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Tax Appeals court rules against BIR after assessment by unauthorized officer

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Court of Tax Appeals-CTA

THE Court of Tax Appeals (CTA) affirmed the cancellation of the P151.3 million alleged tax deficiency of an oil trading firm after it was assessed by an unauthorized revenue officer (RO).

In a 23-page decision, the court, sitting en banc, denied the petition for review filed by the Bureau of Internal Revenue (BIR) against the 2017 decision and 2018 resolution of its third division, which cancelled the tax deficiency assessments of Royal Class Trading and Transportation Corp., which trades petroleum products of Pilipinas Shell Petroleum Corp and Petron Corp.

The court said the RO who finished the assessment against the firm was only assigned through a 3rd Indorsement Letter in 2013 and not through a Letter of Authority (LoA) which is required under the National Internal Revenue Code.

“(A)ll audit investigations must be conducted by a duly designated RO authorized to perform audit and examination of taxpayer’s books and accounting records, pursuant to an LoA. In other words, in case of re-assignment or transfer of cases to another RO, it is mandatory that a new LoA shall be issued with the corresponding notation thereto,” it said.

The CTA said the lack of new LoA in reassigning the case means the new officer continuing the investigation has no authority.

“Consequently, the subject tax assessments, which came about as a result of his examination of the books of account and accounting records of Royal Class for taxable year 2007, are void. It must be emphasized that a void assessment bears no valid fruit, and thus, it cannot attain finality,” the court said.




Initially, an LoA was issued in 2008 authorizing an RO to assess Royal Class. However, the 2010 Indorsement Letter directed a new RO to continue the investigation of the previous officer assigned, who was transferred to another district.

The BIR claimed that reshuffling of officers is a “natural occurrence of things” stated in Section 17 of the Tax Code and the RO indicated in the LoA “need not be the one to complete the audit.”

The tax appellate court, however, said it only states the power to assign or reassign officers but nothing on the discarding of an LoA.

“In other words, there is nothing in the law which prohibits the issuance of a subsequent LoA authorizing another RO, or new set of ROs, to continue the examination of books of account and other accounting records of the concerned taxpayer,” it said.

It also denied the claim of the bureau on the applicability of Revenue Memorandum Order No. 44-2010, withdrawing beginning June 1, 2010 a rule requiring the revalidation of LoAs after the failure of revenue officers to complete audits within the prescribed period.

The court said there was no revalidation of an LoA in this case and even if there was, the Indorsement Letter was issued in February, months prior to the effectivity of the order.

The decision was written by Associate Justice Erlinda P. Uy. — Vann Marlo M. Villegas

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