CTA denies BIR petition vs cancellation of P46.2-million tax deficiency

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Court of Tax Appeals

THE Court of Tax Appeals (CTA) denied for lack of merit a motion for reconsideration filed by the Bureau of Internal Revenue (BIR) seeking to reverse the cancellation of a P46.2-million tax deficiency finding against a merchandising company.

In a Nov. 22 resolution, the CTA special second division affirmed the cancellation of tax assessment against Megabucks Merchandising Corp., after confirming that the BIR’s period for assessing Megabucks had prescribed.

The BIR argued that the Third Waiver supposedly extending the assessment period of Megabucks is valid as it was duly notarized and that it was also able to execute two more waivers to extend the assessment period of Megabucks, citing a previous case in the Supreme Court which declared a waiver valid despite not complying with the requisites for the waiver.

However, the CTA rules that the precedent cited by the BIR was exceptional.

The Court also ruled that the argument of the BIR that the Formal Letter of Demand (FLD) fixed and set the deficiency tax liability is bereft of merit, citing a Supreme Court decision which states that date of the accrual of penalties and charges is not the due date for payment.

The CTA also said the argument of BIR that the assessments for deficiency in expanded withholding tax (EWT) and withholding tax on compensation (WTC) are imprescriptible “deserve scant consideration” as these cannot be excluded in the prescribed period for assessment.

The BIR argued that the EWT and WTC are not internal revenue taxes but taxes imposed for failure to withhold taxes that it should collect, making the assessment for these as imprescriptible.

According to Section 203 of National Internal Revenue Code, internal revenue taxes must be assessed within the period of three years from filing of tax returns.

In its Aug. 21 decision, the court cancelled the FAN (Final Assessment Notice) for Megabucks for lack of definite due date and as the right of the BIR to assess Megabucks had prescribed.

The CTA ruled that the assessments against the company are void as they came beyond the three-year prescriptive period and the waivers meant to extend the assessment period were defective as the third waiver did not indicate that Megabucks was notified that the BIR accepted it. Following this finding, the fourth and fifth waivers were also deemed cancelled.

The CTA also ruled that the FANs and the FLD are also invalid due to lack of indicated due date for payment “which negates respondent’s demand for payment.” — Vann Marlo M. Villegas