MARKET STRATEGIC FIRM, INC. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SECOND DIVISION MARKET STRA TEGIC FIRM, CTA CASE No. 9 280 INC., Pe t i t i oner, Members: -vers u s- CASTANEDA, JR., Chairpers o n, MINDARO- GRULLA, and BACORRO- VILLENA, JJ. COMMISSION ER OF I NTERNAL REV ENU E, Promulgated : Respondent. JUN 1 szozn x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1"- - x RESOLUTION MIN DARO-GRULLA, J .: For resolution is the Commissioner of Internal Revenue (CIR)'s "Motion for Reconsideration (Re: Decision dated February 10, 2020)" 1 filed on February 24, 2020, with Market Strategic Firm, Inc. (MSFI)'s "Comment"2 filed on October 7, 2019. In his Motion for Reconsideration, the CIR posits that the authority of the Revenue Officer (RO) was never raised in the Petition for Review nor in the course of trial, thus, the Court cannot rule upon the said issue. Moreover, even on the assumption that the Court could do such, the continuation of the conduct of audit through a Memorandum of Assignment (MOA) signed by Chief of RLTAD I is proper. The Court resolves to deny the CIR's Motion for Reconsideration. 1 Dockets, Vol. II . 2 Ibid. t.

Market Strateg ic Firm , Inc. vs. CIR Page 2 of 4 CTA Case No . 9280 RESOLUTION Records reveal that the issues raised by the CIR have been exhaustively passed upon and resolved by this Court in in the assailed Decision . In this case, although a Letter of Authority (LOA) was issued, the examination was reassigned to ROs pursuant only to a MOA signed by the Chief of RLTAD I. To reiterate, in Commissioner of Internal Revenue vs. Composite Materials, Inc. (the "Composite Case "), 3 the Supreme Court categorically held that an RO may only examine the taxpayer's books pursuant to an LOA issued by the Regional Director in accordance with section 134 of the National Internal Revenue Code (NIRC) of 1997. The Supreme Court in the Composite Case further emphasized that the Referral Memorandum issued by the Revenu e District Officer directing another RO to continue with the examination of the taxpayer records is not equivalent to an LOA nor does it cure the RO's lack of authority, viz : "As regard s the issue on Revenue Officer Mary Anne P. Cruz's (RO Cruz) authority to examine CMI' s records, the provisions of the National Internal Revenu e Code of 1997, as amended, are clear that a Revenue Officer may only examine the taxpayer' s books pursuant to a Letter of Authority (LOA) issued by th e Regional Director. This was reiterated by th e Cou rt in Medicard Philippines, Inc. v. Commissioner of Internal Revenue, ruling that in the absence of an LOA, t he assessm ent or exa min ation is a nullity. 3 G.R. No. 23 8352 , September 12, 20 18 . 4 SEC. 13. Authority of a Revenue Officer .- Subject to t he ru les and regulations to be prescribed by the Secreta ry of Finance, upon recom mend ati on of t he Co mmissioner, a Rev enue Officer assign ed t o perfo rm assessm ent f unct ions in any district m ay, pursuant to a Letter of Authority issued by t he Revenue Reg ional Direct o r, exa mine taxpayers withi n t he jurisdiction of t he di st rict in order to collect the correct amount of tax, or to recommend t he assessment of any deficiency tax du e in the sa m e m anner t hat t he sa id act s could have been perfo rm ed by the Revenue Reg iona l Director himse lf . (Underlin ing supplied .) t.

Market Strategic Firm, Inc. vs. CIR Page 3 of 4 CTA Case No. 9280 RESOLUTION XXX XXX XXX Moreover, the Court agrees with the CTA en bane that the Referral Memorandum issued by a Revenue District Officer directing RO Cruz to continue with the examination of CMI's records is not equivalent to an LOA nor does it cure RO Cruz's lack of authority. To be sure, Revenue Memorandum Order No . 43-90, which specified the guidelines in the issuance of LOAs states that any reassignment or transfer of cases to another RO or revalidation of an expired LOA shall require the issuance of a new LOA." (Underlining supplied) With the foregoing pronouncement of the Supreme Court, the fact remains that there is non-compliance in the issuance of a new LOA signed by authorized signatories in case of reassignment. It must be reiterated that the Chief of RLTAD I is not included under those authorized signatories of an LOA and only the CIR or his duly authorized representatives may issue a new LOA in case of reassignments for investigation and audit. As to the contention that this Court cannot resolve the issue on the authority of the RO in the continuation of conducting an audit, the ruling of the Supreme Court in the case of Commissioner of Internal Revenue vs. Lancaster Philippines, Inc. 5 could not be any clearer, to wit: " On whether the CTA can resolve an issue which was not raised by the parties, we rule in the affirmative. Under Section 1, Rule 14 of A.M. No. 05-11-07- CTA, or the Revised Rules of the Court of Tax Appeals, the CTA is not bound by the issues specifically raised by the parties but may also rule upon related issues necessary to achieve an orderly disposition of the case. The text of the provision reads: SECTION 1. Rendition of judgment. - X XX 5 G.R. No. 183408, July 12, 2017 ('

Market Strategic Firm, Inc . vs. CIR Page 4 of 4 CTA Case No. 9280 RESOLUTION In deciding the case, the Court may not limit itself to the issues stipu lated by the parties but may also rule upon related issues necessary to achieve an orderly disposition of the case. The above section is clearly worded . On the basis thereof, the CTA Division was, therefore, well within its authority to consider in its decision the question on the scope of authority of the revenue officers who were named in the LOA even though the parties had not raised the same in their pleadings or memoranda. The CTA En Bane was likewise correct in sustaining the CTA Division's view concerning such matter." All told, the Court fi nds no compelling reason or substantial justification to modify its findings much more reverse the assailed Decision . WH EREFORE , the Commissioner of Internal Revenue's Motion for Reconsideration (Re: Decision dated February 10, 2020) is hereby DENIED for lack of merit. SO ORDERED. rJ N. ~ ~ o+ Mt..'JAU~A.l;~~ WE CONCUR: N. MINoJrR.o- GRULLA Associate Justice ~~?;: c- Gl3'-a.-.e~) 2 Jd ANITO C. CASTANED/{, )R. Associate Justice ' ILLENA