trial when Atty. Flor testified that after service of
LOA, they filed a complaint before the DOJ against the accused as
authorized by the CIR, even before the expiration of the 10-day period
given to accused to present certain documents, because during the
SIR's preliminary investigation, they already concluded that th~

223
Commissioner of Internal Revenue vs. Ariete, G.R. No. 164152, January 21,
2010.
224 Campania General De Tabacos De Filipinas and La Flor De La lsabela, Inc.

vs. Sevandal, G.R. No. 161051, July 23,2009.

225 SEC. 232. Keeping of Books of Accounts. - (A) Corporations, Companies,

Partnerships or Persons Required to Keep Books of Accounts. - All corporations,

companies, partnerships or persons required by law to pay internal revenue taxes
shall keep a journal and a ledger or their equivalents: xxx
SEC. 233. Subsidiary Books. - All corporations, companies, partnerships or
persons keeping the books of accounts mentioned in the preceding Section may,
at their option, keep subsidiary books as the needs of their business may require:
Provided, That were such subsidiaries are kept, they shall form part of the
accounting system of the taxpayer and shall be subject to the same rules and
regulations as to their keeping, translation, production and inspection as are
applicable to the journal and the ledger.
226
Exhibit "P-11", CTA Grim. Case No. 0-247 Docket, p. 1153.
227
Exhibit "P-11", CTA Grim. Case No. 0-247 Docket, pp. 511-516.
228
Exhibit "A" to "A-3", CTA Grim. Case No. 0-247 Docket, pp. 508-510.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 49 of69

documents are complete for purposes of filing a criminal case before

the DOJ. Pertinent portions of Atty. Flor's testimony states:

"JUSTICE DEL ROSARIO:

Do you still understand the question? Despite the fact that you did
not find any other source of income of the accused, you still
proceeded to make a computation of supposed discrepancy in the
income. That is the question. So, why did you still proceed despite
the fact that you do not have evidence or any information with respect
to any possible other source of income?

ATTY. FLOR (Witness for the prosecution):

A. Based on the certification of the Asst. Commissioner Victoria V.

Santos that there are no donations coming from the closed relatives
of the accused, and the ITR of the accused which is the Summary of
Financial Transaction of the accused, there is no indication there that
interest income which should be the reconciling item, the ITR, we
proceeded with the computation of the liabilities of the accused
based on the increase in Net Worth.

ATTY. PADILLA

Q. Last time, you were testifying when there was a lengthy question
pertaining to why you referred the case to the Department of Justice
through this issuance of the Letter of Authority or before the
expiration of the ten-day period you've given the accused to present
documents. Why is that so, ma'am?

ATTY. FLOR (Witness for the prosecution):

A. Because during the Preliminary Investigation conducted

before the issuance of the Letter of Authority, we concluded that
the documents are complete for filing of criminal case before
the DOJ."229 (Boldfacing supplied)

Further scrutiny of the joint Complaint-Affidavit230 discloses that

such important condition of the RMC was not taken into account by the
complainants. The joint Complaint-Affidavit shows that complainants
based their conclusion of unreported taxable income on very limited
information and documents gathered during their preliminary
investigation, i.e., the SALNs and ITRs of the accused and the
certifications from the BIR Offices. There is nothing in the joint
Complaint-Affidavit which states that the SIR requested the accused to
produce his books, and that despite such request, accused failed to
produce his books, or that accused has no books at all, or that the
books produced by the accused do not clearly reflect his income. Atty.rf\

22 9 January 15, 2014 TSN, pp. 26-28.

230 Exhibit "B", CTA Grim. Case No. 0-247 Docket, p. 511.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 50 of69

Flor even revealed that they only examined the ITR and SALN of the
accused, and they did not try to get a copy of the books and did not
bother to look at accused's books since according to her, accused's
ITR cannot justify the increase in his net worth. Atty. Flor's testimony
on this matter reads:

"ATTY. RONDAIN:

Q. Now, for the application of the networth method, it requires, and

this is paragraph 3 [of RMO 43-74], appearing on page 3. Could you
read these conditions for application, please?

MS. FLOR:

A. The conditions for use of the method. The condition for the
proper use of such method as found in the law itself and the case
developed on the matter are.

ATTY. RONDAIN:

Q. Could you read A, please?

MS. FLOR:

A. Letter A, that the taxpayer's books do not clearly reflect

his income.

XXX XXX XXX

ATTY. RONDAIN:

Q. What books did you examine, Ms. Flor?

MS. FLOR:

A. The ITR of the accused and the SALN.

ATTY. RONDAIN:

Q. I would interpret that to mean that the law refers to ledgers,

journals, accounting books?

