THE Court of Tax Appeals (CTA) has affirmed a 2021 ruling dismissing the P172.23-million 2009 tax assessment against Red Ribbon Bakeshop, Inc.
In a 23-page decision dated Sept. 2 and made public on Sept. 5, the CTA full court ruled that the officers who conducted the audit of the firm’s liabilities were not authorized through a letter of authority (LoA), as required by the revenue code.
“In line with the foregoing jurisprudential pronouncements, there must be a grant of authority in the form of an LoA, before any revenue officer can conduct an examination or assessment,” CTA Associate Justice Lanee S. Cui-David said in the ruling.
“Only the revenue officers actually named under the LoA are authorized to examine the taxpayer.”
An LoA is a document that grants authority to a revenue officer to examine a taxpayer’s books of accounting and tax liabilities.
The commissioner of internal revenue (CIR) argued that the officers were authorized through memoranda of assignment (MoAs) to continue the Red Ribbon’s assessment.
An LoA was initially issued to another set of revenue officers to audit the company, but the officers authorized through MoAs conducted the audit and recommended the issuance of the assessment.
The tribunal pointed out that a separate or amended LoA was not issued by a revenue regional director to authorize the newly assigned officers.
Under the Bureau of Internal Revenue’s (BIR) rules, any reassignment or transfer of cases to another revenue officer requires the issuance of a new LoA.
Red Ribbon was assessed for an alleged P172.2 million deficiency in income tax and value-added tax due to undeclared purchases.
The court said that the practice of reassigning new revenue officers without a separate or amended LoA to continue an audit or investigation of a taxpayer’s books of accounting violates the right to due process.
It added that the MoAs were signed by the chief of the BIR’s Regular Large Taxpayers Audit Division 1, who is not one of the authorized representatives of the CIR to issue an LoA.
“Simply put, none of the aforesaid MoAs can be regarded as a valid LoA within the context of the law and the prevailing jurisprudence,” said the CTA.
“We find it unnecessary to discuss and rule upon the other points in the instant petition.” — John Victor D. Ordoñez