Cta Eb CV 02589 D 2023jul28 Ass
Cta Eb CV 02589 D 2023jul28 Ass
Cta Eb CV 02589 D 2023jul28 Ass
ENBANC
Present:
Promulgated:
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DECISION
RINGPIS-LIBAN, J.:
The Case
Before the Court En Bane is the Petition for Review filed by the
Commissioner of Internal Revenue (CIR) under Section 18 of Republic Act No.
1125 (RA 1125), as amended, 1 assailing the August 23, 2021 Decision 2 and the
February 24, 2022 Resolution 3 of the First Division.
SO ORDERED."
SO ORDERED."
The Parties
--------------------
4
Decision, Rollo, p. 22.
5
/d., Rollo. p. 21.
DECISION
CTA EB NO. 2589 (CTA CASE NO. 9960)
Page 3 of 28
The Facts
On August 26,2014, the BIR issued a Letter of Authority (LOA) No. 050-
2014-00000309 dated August 26, 2014 and signed by Mr. Jonas DP. Amara,
Revenue Regional Director of Revenue Region No. 8-Makati City, authorizing
Revenue Officer (RO) Joey Fragrante, under the supervision of Group
Supervisor (GS) Roderick Cantillana of Revenue District Office (RDO) No. 50
- South Makati, to examine the taxpayer's books of accounts and other
accounting records for all internal revenue taxes for the period January 1, 2013
to December 31, 2013 (taxable year 2013). 7
6 !d., p. 22.
7 Id; Amended Pre-Trial Order dated January 3, 2020, Division Docket, Vol. III, p. 1614-1615;
Exhibit R-1, BIR Records, p. 3.
8 ld., p. 23.
9 !d.
DECISION
CTA EB NO. 2589 (CTA CASE NO. 9960)
Page 4 of 28
January 13, 2017, which demanded the payment of the alleged VAT, EWT,
WTC, DST, and compromise penalty for taxable year 2013, in the total amount
of Twenty-Four Million Three Hundred Fifty-Seven Thousand Five Hundred
Forty-Four and 81/100 Pesos (PhP24,357,544.81), inclusive of interest and
surcharge. 10
On February 17, 2017, the taxpayer ftled a Letter Protest to the Formal
Assessment Notice (FAN) contesting the alleged deficiency taxes and
compromise penalty. 11
Aggrieved, the taxpayer ftled a Petition for Review on October 24, 2018
with the court a quoY
On December 20,2018, the CIR filed his Answer through registered mail
setting forth special and affirmative defenses. 14
On January 25, 2019, the taxpayer ftled its Reply (Re: Respondent's
Answer dated December 20, 2018). 15
On February 1, 2019, the court a quo issued a Resolution referring the case
to the Philippine Mediation Center- Court of Tax Appeals (PMC-CTA). 16
/""'
10 lei.
11 lei.
12 lei., p. 24.
13 lei.
14 lei.
15 lei.
16 lei.
DECISION
CTA EB NO. 2589 (CTA CASE NO. 9960)
Page 5 of 28
On February 21, 2021, the court a quo received PMC-CTA Form No.6-
No Agreement to Mediate. 17
On May 24, 2019, the parties filed their respective Pre-Trial BriefsY
On May 30, 2019, the Pre-Trial Conference was held. The parties
subsequently filed their Joint Stipulation of Facts and Issues on June 19, 2019.
Thereafter, the court a quo issued a Pre-Trial Order on July 31, 2019, which
terminated the Pre-Trial Conference. 19
On August 23, 2021, the court a quo promulgated the assailed decision
which voided, cancelled and set aside the CIR's FLDs, Assessment Notices and
Amended Assessment Notices. 24
In its February 24, 2022 Resolution, the court a quo denied the CIR's
Motion for Reconsideration for lack of merit 25
17 /d.
18 /d.
19 Id., pp. 24-25.
20 Id., p. 25.
21 /d.
22 /d.
23 /d.
24 /d., p. 39.
2s Jd., p. 47.