MS. FLOR:

A. Yes, Sir.

ATTY. RONDAIN:

Q. Did you examine any accounting books/accounting records?~

Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 51 of69

MS. FLOR:

A. That's the reason why we resorted to the networth method since

there is no direct evidence wherein we can audit, we resorted to,
(paused).

ATTY. RONDAIN:

Q. No direct evidence?

MS. FLOR:

A. Yes, Sir.

ATTY. RONDAIN:

Q. Did you try to get evidence? Did you try to get their books?

MS. FLOR:

A. From the time we file the Complaint, we believe that the

documents we have gathered during preliminary investigations
already complete.

ATTY. RONDAIN:

All right.

Q. So did you try to get copy of their books? Did you try to look
at their books?

MS. FLOR:

A. No, Sir, no.

XXX XXX XXX

A. The fact that the ITR of the accused cannot justify the increase in
networth of the accused, there is no need for us to check the records.
We believe that it does not clearly reflect the income of the accused
considering that he's a compensation income earner and as a
compensation income earner, the record that the accused to be
submitted to us is 2316 Form and the ITR.

ATTY. RONDAIN:

Q. So you didn't care to look at his books?

MS. FLOR:

A. As I've said earlier, I believe that the record of the accused is

incomplete. Since he is a compensation income earner. I think, he
will submit the 2316 and the Alphalist of the House of
Representatives .(1t\
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 52 of69

ATTY. RONDAIN:

Okay.

Q. So, the short answer to my question is, "No, you did not care
to look at his books?

MS. FLOR:

A. Yes."231 (Boldfacing supplied)

As regards the second condition to justify the use of the net

worth method, the prosecution also failed to prove the possible
source/s of income that would account for the increases in accused's
net worth. There is no evidence offered by the prosecution which will
show the likely source of income and the corresponding income
derived therefrom by the accused during the concerned taxable years.

Revenue Memorandum Order (RMO) No. 15-95 enumerates

certain proofs of a likely source of income, viz.:

(1) Demonstrating that there were specific omissions of income

items by the taxpayer in his income tax return.

(2) A showing that the nature of the taxpayer's business is such that
it has capacity of generating a substantial income.

(3) Proofs of underdeclaration of income by the existence of

unregistered sales invoices, which were not recorded in the
books;

(4) Findings of unrecorded purchases;

(5) Existence of business permits, license from government

agencies as to the types of businesses the taxpayer is engaged
in;

(6) Keeping separate sets of books- one registered and the other
reflecting the correct transactions of a business.

(7) Use of false invoices or documents, and

(8) Willful destruction of accounting records.

The prosecution failed to present any proof that will point to

accused's likely source income which he failed to declare in his ITRstfA

231 December4, 2013 TSN, pp. 58-61.

Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 53 of69

First, the prosecution failed to point out the particular item of

income which was not reported in accused's ITR. The prosecution's
witness, Atty. Flor merely stated the alleged "discrepancy, unreported
income" when she was asked about the specifically omitted income
item in the accused's ITR. Such response of the witness appears to be
senseless as it can be considered a statement without any basis in law.
If the prosecution has evidence of the income which the accused failed
to report in his ITR, it should have identified with particularity said
specific income item/s which were not allegedly declared therein. The
prosecution should have pointed on which of those income items listed
in Section 32 of the NIRC of 1997 that the accused failed to report in
his ITR (albeit some of the items enumerated therein are not required
to be reported in the ITR as they are undeniably subject to final tax),
viz.:

(i) Compensation for services in whatever form paid,

including, but not limited to fees, salaries, wages,
commissions, and similar items;

(ii) Gross income derived from the conduct of trade or

business or the exercise of a profession;

(iii) Gains derived from dealings in property;

(iv) Interests;

(v) Rents;

(vi) Royalties;

(vii) Dividends;

(viii) Annuities;

(ix) Prizes and winnings;

(x) Pensions; and

(xi) Partner's distributive share from the net income of the

general professional partnership.

Second, the prosecution failed to establish which of the

businesses of the accused is capable of generating the alleged
undeclared income. The prosecution is required to prove that the
nature of accused's businesses is capable of generating the alleged
undeclared income. The prosecution witness, Atty. Flor, even admitte~
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 54 of69

that she did not investigate any business of the accused that could
have possibly generated the alleged undeclared income, viz.:

"ATTY. RONDAIN:

Q. Did you investigate of any business that could have generated

income?

MS. FLOR:

A. No, Sir, we have no LA." 232 (Boldfacing supplied)

Third, the prosecution failed to prove the underdeclaration of

income by the existence of unregistered sales invoice, evidencing
sales which were not recorded in the books of the accused. A perusal
of the evidence presented by the prosecution reveals that no
testimonial or documentary evidence pertaining to said unregistered
sales invoice was ever presented. It was not even mentioned in the
joint Complaint-Affidavit filed with the DOJ. Moreover, Atty. Flor also
testified that she did not find proof of undeclared income to verify the
existence of unregistered invoices, viz.:

"ATTY. RONDAIN:

Q. Did you find proof of undeclared income to verify the existence

of unregistered invoices, etc.?

