COMMISSIONER OF INTERNAL REVENUE v. SUGAR CRAFTS, INC.

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY EN BANC COMMISSIONER OF CTA EB NO. 1757 (CTA CASE NO. 8738) INTERNAL REVENUE, Petitioner, Present: -versus- Del Rosario, P.J. , Castaneda, Jr., Uy, Fabon-Victorino, Mindaro-Grulla, Ringpis-Liban, Manahan, Bacorro-Villena, and Modesto San Pedro, JJ. SUGAR CRAFTS, INC., Promulgated: Respondent. SEP 10 2019 x - ----- - ------------------------------------------------------~ Jiii1#-:-=~a----..-.s-- 3~#-J-.-~ ------- x R ESO LUT I ON CAS TANEDA, JR., J. : Submitted for resolution on July 23 , 20191 is petitioner's Motion for Reconsideration2 of the May 6, 2019 Decision with a Comment filed by respondent Sugar Crafts, Inc.3 The May 6, 2019 Decision upheld the appealed decision of the Third Division which cancelled and set aside the assessment against respondent based on the holding in Commissioner of Internal Revenue v. Sony Philippines, Inc.4 The Court ruled that the reassignment of the audit and investigation of respondent taxpayer from RDO 41 to RDO 43A, under ?-<- 1 July 23,201 9 Minute Resolution, Rollo, p. 129. 2 Rollo, pp. I06-114. 3 Rollo, pp. 118-127. 4 G .R. N o. 17 8697, November 17, 20 I0, 649 Phil. 5 I9.

RESOLUTION CTA EB No. I757 (CTA Case No. 8738) Page 2 of4 different team of revenue officers (ROsV on the strength of a Memorandum of Assignment signed by Revenue District Officer Florante R. Aninag (RDO Aninag) was outside the scope and authority granted by the LOA. Counsel for petitioner cites Revenue Memorandum Order No. (RMO) 62-2010 and 69-2010 as authorizing the reassignment of the audit and investigation of respondent pursuant to a Memorandum of Assignment and states that there is no conflict between the RMOs and Section 13 of the National Internal Revenue Code of 1997, as amended (NIRC).6 The Court is not persuaded and, thus, resolves to deny petitioner's motion. First, an LOA is the authority given to the appropriate revenue officer (RO) assigned to perform assessment functions. 7 The necessity of a valid LOA to authorize the audit and investigation of a taxpayer is not only an administrative but a statutory requirement found in Sections 10 and 13 of the NIRC. Accordingly, a valid LOA is essential to the validity of an audit, and consequently, of the assessment that may be issued thereafter. Second, it is undisputed that the authority of ROs Sunga and Cabel of RDO No. 43A emanated, not from an LOA, issued by the Regional Director of Revenue Region No. 7 and which authorized only ROs Cruz and Amatorio of RDO No. 41, but from the Memorandum of Assignment issued by RDO Aninag ofRDO No. 43A. With respect to the practice of issuing a memorandum to allow an RO to continue the audit commenced by another,8 in Commissioner ofInternal Revenue v. Composite Materials, Inc} the Supreme Court held that an RO may only examine the taxpayer's books pursuant to an LOA issued by the Regional Director and emphasized that the Referral Memorandum issued by the RDO directing another RO to continue with the examination of the taxpayer's records is not equivalent to an LOA and, therefore, does not cure the RO's lack of authority: "As regards the issue on Revenue Officer Mary Anne P. Cruz's (RO Cruz) authority to examine CMI's records, the provisions of the National Internal Revenue 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 the Regional Director. This was reiterated by the Court in Medicard Philippines, Inc. v. Commissioner of Internal Revenue, ruling that in the absence of an LOA, the assessment or examination is a nullity. 7'--- 'Decision, Rollo, pp. 95-98; August 16,2017 Decision, Rollo, pp. 44-47. 6 Motion for Reconsideration, Rollo, pp. I09-113. 7 Commissioner ofInternal Revenue v. Sony Philippines, Inc., G.R. No. 178697, November 17,2010. 8 Motion for Reconsideration, Rollo, pp. 110. 9 Resolution, G.R. No. 238352, September 12,2018.

RESOLUTION CTA EB No. 1757 (CTA Case No. 8738) Page 3 of4 Here, the CTA en bane found that the LOA issued in relation to the examination of CMI's book of accounts does not specifically mention the name of RO Cruz. Thus, the examination conducted by RO Cruz and the assessment issued against CMI was correctly declared null and void. 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 ofCMI'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 ofLOAs 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." (Underscoring supplied and citations omitted) Third, Section D(4) of RMO 43-90 expressly limited the authorized BIR officials who can issue and sign the LOA to only the following: 1. Regional Directors; 2. Deputy Commissioners; 3. Commissioner; and, 4. Other officials that may be authorized by the Commissioner for the exigencies of service. A careful reading of RMO Nos. 69-2010 and 62-2010, cited by the petitioner, shows that nowhere do these administrative issuances expressly grant the RDO any authority to reassign the audit of a taxpayer to another RDO with a new team ofROs. Neither do these issuances allow the RDO to modify the scope and coverage of a validly issued LOA merely through a Memorandum of Assignment. Verily, any subsequent modification of the LOA, which was signed by the Regional Director, cannot be done merely through a Memorandum of Assignment, signed by a subordinate official such as the RDO in this case. As discussed in the assailed Decision, RDO Aninag is bereft of any power to authorize the examination of respondent taxpayer or to effect any amendment to the previously issued LOA. In view ofthe foregoing, the Court finds no cogent reason to disturb the assailed Decision. WHEREFORE, premises considered, petitioner's Motion for Reconsideration is DENIED for lack of merit. SO ORDERED. ~ c. a..d;: ::s~ Q .ffJANiTO c. CASTANEDr,JR. Associate Justice

RESOLUTION CTAEBNo. 1757(CTACaseNo. 8738) Page 4 of4 WE CONCUR: Presiding Justice (On LezvE) ERLINDA P. UY Associate Justice ~ ~-M~)4-w-b~ CIELITO N. MINDARO-GRULLA Associate Justice ~. ~ /$� L.._ c~ 7. /fe4o..ecw~~�"~- MA. BELEN M. RINGPIS-LIBAN CATHERINE T. MANAHAN Associate Justice Associate Justice MARIARO