Canceled tax assessment on Central Luzon Drug affirmed

THE COURT of Tax Appeals affirmed the cancellation of the P1.14 billion tax assessment against Central Luzon Drug Corp. for 2009.

In a 15-page decision dated Sept. 18, the court, sitting en banc, denied for lack of merit the petition of the Bureau of Internal Revenue (BIR).

The court said the arguments raised in the BIR’s petition were “mere reiterations” of the issues raised in its appeal in the court’s special third division.

“As such, there is no reason for this Court to disturb the Court in Division’s ruling in both the assailed Resolution and Decision,” it said.

The court’s division in November 2018 cancelled the tax assessment of Central Luzon Drug Corp. for being assessed by an unauthorized officer and was upheld in March 2019.

The court stated that the grant of a letter of authority (LoA) to a revenue officer to conduct examinations of a taxpayer’s book of accounts for assessment is necessary under the Tax Code.

“The importance of an LOA cannot be over-emphasized. It is a guarantee that tax agents will act only within the authority given them in auditing a taxpayer,” it said.

“It is an instrument of due process for the protection of taxpayers. Consequently, deficiency tax assessments issued without a valid LOA are void,” it added.

The court also said that a memorandum of assignment (MoA) may allow the examination of taxpayers, as long as it is issued by the commissioner or any of his duly authorized representatives, under the Tax Code and Revenue Memorandum Order 43-90.

Under the order those who may issue the LoAs are regional directors, deputy commissioners, commissioner, and other officials that may be authorized by the commissioner.

The MoA or a referral memorandum or any other letter from the BIR, which seeks to audit a taxpayer, may be considered a valid LoA if it was issued by the authorized representatives who may issue the letter of authority.

The court said the revenue officer who audited the company was not named in the LoA issued in 2010 but in a MoA issued in February 2013 by the chief of the Large Taxpayers-Regular Audit Division 1, who is not one of the authorized representatives allowed to issue LoAs.

The tax assessments issued against the company “are void” as the revenue officer who conducted the auditing does not have authority to do so.

“And as the familiar adage goes, a void assessment bears no valid fruit,” it said.

The court also said that it may rule on issues not specifically raised by the parties in the pleadings.

The BIR said the court in division erred in granting a relief that was not raised by the company, violating its right to fair play and due process.

It claimed that the division also erred in cancelling the assessment solely on the ground that the MoA was signed by a division chief. — Vann Marlo M. Villegas