DECISION
CTA EB NO. 2589 (CTA CASE NO. 9960)
Page 6 of 28
On March 23,2022, the CIR filed a Motion for Extension of Time to File
Petition for Review by registered maii.26
On April 7, 2022, the CIR filed a Petition for Review before the Court En
Bane also by registered mail. 27
On May 4, 2022, the Court issued a Resolution, which granted the CIR's
motion and directed the taxpayer to file its comment within ten (1 0) days from
notice. 28
Accordingly, on May 23, 2022, the taxpayer flied its Comment (Re:
Petitioner's Petition for Review dated April 7, 2012). 29
On June 13, 2022, the Court issued a Resolution, which referred the
parties to PMC-CTA for mediation. 30 However, the PMC-CTA issued a No
Agreement to Mediate dated July 21,2022. 31
The Issues
As grounds for its appeal, the CIR stated that the Court a quo erred:
2. In resolving issues which were not raised by the taxpayer in its Letter
Protest to the FAN and in its Petition for Review; and,
Petitioner CIR assails the decision and resolution of the court a quo on the
grounds that the (a) LOA issued by the RD created a principal-agent relationship
between the RD and the ROs named therein, thus, the authority of the RO can
be ratified or cured tacitly by the RD;34 (b) Court a quo cannot grant relief that
was never prayed for by the taxpayer; 35 and finally, (c) Taxpayer was afforded
reasonable time and opportunity to assail the assessment. 36
Respondent taxpayer asserts that the CIR merely rehashed his arguments
in the Motion for Reconsideration dated October 5, 2021 37 In general, no cogent
reason exists to warrant the reversal of the assailed decision and resolution of the
court a quo. 38 In particular, the (a) CIR violated the taxpayer's right to due process
when it issued the FAN only four (4) days after the latter received the PAN ;39 (b)
Assessments are void for lack of authority of the ROs who conducted/ continued
the audit;40 (c) Reassignment or transfer of the audit or investigation of taxpayer's
books of account and other accounting records requires the issuance of a new
LOA;41 and, (d) MOA signed by RDO Rosita U. Meniano did not clothe RO
Angeline S. Ifurung and GS Ma. Carmen V. Uy with authority to conduct and/ or
continue the audit. 42
34
Petition for Review, Rollo, pp. 11-13.
35 Id., pp. 13-16.
36 Id., pp. 16-17.
37
Comment (Re: Petitioner's Petition for Review dated April 7, 2012), Rollo, p. 60.
38 Id.
39 Id.,
pp. 61-68.
40
Id.,
pp. 68-70.
41 Id.,
pp. 70-71.
42 Id.,
pp. 72-74.
43
G.R. No. 188016, January 14,2015, citing Sea-Land Service, Inc. v. Court of Appeals, G.R. No.
122605, April 30, 2001.
DECISION
CTA EB NO. 2589 (CTA CASE NO. 9960)
Page 8 of 28
In this case, petitioner CIR does not dispute the findings of fact of the
court a quo and quoted, without raising any issue, the narration in the assailed
decision. 44
However, petitioner finds issue with the assailed decision, which granted
the taxpayer's petition and cancelled and set aside the FLDs, Assessment Notices
and Amended Assessment Notices issued against the taxpayer. 45 Yet the petition
raised no new contentions which, as the respondent taxpayer already noted, were
merely echoed from previous ones. 46
Under the RRCTA, the CIR had fifteen (15) days from receipt of the
questioned resolution or until March 23, 2022 to flle the petition. Accordingly,
the Motion for Extension of Time to File Petition for Review flied on March 23,
2022 was filed within the reglementary period.
The motion, furthermore, asked for another fifteen (15) days from March
23, 2022 or until April 7, 2022 to flle the petition.
LOA No. OS0-2014-00000309 dated August 26, 2014 and signed by Mr.
Jonas DP. Amora, Revenue Regional Director of Revenue Region No. 8-Makati
City, authorized RO Joey Fragrante, under the supervision of GS Roderick
Cantillana of RDO No. SO - South Makati, to examine the taxpayer's books of
accounts and other accounting records for all internal revenue taxes for taxable
year 2013. 48
Thus, it appeared that the original RO was not the examiner who actually
conducted the audit but the new RO and GS, by virtue of this MOA.
In this case, no new LOA was issued specifying the new RO Angeline S.
Ifurung and the new GS Ma. Carmen V. Sy as the new examiners and clothing
them with authority. Their authority was anchored only on the MOA, which was
signed only by the Revenue District Officer and which, in effect, amended the
LOA that was signed by no less than the Revenue Regional Director, a higher
ranking official of the BIR.
47
Rollo, p. 59.
48 Decision, Rollo, p. 22; Amended Pre-Trial Order dated January 3, 2020, Division Docket, Vol. III,
p. 1614-1615; Exhibit R-1, BIR Records, p. 3.