MS. FLOR:

B. No, Sir." 233 (Boldfacing supplied)

Fourth, there is no evidence showing a finding of unrecorded

purchases. Atty. Flor testified that she did not find evidence of
unrecorded purchases, viz.:

"ATTY. RONDAIN:

Q. Did you find evidence of unrecorded purchases?

MS. FLOR:

A. No, Sir." 234 (Boldfacing supplied)"'\

2 32 December 4, 2013 TSN, p. 69.

233
December 4, 2013 TSN, p. 70.
2 34 December 4, 2013 TSN, p. 70.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 55 of69

Fifth, there is no documentary evidence presented by the

prosecution showing the existence of business permits and licenses
from government agencies as to the types of businesses accused is
engaged in. Atty. Flor testified that she did not find any business
permits showing that accused had other businesses, viz.:

"ATIY. RONDAIN:

Q. Did find any business permits or licenses showing that Mikey

Arroyo had other businesses?

MS. FLOR:

A. As to the business permits we were not able, (interrupted).

ATTY. RONDAIN:

Q. No?

MS. FLOR:

A. No. But as to the license of the corporation in which the accused

invested or served as a director or president, we were able to get one.

ATTY. RONDAIN:

Q. In fact, you didn't need to because they were declared in the SALN, yes?

MS. FLOR:

A. Yes, Sir." 235 (Boldfacing supplied)

Sixth, the prosecution failed to prove that accused kept separate

sets of books - one registered and the other reflecting the correct
transactions of a business. Atty. Flor testified that she did not find
evidence of double bookings, viz.:

"ATTY. RONDAIN:

Q. Did find evidence of double bookings?

MS. FLOR:

A. No, Sir." 236 (Boldfacing supplied)oJ)

2 35 December 4, 2013 TSN, p. 71.

236
December 4, 2013 TSN, p. 72.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 56 of69

Seventh, the prosecution failed to prove by documentary

evidence that would show accused's use of false invoices or
documents. Atty. Flor also testified that she did not see any false
invoices or documents, viz.:

"ATTY. RONDAIN:

Q. Did you see any false invoices or documents, Ma'am?

MS. FLOR:

A. No, Sir." 237 (Boldfacing supplied)

Eighth, the prosecution failed to show that there is willful

destruction of accounting records of the accused. In fact, Atty. Flor
testified that she did not see any evidence of destruction of accounting
records, viz.:

"ATTY. RONDAIN:

Q. Did you see any evidence of destruction of accounting records,

Ma'am?

MS. FLOR:

A. No, Sir." 238 (Boldfacing supplied)

As the foregoing indicators of the likely source of income are

absent in this case, the SIR's use of the net worth method was not
justified. Without evidence on the likely source of income and the
corresponding income derived therefrom by the accused during the
concerned taxable years, the Court casts a serious doubt as to the
veracity of the offenses charged against the accused.

The increase in accused's net worths in years 2004, 2006 and

2007 could not conclusively be presumed as arising from his receipts
of income which should have been declared in his ITR and subjected
to the regular income tax rates prescribed under Section 24 of the
NIRC of 1997, as amended. The probability that the increase in
accused's net worths in years 2004, 2006 and 2007 resulted from his
receipt of an ordinary income, as speculated by the prosecution, is
equal to the probability that the increase in his net worths arose from
donations, gifts, inheritance, and/or from other items of incom{;)

23 7 December 4, 2013 TSN, p. 72-73.

23 8
December 4, 2013 TSN, p. 73
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 57 of69

subjected to final tax, such as dividends, royalties, interests, capital

gains.

Regarding the third condition for the use of the net worth
method, the complainant also failed to comply therewith. While the BIR
was able to come up with its Computation of Unreported Taxable
Income Based on Net Worth from 2004-2009 239 of the accused and
his wife, the same failed to consider the correct beginning net
worth particularly for 2004. Shown below is the portion of the said
computation for reference purposes:

