THE COURT OF Tax Appeals has granted the petition of Marketing Convergence, Inc. (MCI) to cancel its tax assessment of P179.7 million for 2009.
In a 23-page ruling dated Nov. 16, the tax court’s second division said the assessment against MCI is void as its accounts were examined by officers who lacked authority to do so.
“The invalidity of the deficiency assessments is due to the absence of authority on the part of the revenue officers who conducted the examination of petitioner’s books of accounts and other accounting records,” the court said.
The court noted that under the Tax Code, only the Commissioner of Internal Revenue or his duly authorized representative may authorize the examination of a taxpayer. Under the law, a revenue regional director should issue letters of authority (LoA) for examination of taxpayers within his or her jurisdiction.
Meanwhile, under Revenue Memorandum Order No. 43-90, the Bureau of Internal Revenue said regional directors, deputy commissioners and the commissioner are allowed to issue LoAs. Other officials can do so after authorization by the commissioner himself.
The memo also said any reassignment or transfer of cases to other revenue officers shall require a new LoA.
The court said an LoA was issued in May 2010, but the revenue officers named there were different from those who actually examined the books of accounts and other records of Marketing Convergence.
The revenue officers who audited the company were on the basis of a memorandum of assignment issued by an OIC-chief of the Regular Large Taxpayers Audit Division who does not have the power to authorize examination or modify a previously issued LoA, the court said.
The court also cited jurisprudence where the court held that without any authority given to revenue officers who audited a taxpayer’s accounts, the deficiency tax assessment is nullified.
“In view of the invalidity of the subject deficiency assessments, there is no need to discuss the other issues raised by the parties,” it said.
The company was assessed for deficiency income tax, value-added tax (VAT), withholding tax on compensation (WTC), and expanded withholding tax (EWT).
Marketing Convergence claimed the assessment is void for the lack of authority of the revenue officers who audited the company as well as the formal letter of demand/final assessment notice does not contain a demand to pay within a specific period and lack of factual and legal basis. It also said that assuming the assessment is valid, the 20% deficiency interest imposed on VAT, WTC, and EWT should be cancelled.
The Bureau of Internal Revenue, on the other hand, claimed the revenue officers were duly authorized and the right to assess was not prescribed. It also claimed that the assessment had factual and legal basis. — Vann Marlo M. Villegas