49
ld., p. 23.
DECISION
CTA EB NO. 2589 (CTA CASE NO. 9960)
Page 10 of 28
Considering that a LOA clothes the RO with the authority to assess and
examine the books of account and records of a taxpayer, such power is
necessarily subject to reasonable limitations. In particular, Section C(S) of RMO
NO. 43-90, 50 mandates that any re-assignment/t ransfer of cases to another RO
requires the issuance of a new LOA and Section D(S) limits the officials who may
validly issue a LOA to only the CIR, Deputy Commissioners and Revenue
Regional Directors:
4. The maximum workload for a revenue officer shall, at any one time,
not exceed 10 cases in the case of field audit and 30 in the case of office audit.
If his pending cases are less than ten for field audit cases or thirty for office
audit cases, whichever is applicable, (excluding reported cases which were
returned to him by audit reviewers for further compliance with certain
requirements), he may be assigned additional tax returns or cases to replenish
those cases the audit of which were terminated and report thereon submitted
to the Revenue District Officer for field cases and Chief, Assessment Branch
for office audit cases. For purposes of determining the workload of each RO,
each L/ A shall be counted as one case. Thus, a L/ A for income tax
examination and a L/ A for VAT which may be assigned to a RO shall be
counted as two (2) cases. The workload limitation shall not apply to cases
pending in the hands of a RO who was transferred to another district and such
cases are re-assigned to other ROs in the same district. If, however, a return is
assigned to more than one RO for purposes of team audit under only one L/ A,
each RO who is a member of the team or group shall be considered as having
been assigned one case in determining the maximum number of cases to be
assigned to each RO,/v"'
50Subject: Amendment of Revenue Memorandum Order No. 37-90 Prescribing Revised Policy
Guidelines for Examination of Returns and Issuance of Letters of Authority to Audit.
DECISION
CfA EB NO. 2589 (CfA CASE NO. 9960)
Page 11 of 28
6. The audit of VAT returns by qualified ROs must strictly comply with
examination policy prescribed in RMO No. 18-90 announcing the results of
the VAT Audit Proficiency Examination.
1. All L/ As for cases selected and listed pursuant to RMO No. 36-90 to
be audited in the revenue regions shall be prepared and signed by the Regional
Director (RD).
2. The Regional Director shall prepare and sign the L/ As for returns
recommended by the RDO for assignment to the ROs, indicating therein the
name and address of the taxpayer, the name of the RO(s) to whom the L/ A is
assigned, the taxable period and kind of tax; after which he shall forward the
same to the RDO or Chief, Assessment Branch, who in tum shall indicate the
date of issue of the L/ A prior to its issuance.
Clearly, since no new LOA was issued covering them, the new RO and GS
were not authorized to conduct an audit of the taxpayer's books of accounts.
All told, the reassignment of the audit of the taxpayer to the new RO and
GS, without the issuance of a new LOA, renders the assessment void. A void
assessment bears no fruit. 54 It does not give rise to a legal obligation on the part of
the taxpayer to pay any deficiency tax due. Neither does it give rise to any legal
right on the part of the CIR to collect from the taxpayer by virtue of the void
assessmen;,v-
54 Commissioner ofInternal Revenue v. Metro Star Superama, Inc., G.R. No. 185371, December 8,
2010.
DECISION
CTA EB NO. 2589 (CTA CASE NO. 9960)
Page 1S of 28
Therefore, the court a quo did not err in finding that the RO and GS who
continued the audit of the taxpayer were not authorized by a LOA.
The matter in question that was taken up by the court a quo was not
whether a LOA was issued. The existence of the LOA was never in dispute and
was joindy stipulated upon. The real issue, however, as correcdy appreciated by
the court a quo, was whether the new RO and the GS were authorized by the
existing LOA. As discussed, they were not named in the LOA but were only
assigned through a MOA.