31-Dec-02 2003 NO SALN 31-Dec-04 31-Dec-05 31-Dec-06 31-Dec-07

WITH ANNUAL
INCOME TAX
RETURN
TOTAL 5,003,023.79 1,063,300.28 76,531,403.96 138,751,403.96 167,971,403.96 154,972,409.95
ASSETS
TOTAL 0.00 0.00 0.00 61,800,000.00 78,366,000.00 58,224,476.29
LIABILITIES
NET WORTH 5,003,023.79 1,063,300.28 76,531 ,403. 96 76,951,403.96 89,605,403.96 96,747,933.66
Beginning Net 5,721,787.29 5,003,023.79 6,066,324.07 76,531,403.96 76,951,403.96 89,605,403.96
Worth
INCREASE IN 6,066,324.07 70,465,079.89 420,000.00 12,654,000.00 7,142,529.70
NET WORTH
LESS: 2,489,375.00 378,000.00 1,738,500.00 376,500.00
REPORTED
TAXABLE
INCOME PER
RETURN
UNREPORTED 67,975,704.89 42,000.00 10,915,500.00 6,766,029.70
INCOME
BASIC TAX 21,717,225.56 4,300.00 3,457,960.00 2, 130,129.50
DUE
SURCHARGE 10,858,612.78 2,150.00 1,728,980.00 1,065,064.75
50%
INTEREST (UP 26,060,670.67 4,300.00 2,766,368.00 1,278,077.70
TO APRIL 15,
2011)
DEFICIENCY 58,636,509.01 10,750.00 7,953,308.00 4,473,271.95
INCOME TAX

As it appears, the beginning net worth in 2004 of P6,066,327.07

was taken from the increase in net worth in 2003. The prosecution
witness, Atty. Flor testified that they used a different formula for the
year 2003 as they were not able to get a copy of the 2003 SALN of the
°
accused. 24 For 2003, she accordingly used the ending net worth of
2002 as the beginning net worth for 2003 and added the accused's
2003 compensation income as appearing in his ITR241 to arrive at his
ending net worth for 2003. 242 In other words, the BIR was able to come
up with the 2003 ending net worth by adding the 2002 net worth of the
accused in the amount of P5,003,023.79 243 and accused's income per
20031TR of P1,063,300.28~

239 Exhibit "Y", CTA Grim. Case No. 0-247 Docket, p. 612.
24 0 June 19, 2013 TSN, p. 42.
241 June 19, 2013 TSN, p. 80.
242 July 17, 2013 TSN, p. 26.
243 Exhibits "I" and "8", CTA Grim. Case No. 0-247 Docket, p. 523.
244 Exhibits "J" and "9", CTA Grim. Case No. 0-247 Docket, pp. 524-526.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 58 of69

The beginning net worth of P6,066,327.07 for 2004 as used in

the computation of the complainant is patently erroneous. Seemingly,
complainant had not considered accused's 2002
Supplemental/Amended SALN containing a net worth of
P68,736,539.39, 245 or even accused's SALN for 2003 containing a net
worth of P72,727,511.06, 246 which are clearly higher than the amount
considered by the BIR.

Lastly, there is no showing that the method used by the

complainants reflects accused's income during the concerned taxable
years with reasonable accuracy and certainty as the complainants
failed to consider the books of accounts and other accounting records
of the accused, and they merely based their conclusion of unreported
income on the increase in net worths based on the SALNs and the
income declared in the ITRs. The prosecution did not observe the
proper computation of the net worth method as they failed to consider
the non-taxable income items of the accused.

To prove accused's failure to supply correct and accurate

information in his ITRs for the years 2004 and 2006, the prosecution
presumed that accused has undeclared income to the extent of the
increase in his net worth. But the prosecution failed to establish the
likely source and the nature of the alleged undeclared income, that
is, whether it is an ordinary income that should have been
reported in the ITRs or that said undeclared income was not
sourced from bank deposits, investments in shares, donations or
inheritance. If the undeclared income is a passive income, accused is
not required to declare the same in his ITRs as said income is subject
to final tax.

Since there is absence of proof showing accused's likely source

of other income in 2004 and 2006, and the corresponding income
therefrom which were not declared in the ITRs for the said years, and
considering the inappropriate application of the net worth method, the
prosecution has failed to prove beyond reasonable doubt the
second element of the crime, which is the alleged failure of
accused to supply correct and accurate information in the return,
as charged in CTA Crim. Case Nos. 0-247 and 0-248.

The absence of one of the elements of the crime charged

dispenses the requirement to elucidate on the third element!Jt]

24 5 Exhibit "43", CTA Crim. Case No. 0-247 Docket, p. 620-623.

246 Exhibit "32", CTA Crim. Case No. 0-247 Docket, p. 168.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 59 of69

Failure to File Income Tax Return

Accused was also indicted due to his alleged failure and/or

refusal to file his ITR for 2007.

