STEPAN PHILIPPINES QUATERNARIES, INC. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SPECIAL THIRD DIVISION STEPAN PHILIPPINES CTA CASE NO. 9862 Mem b ers : QUATERNARIES, INC., Petitioner, -versus- RINGPIS-LIBAN, Chairperson, MODESTO-SAN PEDRO, and FERRER-FLORES,]]. COMMISSIONER OF Promulgated: INTERNAL REVENUE, MAY 2 9 2U24 Respondent. x -------------- --- ---------------------------------- -- - - ~ --------- - -~- :--~ -�?-~: -~:-------- x RESOLUTION RINGPIS-LIBAN,J.: For Resolution is respondent's Motion for Reconsideration (Re: Decision dated 28 February 2024) flied on March 19, 2024, with petitioner's Comment (Re: Motion for Reconsideration dated 19 March 2024) flied by registered on April 8, 2024. In assailing the decision voiding the assessment, respondent contends that the Court erred since petitioner was able to participate in the administrative proceedings and was, thus, accorded due process. Respondent further adds that petitioner was informed of the identity of the revenue officers (ROs) who continued its investigation/ audit through the Memorandum of Assignment (MOA). Thus, although the ROs named in the Letter of Authority (LOA) may no t have been the same ROs who eventually concluded the investigation/ audit, this occurrence is a matter o f " feasibility" that is justified because "there is no statutory requirement that ROs be named in the LOA itself."1 First, respondent's contention that "there is no statutory requirement that ROs be named in the LOA itself' is misleading. It stretches the rules of statutory construction when viewed against Section 13 of the National Internal Revenue Code o f 1997 (NIRC). The text of ~ 1 Docket, Vol. 2, p. 720.

RESOLUTION CTA Case No. 9862 Section 13 alone clearly provides that the ROs who are assigned to exarmne a taxpayer must be sanctioned by an LOA: "SEC. 13. Authority ofa Revenue Officer. - Subject to the rules and regulations to be prescribed b y the Secretary of Finance, upon recommendation of the Commissioner, a Revenue Officer assigned to perform assessment functions in any district may. pursuant to a Letter of Authority issue<..! by the Reven ue Regional Director, examine taxpayers within the jurisdiction of the district in order to collect the correct amount of tax, or to recommend the assessment of anv deficiency tax due in the same manner that the said acts could have been performed by the Revenue Regional Director himself." (Undemoring .wpplied) Second, if this provision were not plain enough to respondent's reading, the holding o f the Supreme Court in Commissioner of Internal Revenue v. McDonald's Philippines Realty Corp. (McD onald's)2 should dispel any doubt on the necessity of naming the ROs in the LOA. Incidentally, respondent's arguments mirror the arguments raised by the Commissioner of Internal Revenue in McD onald's: "The petitioner [CIR] claims that once an LOA had issued. th e revenue officer originally named in th e LOA may be substituted or replaced by another revenue officer in case the original revenue officer is reassigned or transferred to another case. without the need to amend the said LOA or to issue a separate and new LOA in the name of the substitute or replacemen t revenue officer. To support tllis claim, the petitioner argues: (i.) that the LOA is not in fact issued to th e revenue officer, bu t to the taxpayer, and thus 'any' revenue officer may act under the validly issued LOA during the period of audit or investigation; (ii) that Revenue Memorandum Order (RlVIO) o . 43-90 dated September 20, 1990, entitled 'Amendment of Revenue Memorandum Order No. 37-90 Prescribing Revised Policy Guidelines for Examination of Returns and Issuance of Letters of A uthority to Audit,' which requires th e issuance of a new and separate LOA in case of reassignment or transfer of cases of revenue officers, is no longer in effect, considering tl1at it was issued prior to the National Internal Revenue Code; (iii) that assuming Rl-.10 No. 43-90 dated September 20, 1990 is still in effect, nothing in the said issuance provides that the effect of a lack of L 0 1\ results in the nullity of the assessmen t; (iv) that Commi.r.rioner qf Intmtal Ret;enue 11. So1!Y Pbilippinu, Inc. and M edicard Pbilippine.r, Inc. v. Commissioner of Intemal Rei'Cntte, where We held that an LOA must authorize a revenue officer to examine taxpayer's books of accounts, which are not squarely applicable to this case; (v) that there js no requirement that a revenue officer should be identified in the LOA itself; (vi) that th e LOA at the time Marcellano conducted the audit was not yet ineffective fo r lack of revalidation; and (vij) tl1at the BIR's General Audit Procedures and Documen tation, which provides the standard operating procedures .in examining books of accounts of taxpayers, is not applicable." (Underst'Oiing Jttpplied; t'itations omitted)~ 2 G. R. No. 242670, May I0, 202 I.