"RULE 129
"It is settled that judicial admissions may be made: (a) in the pleadings
ftled by the parties; (b) in the course of the trial either by verbal or written
manifestations or stipulations; or (c) in other stages of judicial proceedings, as
in the pre-trial of the case. Thus, facts pleaded in the petition and answer, as
in the case at bar, are deemed admissions of petitioner and respondents,
respectively, who are not permitted to contradict them or subsequently take a
position contrary to or inconsistent with such admissions. We have always
adhered to the familiar doctrine that an admission made in the pleadings
cannot be controverted by the party making such admission and becomes
conclusive on him, and that all proofs submitted by him contrary thereto or
inconsistent therewith should be ignored, whether an objection is interposed
by the adverse party or not." (Underscoring supplied)
Third, the court a quo was not bound to adjudicate cases based only on
issues agreed upon by the parties. Rule 14, Section 1 of the RRCTA, expressly
grants it the discretion to decide related issues necessary to achieve an orderly
disposition of the case:
"RULE 14
JUDGEMENT, ITS ENTRY AND EXECUTION
In deciding the case, the Court may not limit itself to the issues
stipulated by the parties but may also rule upon related issues necessary to
achieve an orderly disposition of the case."
This Rule 14, Section 1 discretion was recognized and cited by the
Supreme Court in the recent case of Republic v. First Gas Power Corporation, 61 when
it affirmed the cancellation of the FAN and the FLD against the taxpayer, despite
the CIR's contention that the taxpayer could not raise the issue of prescription
for the first time on appeal:/
The above section is clearly worded. On the basis thereof, the court a quo
was, therefore, well within its authority to consider in its decision the question
on the scope of authority of the revenue examiners who were not named in the
LOA.
In its third and final assignment of error, petitioner CIR states that the
taxpayer was afforded due process because it was given reasonable time and
opporrunity to assail the assessment. Specifically, petitioner maintains that from
the issuance of the Notice of Informal Conference until the issuance of FAN
and even through oral arguments and through pleadings, the taxpayer was given
numerous opportunities to be heard and to assail the findings of the audit.
"CHAPTER III
(a) When the fmding for any deficiency tax is the result of mathematical
error in the computation of the tax as appearing on the face of the return; or
(b) When a discrepancy has been determined between the tax withheld
and the amount actually remitted by the withholding agent; or
(c) When a taxpayer who opted to claim a refund or tax credit of excess
creditable withholding tax for a taxable period was determined to have carried
over and automatically applied the same amount claimed against the estimated
tax liabilities for the taxable quarter or quarters of the succeeding taxable year;
or
(d) When the excise tax due on excisable articles has not been paid; or
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.
implementing rules and regulations. Within sixty (60) days from filing of the
protest, all relevant supporting documents shall have been submitted;
otherwise, the assessment shall become final.
When the taxpayer received the PAN on January 9, 2017, it had fifteen
(15) days from such receipt, or until January 24, 2017, within which to respond
to the PAN, under Section 3.1.2 of RR No. 12-99, as amended. However, on
January 20,2017, before the lapse of the full 15-difY period, the taxpayer received the
FLD. In other words, the CIR failed to wait for the prescribed period to end
before issuing and serving the FLD. The FLD was, for that reason, issued
premature!J thereby depriving the taxpayer of the opportunity to be heard on the
PAN, in violation of the due process requirement of RR 12-99, as amended.
The case of CIR v. Menguzto cited by the CIR in support of its argument
that only the non-service of the FAN is fatal to the validity of an assessment,
cannot apply to this case because the issue therein was the non-compliance
with the provisions of R.R. No. 12-85 which sought to interpret Section 229
of the old tax law. RA No. 8424 has already amended the provision of Section
229 on protesting an assessment. The old requirement of merely notifying the
taxpayer of the CIR's findings was changed in 1998 to informing the taxpayer
of not only the law, but also of the facts on which an assessment would be
made. Otherwise, the assessment itself would be invalid. The regulation then,
on the other hand, simply provided that a notice be sent to the respondent in
the form prescribed, and that no consequence would ensue for failure to
comply with that form.
The Court need not belabor to discuss the matter of Metro Star's
failure to file its protest, for it is well-settled that a void assessment bears no
fruit.
63
G.R. Nos. 201398-99, October 3, 2018.
DECISION
CTA EB NO. 2589 (CTA CASE NO. 9960)
Page 21 of 28
The use of the word 'shall' in Section 228 of the [National Internal
Revenue Code] and in [Revenue Regulations] No. 12-99 indicates that the
requirement of informing the taxpayer of the legal and factual bases of the
assessment and the decision made against him [or her] is mandatory. This is
an essential requirement of due process and applies to the Preliminary
Assessment Notice, Final Letter of Demand with the Final Assessment
Notices, and the Final Decision on Disputed Assessment.