The aforesaid Computation of Unreported Taxable Income as

shown above discloses that the complainants considered the amount
of P376,500.00 as reported taxable income of accused per ITR of
2007. 247 The same amount was considered in the SIR's Preliminary
Assessment Notice and the Details of Discrepancies of the Formal
Letter of Demand. 248 The Certificate of Compensation Payment/Tax
Withheld (BIR Form No. 2316) of accused for 2007, issued by his
employer - House of Representative, also shows the same amount of
taxable compensation income of accused, with the corresponding tax
due of P73,550.00 that matches with the total amount of taxes withheld
by his employer. 249 The prosecution witness, Atty. Flor even testified
that the amount was taken from the Annual Information Return on
Income Tax Withheld on Compensation filed by the House of
Representatives before BIR ROO 39. 250 Another witness of the
prosecution in the person of Ms. Victoria V. Santos further confirmed
that accused was included in the alpha list of employees of the House
of Representative, and pointed out its significance that it is considered
as his income tax return if he does not have any other income. 251

The foregoing documentary and testimonial evidence negates

the accusation of the prosecution against the accused.

Section 2.83.4 of Revenue Regulations (RR) No. 02-98, as

amended by RR No. 03-02, provides:

"Section 2.83.4. Substituted Filing of Income Tax Returns

by Employees Receiving Purely Compensation Income. -
Individual taxpayers receiving purely compensation income,
regardless of amount, from only one employer in the Philippines
for the calendar year, the income tax of which has been withheld
correctly by the said employer (tax due equals tax withheld), shall
not be required to file BIR Form No. 1700. In lieu of BIR Form No.
1700, the Annual Information Return of Income Taxes Withheld
on Compensation and Final Withholding Taxes (BIR Form No.O'{

247 Exhibit "Y", CTA Crim. Case No. 0-247 Docket, p. 612
248 Exhibits "FF" to "FF-3" and "GG" to "GG-3", 0-247 CTA Crim. Case No. 0-247
Docket, pp. 600-607.
249 Exhibit "51", CTA Crim. Case No. 0-247 Docket, p. 649.
2 50 July 17, 2013 TSN, p. 49.

251 May 7, 2014 TSN, p. 11.

Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 60 of69

1604-CF) (hard copy) filed by their respective employers, duly

stamped "received" by the BIR, shall be tantamount to the
substituted filing of income tax returns by said employees.

The following individuals, however, are not qualified for

substituted filing and therefore, still required to file BIR Form No.
1700 in accordance with existing regulations:

(A) Individuals deriving compensation from two or more

employers concurrently or successively at anytime during the taxable
year.

(B) Employees deriving compensation income, regardless

of the amount, whether from a single or several employers during the
calendar year, the income tax of which has not been withheld
correctly (i.e. tax due is not equal to the tax withheld) resulting to
collectible or refundable return.

(C) Employees whose monthly gross compensation

income does not exceed Five Thousand Pesos (P5,000.00) or the
statutory minimum wage, whichever is higher, and opted for non-
withholding of tax on said income.

(D) Individuals deriving other non-business, non-

profession-related income in addition to compensation income not
otherwise subject to a final tax.

(E) Individuals receiving purely compensation income from

a single employer, although the income tax of which has been
correctly withheld, but whose spouse falls under Section 2.83A(A),
(B), (C) and (D) of these Regulations.

(F) Non-resident aliens engaged in trade or business in the

Philippines deriving purely compensation income, or compensation
income and other non-business, non-profession-related income.

XXX XXX xxx. "(Boldfacing supplied)

The prosecution witnesses testified that: (i) the amount of

P376,500.00, as shown in the computation above, was taken from the
Annual Information Return on Income Tax Withheld on Compensation
(BIR Form 1604CF) filed by the House of Representatives before BIR
ROO 39; and (ii) the accused is included in the alpha list of employees
of the House of Representative.

A careful evaluation of the evidence presented by the

prosecution shows the following:

a) Accused earned compensation income from his employer, the

House of Representatives;~
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 61 of69

b) The House of Representatives withheld income tax thereon;

c) There was no indication that the amount withheld by the House

of Representative was incorrect; and,

d) There was no proof that the accused derived income from

other sources.

Based on the foregoing, accused cannot be convicted of the

crime of failure to file ITR under Section 255 of the NIRC of 1997,a s
amended, as he was not required to file a separate ITR for the year
2007. His employer's Annual Information Return on Income Tax
Withheld on Compensation (BIR Form 1604CF) is considered as his
"substitute" ITR pursuant to Section 2.83.4 of RR No. 02-98, as
amended by RR No. 03-02.

As in the other two (2) cases, the prosecution again failed to

prove the second element. To reiterate, the Court need not belabor on
discussing the other elements where one of the elements of the crime
was not proven to exist.

*** *** ***

Clearly, the prosecution sought to establish the culpability of the

accused by showing an increase in the latter's net worth. It is the theory
of the prosecution that the accused failed to supply correct and
accurate information (CTA Crim. Case Nos. 0-247 & 0-248) and failed
to file ITR (CTA Crim. Case No. 0-249) relative to his true and correct
income tax, albeit in truth - - the increase in his net worth constituted
an "unreported/undeclared income".