RESOLUTION CTA Case No. 9862 In McDonald's, which have similar facts to this case, the Supreme Court affirmed the Court's decision that invalidated the assessment. Furthermore, it ruled that, while the taxpayer may have been notified o f the change in ROs, the lack of authority of the new ROs is still tantamount to violation of due process and justifies voiding the assessment: " It is true that the service of a copy of a memorandum of assignment, referral memorandum. or such other equivalent internal BTR document may notify the taxpayer of the fact of reassignment and transfer of cases o f revenue o fficers. H owever. notice of the fact of reassignment and transfer of cases is one thing; proof of the existence of authority to conduct an examination and assessment is another thing. The memorandum of assignment. referral memorandum. or any equivalent document is not a proof of the existence of authority of the substitute or replacement revenue officer. The memorandum o f assignment, referral memorandum, or any equivalent document is no t issued by the CIR o r his duly authorized representative for the purpose of vesting upon the revenue o fficer authority to examine a taxpayer's books of accounts. It is issued by the revenue district o fficer or oth er subordinate o fficial for the purpose of reassignmen t and tra nsfer o f cases of revenue officers. T he petitioner [CIR) wants the Court to believe th at once an LOA has been issued in the names o f certain revenue officers. a subordinate official of the BTR can then. through a mere memorandum of assignment. referral memorandum. or such equivalent document. ro tate the work assignments of revenue o fficers who may then act under the general authority of a validly issued LOA. But an LOA is no t a general authority to any revenue officer. It is a special authority gran ted to a particular revenue officer. The practice of reassigning or transferring revenue o fficers, who arc the original authorized o fficers named in the JDA, and subsequently substituting them with n ew revenue o fficers wh o do not have a separate LOA issued in their name, is in effect a usurpation of the statutory power of the CIR or his duly authorized representative. T he memorandum of assignment, referral memorandum, or such o ther equivalent internal document of the BIR directing the reassignment or transfer o f revenue officers, is typically signed by the revenue district officer or other subordinate o fficial, and not signed or issued by the CIR or his duly authorized representative under Sectio ns 6, 10 (c) and 13 of the N IRC. Hence, the issuance o f such memorandum o f assignment, and its subsequent use as a proo f o f authority to co ntinue the audit or investigatio n, is in effect supplanting the functions of the LOA, since it seeks to exercise a power that belongs exclusively to the CIR himself or his duly authorized representatives. XXX XXX XXX \XIc rule that the practice of reassigning or transferring revenue officers originally named in rhe L OA and substiruting rhem wirh new my revenue o fficers to continue the audit or investigation without a separate or amended LOA (i) violates rhe taxpayer's right to due process in

RESOLUTION CIA Case No. 9862 audit or investigation; (ii) usurps the statutory power of the CIR or his duly authorized representative to grant the power to examine the books o f account o f a tal<payer; and (iii) docs not comply with existing BlR rules and regulations, particularly RlvfO N o. 43-90 dated September 20, 1990." All told, respondent's arguments have been addressed by the assailed decision and do not raise any new matter that would merit a reexamination by the Court. WHEREFORE, in view of the foregoing, respondent's Motion for Reconsideration (Re: Decision dated 28 February 2024) is DENIED for lack of merit. SO ORDERED. ~. ~ ~'-- MA. BELEN M. RINGPIS-LIBAN Associate Justice WE CONCUR: MARIARO