I.C
This Court has in several cases. declared void any assessment that
failed to stricdy comply with the due process requirements set forth in Section
228 of the Tax Code and Revenue Regulation No. 12-99.
"Clearly from the aforequoted provisions the taxpayer has fifteen (15)
days from date of receipt of the PAN to respond to the said notice. Only after
receiving the taxpayer's response or in case of the taxpayer's default can
respondent issue the FLO/FAN.
Per the evidence on record, the BIR issued a PAN dated December
16, 2010, which it posted by registered mail the next day, December 17, 2010.
It then issued and mailed the FLO/FAN on January 10, 2011. Although
posted on different dates. the PAN and FLO IF AN were both received by the
Post Office of Dasmariiias. Cavite. on I anuacy 17. 2011 and served upon and
received by respondent on lanuacy 18. 2011. Under the circumstances.
respondent was not given any notice of the prelirninacy assessment at all and
was deprived of the opportunity to respond to the same before being given
the final assessment.
~
Sec. 3.1.2 of RR No. 12-99 explicitly grants the taxpayer fifteen (15)
days from receipt of the PAN to file a response. If the taxpayer fails to do so
within the prescribed period, it will be considered in default and only then shall
petitioner or his duly authorized representative issue to the taxpayer an
FLD /FAN demanding payment of the assessed deficiency tax, surcharges, and
penalties. In the instant case though. the BIR did not ascertain respondent's
date of receipt of the PAN before issuing the FLD/FAN. but merely invoked
Sec. 3.1.7 ofRR No. 12-99 on constructive service, which states that '[i]fthe
notice to the taxpayer herein required is served by registered mail, and no
response is received from the taxpayer within the prescribed period from date
of posting thereof in the mail, the same shall be considered actually or
constructively received by the taxpayer.'
Finally, Yumex was cited as basis in the 2022 case of Prime Steel Mill,
Incoporation v. Commissioner of Internal Revenue (Prime Steel),65 where the Supreme
Court invalidated the tax assessment because of violation of due process when,
again, the 15-day period to reply to the PAN was not observed:
There is no true disagreement that the FAN was issued well within the
15-day period for petitioner to reply to the PAN. As recounted above. the
PAN was received by petitioner on 7 January 2009 and its reply thereto was
flied on 22 January 2009. Without waiting to receive petitioner's reply. the BIR
apparently issued the FAN on 14 January 2009. albeit it was received by
petitioner only on 12 February 2009.
The CTA En Bane noted such discrepancy but brushed this aside by
saying that the requirements of due process were already substantially
complied with considering that petitioner was, in any event, given an
opportunity to be heard on its grounds for disputing the assessment.
The respondent through the Office of the Solicitor General does not
deny that the 15 -day period was not observed; it simply reverberates the
declaration of the CTA En Bane that there was substantial compliance with the
requirements of the due process.
In several cases, this Court has enjoined strict observance by the BIR
of the prescribed procedure for the issuance of assessment notices in order to
uphold the taxpayers' constitutional rights.
to setde the case at the earliest possible time without need for the issuance of
a FAN.
As the Court also held in Yumex, '[t]hat [the taxpayer] was able to ftle
a protest to the FLO/FAN is of no moment.' 'Sec. 3.1.2 of RR No. 12-99
explicidy grants the taxpayer fifteen (15) days from receipt of the PAN to ftle
a response.'
In the same vein, it is beside the point that petitioner was able to
submit a 'well-prepared protest letter.' The fact remains that respondent
violated petitioner's right to due process by issuing a FAN without even
awaiting its reply to the PAN.
All told, petitioner CIR failed to raise any issue that has convinced the
Court En Bane to modify or reverse the assailed Decision and Resolution of the
Court a quo.
SO ORDERED.
k ~ _...z_ I '-----
MA. BELEN M. RINGPIS-LIBAN
Associate Justice
DECISION
CTA EB NO. 2589 (CTA CASE NO. 9960)
Page 27 of 28
WE CONCUR:
Presiding Justice
~· /. /J~,,....
.L~
CATHERINE T. MANAHAN
Associate Justice
JEAN !Vl.tuyn
/JJuuitm)1
LANEE S. CUI-DAVID
Associate Justice
~-tl.
CORAZ£)N G. s
Associate Justice
DECISION
CTA EB NO. 2589 (CTA CASE NO. 9960)
Page 28 of 28
CERTIFICATION
Presiding Justice