In esse, the prosecution draws two (2) inferences from the single
circumstance that the net worth of the accused increased:

(i) First - that the increase in net worth represents an

income; and,

(ii) Second - that the income that resulted in an increase

in net worth is not in the nature of a passive income
nor coming from a source that need not be reported in
an income tax return, such as proceeds of donation or
inheritance.~
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 62 of69

The two (2) inferences derived by the prosecution from a mere

examination of accused SALNs showing the increase in accused's net
worth constitute a "double presumption" that is neither sanctioned by
evidentiary rules or jurisprudence nor sufficient to rebut the
constitutional presumption of innocence to which the accused is
entitled.

In order to convict a person accused of a crime on the strength

of mere circumstantial evidence alone, it is incumbent upon the
prosecution to present such circumstantial evidence, which will and
must necessarily lead to the conclusion that the accused is guilty of the
crime charged beyond reasonable doubt, excluding all and each and
every reasonable hypothesis consistent with his innocence.

The test to determine whether or not the circumstantial evidence

on record is sufficient to convict the accused is that the series of
circumstances duly proved must be consistent with each other and that
each and every circumstance must be consistent with the accused's
guilt and inconsistent with his innocence. 252 In a nutshell, the
circumstantial evidence must exclude the possibility that some
other circumstances were present that could exonerate the
accused from the crime charged.

As exhaustively discussed earlier, in these consolidated cases,

the circumstantial evidence that there was an increase in accused's
net worths for the years 2004, 2006 and 2007 does not ipso facto lead
to the conclusion that accused derived ordinary income that should
have been declared in his ITRs and subjected to the regular income
tax rates prescribed under Section 24 of the NIRC of 1997, as
amended. Truth to tell, the probability that the increase in
accused's net worth resulted from his receipt of an ordinary
income, subject to regular income tax rates, is equal to the
probability that the increase arose from donations, gifts,
inheritance, and/or from passive or other income subjected to
final tax, such as dividends, royalties, interests, capital gains.

The circumstances established by the prosecution may

undeniably create an interesting basis to speculate that the accused
committed the crimes charged. Mere speculations and probabilities,
however, cannot substitute for the required proof to establish the
guilt of an accused beyond reasonable doubt~

252 People vs. Canlas, G.R. No. 141633, December 14,2001.

253 People vs. Canlas, G.R. No. 141633, December 14, 2001.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 63 of69

It is basic truism that the prosecution has the burden of proving

beyond reasonable doubt each element of the crime as its case will
rise or fall on the strength of its own evidence, never on the weakness
or even absence of defense evidence. 254 Failing to prove the required
quantum of evidence, the presumption of innocence must prevail and
accused should be acquitted. 255

All told, accused, therefore, deserves to be exonerated for the

offenses charged in CTA Crim. Case Nos. 0-247, 0-248 and 0-249
for failure of the prosecution to prove all the elements of the crime
beyond reasonable doubt.

Civil Action for the Recovery of Civil Liability

Section 7(b)(1) of Republic Act (RA) No. 1125, as amended,

states that "[a]ny provision of law or Rules of Court to the contrary
notwithstanding, the criminal action and the corresponding civil action
for the recovery of civil liability for taxes and penalties shall at all times
be simultaneously instituted with, and jointly determined in the
same proceeding by the CTA, the filing of the criminal action shall
be deemed to necessarily carry with it the filing of the civil action,
and no right to reserve the filing of such civil action separately from the
criminal action will be recognized."

Assessment is void ab initio

Records disclose that the Formal Letter of Demand (FLO) with

Details of Discrepancies dated January 10, 2012 demanded from
accused and his wife the payment of deficiency income tax and value-
added tax for the years 2004 to 2009 within the time shown in the
allegedly enclosed assessment notice. There is, however, nothing in
the records which would show that, indeed, an assessment notice was
issued and enclosed to FLO. The last paragraph of the FLO reads:

"In view thereof, you are hereby requested to pay your

aforesaid deficiency income and value added tax liabilities through
the duly authorized agent bank in which you are enrolled within the
time shown in the enclosed assessment notice." (Boldfacing
suppliedC!f\

254 Alferez vs. People, G.R. No. 182301, January 31, 2011.
255 People vs. Santos, G.R. No. 175593, October 17, 2007.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 64 of69

Section 228 of the NIRC of 1997, as amended, provides the

procedure in issuing and protesting an assessment:

"SEC. 228. Protesting of Assessment. -

XXX XXX XXX

The taxpayers shall be informed in writing of the law and the

facts on which the assessment is made; otherwise, the assessment
shall be void.

Within a period to be prescribed by implementing rules and

regulations, the taxpayer shall be required to respond to said notice. If
the taxpayer fails to respond, the Commissioner or his duly
authorized representative shall issue an assessment based on his
findings." (Boldfacing and underscoring supplied)

To implement the provisions of Section 228, supra, RR No. 12-

99 was issued, Section 3.1.4 of which reads:

"3.1.4. Formal Letter of Demand and Assessment Notice.

- The formal letter of demand and assessment notice shall be
issued by the Commissioner or his duly authorized
representative. The letter of demand calling for payment of the
taxpayer's deficiency tax or taxes shall state the facts, the law, rules
and regulations, or jurisprudence on which the assessment is based,
otherwise, the formal letter of demand and assessment notice shall
be void. xxx The same shall be sent to the taxpayer only by
registered mail or by personal delivery. xxx" (Emphases supplied)

Clearly, a formal letter of demand AND an assessment notice

are indispensable in the assessment of a taxpayer. The use of the
word "shall" in Section 3.1.4 of RR No. 12-99 indicates the
mandatory nature of the requirement. 256

In the absence of a valid assessment notice, there is no basis for

the BIR to issue the FLO demanding payment of the alleged deficiency
taxes for the years 2004 to 2009. Since there was no assessment
notice which was supposed to indicate the due date when the
deficiency taxes must be paid, no proper demand for the payment of
the deficiency taxes within a specific period was made.

In Commissioner of Internal Revenue vs. Pas cor Realty and

Development Corporation, 257 the Supreme Court emphasized thel!t')

256 Commissioner of Internal Revenue vs. Enron Subic Power Corporation,

G.R. No. 166387, January 19,2009.
2 5 7 G.R. No. 128315, June 29, 1999.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 65 of69

requirement for an assessment to contain a specific demand for

payment within a prescribed period in this wise:

"An assessment contains not only a computation of tax

liabilities, but also a demand for payment within a prescribed
period. It also signals the time when penalties and interests begin to
accrue against the taxpayer. To enable the taxpayer to determine his
remedies thereon, due process requires that it must be served on
and received by the taxpayer. xxx xxx xxx.

XXX XXX

To start with, an assessment must be sent to and received by

a taxpayer, and must demand payment of the taxes described
therein within a specific period. Thus, the NIRC imposes a 25
percent penalty, in addition to the tax due, in case the taxpayer fails
to pay the deficiency tax within the time prescribed for its payment in
the notice of assessment. Likewise, an interest of 20 percent per
annum, or such higher rate as may be prescribed by rules and
regulations, is to be collected from the date prescribed for its
payment until the full payment.

xxx xxx xxx. Necessarily, the taxpayer

must be certain that a specific document constitutes an
assessment. Otherwise, confusion would arise regarding the
period within which to make an assessment or to protest the
same, or whether interest and penalty may accrue thereon.

In the present case, the revenue officers' Affidavit merely

contained a computation of respondents' tax liability. It did not state
a demand or a period for payment. Xxx xxx." (Boldfacing
and underscoring supplied)

In Commissioner of Internal Revenue vs. Fitness by Design,

258
lnc., the Supreme Court invalidated an assessment after noting its
failure to state the due date for the payment of the tax liabilities:

"Second, there are no due dates in the Final Assessment

Notice. This negates petitioner's demand for payment.
Petitioner's contention that April 15, 2004 should be regarded
as the actual due date cannot be accepted. The last paragraph
of the Final Assessment Notice states that the due dates for
payment were supposedly reflected in the attached
assessment:

In view thereof, you are requested to pay your

aforesaid deficiency internal revenue tax liabilities through the
duly authorized agent bank in which you are enrolled within~

258 G.R. No. 215957, November 9, 2016.

Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 66 of69

the time shown in the enclosed assessment notice.

(Emphasis in the original)

However, based on the findings of the Court of Tax Appeals

First Division, the enclosed assessment pertained to remained
unaccomplished.

Contrary to petitioner's view, April 15, 2004 was the

reckoning date of accrual of penalties and surcharges and not
the due date for payment of tax liabilities. The total amount
depended upon when respondent decides to pay. The notice,
therefore, did not contain a definite and actual demand to pay.

Compliance with Section 228 of the National Internal Revenue

Code is a substantative requirement. It is not a mere formality.
Providing the taxpayer with the factual and legal bases for the
assessment is crucial before proceeding with tax collection. Tax
collection should be premised on a valid assessment, which would
allow the taxpayer to present his or her case and produce evidence
for substantiation." (Boldfacing supplied)

The requirement to indicate a fixed and definite period or a

date certain within which a taxpayer must pay the assessed
deficiency tax liabilities is indispensable to the validity of the
assessment. Otherwise stated, no assessment can be regarded as
valid absent a specific date or period within which the alleged tax
liabilities must be settled or paid by the taxpayer.

In sum, the assessment in this case, being void, the same bears
no fruit 259 and may be slain at sight.

The act or omission from which the civil

liability might arise did not exist

Even assuming the validity of the assessment, still, accused may

not be held civilly liable. As afore-discussed, the prosecution
miserably failed to show by clear, convincing and competent
evidence that accused derived any taxable income, much less the
specific amount thereof that was not declared in his ITRs for the
years 2004, 2006 and 2007. In other words, evidence is wanting of
the fact upon which the civil liability may arisetf\

259 Metro Star Superama, Inc. vs. Commissioner of Internal Revenue, G.R. No.
185371, December 8, 2010.
26 0 Section 2, Rule 120, Rules of Court.
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 67 of69

As oft-repeated, the deficiency taxes were computed using the

net worth method wherein the SIR compared the increase in accused's
net worth and the reported taxable income and considered the
difference as unreported income.

Well-settled is the rule that assessments must be based on

actual facts and not mere assumptions or presumptions. In
Commissioner of Internal Revenue vs. Island Garment
Manufacturing Corporation, 261 the Supreme Court upheld the
decision of the CTA when it cancelled the assessment issued by the
SIR against Island Garment Manufacturing Corporation on alleged
"overstated" exportations for being merely based on assumption or on
mathematical computations. The Supreme Court ruled:

"The basis of respondent corporation's deficiency income and

advance sales taxes for 1962 and 1963 was held by petitioner to be
the overdeclaration of its re-exportation of finished embroidered
goods, computed as follows: xxx xxx

"This discrepancy was arrived, at by the petitioner after

an inspection of the boxes in which the finished goods were
packed and concluding through "mathematical computations"
that it was impossible for respondent corporation to re-export
back in said boxes the total number of pieces it claims to have
manufactured.

"In disposing of petitioner's contention, respondent Court held:

"By alleging that he employed mathematical

computations in ascertaining the quantity of
finished products actually manufactured and
exported by petitioner, respondent concedes at
least that his assessments were based on mere
inferences and presumptions. Likewise, by stating
that it was physically impossible for such number
of cartons with such volume capacity to contain
such exportation, or for petitioner to have
manufactured and exported such finished
garments, respondent admits that his
assessments were not based on actual facts but
merely on approximations and calculations. And [in
averring] that the raw material discrepancies in yards,
[were] arrived at by mere inferences and presumptions,
[and] subsequently became the basis of the
assessments for advance sales tax and for income tax,
respondent failed to indicate his nebulous position how
the advance sales tax or the undeclared income from
sales of embroidery textile materials in pesos and
______ce_n_t_a_v_o_s_w_ere arrived at. Moreover, since fraud isJ)

2 1
6 G.R. No. L-46644, September 11, 1987
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 68 of69

imputed to petitioner, fraudulent intent was deduced

from surmises and conjectures, unsupported by clear
and [convincing] proof to this effect.

"An assessment fixes and determines the

liability of a taxpayer. As soon as it is served, an
obligation arises on the part of the taxpayer concerned
to pay the amount assessed and demanded. Hence,
assessment should not be based on mere
presumptions no matter how reasonable or logical
said presumptions may be. The assessment must
be based on actual facts. The presumption of
correctness of assessment being a mere presumption
cannot be made to rest on another presumption.
(Collector of Internal Revenue vs. Benipayo, L-13656,
January 31, 1962, 4 SCRA 182) . . . . " (Boldfacing
supplied)

Considering that the assessment issued against the accused

was based on mere presumption and not on actual facts, the same is
invalid and may not be the basis of accused's civil liability.

WHEREFORE, in view of the foregoing, accused Juan Miguel

M. Arroyo is hereby ACQUITTED of the offenses charged in CTA
Grim. Case Nos. 0-247, 0-248 and 0-249 for failure of the prosecution
to prove his guilt beyond reasonable doubt.

The civil actions to collect the tax deficiencies that are deemed
instituted with the aforestated criminal cases are likewise DISMISSED
as the act or omission from which the civil liability might arise did not
exist.

The cash bail bond posted by accused is hereby CANCELLED

and ordered RELEASED to the accused upon presentation of proper
documents, in accordance with usual accounting rules and regulations.

SO ORDERED.

Presiding Justice
Decision
People of the Philippines vs. Juan Miguel M. Arroyo
CTA Grim. Case Nos. 0-247, 0-248 & 0-249
Page 69 of69

WE CONCUR:

'

ER~.UY
Associate Justice
~w.M~~~c~
CIELITO N. MINDARO-GRULLA
Associate Justice

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, it is hereby

certified that the conclusions in the above Decision were reached in
consultation before the case was assigned to the writer of the opinion
of the Court.

Presiding Justice