SUGAR CRAFTS, INC. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC)OF THE PHILIPPINES Court pfTax Appeals QU EZON CITY Th:ird Div ision SUGAR CRAFTS, INC., CTA CASE NO. 8738 Petitioner, -versus- Members: BAUTISTA, Chairperson FABON-VICTORINO, and RINGPI S-LIBAN,JL I~) COMMISSIONER OF TERNAL Promulgated: REV EN U E, x----------- ----------- ~espondent. ---- .v_. ---------------;-o--:--;-1--Q-�--..-..-.--------- --- --x ---------------------[--------------- RESOLUTION BAUTISTA, J.: For resolution is resp9ndent's Motion for Reconsideration (on the Decision of the Honorable Court dated 16 August 2017) ("Motion for Reconsideration") filed ~n September 6, 2017; with Comment on Respondent's Motion for I Reconsideration ("Comment") from petitioner filed on October 2ID, 2017. On August 16, 20 1di7~1 the Court p rom ulgate d a De c i s i o n1 aile Decisio n"), he o n of which st ate s:2 ( " A s s d t positive por t i WHEREFORE, pJemises considered, the Petition for Review is hereby G RA~TED . Accordingly, the assessments for deficiency income t x in the amount of Php7,393A56.66, for value-added tax in he amount of Php10,792,064.60, for expanded withholding t<tx in the amount of Php394,763.77, for improperly accumulatetl earnings tax in the amount of Php1,162,893.82, all inclpsive of interest and surcharges for taxable year 2009; and tHe compromise penalty in the amount of Php20,000.00; are CA1 CELLED and SET ASID E. 1 Records, CTA Cnse No. 8738, Vo l. 3, Deci~ io ll, pp. 1281-1310. 2 Id. , pp. 1309-1310. I

RESOLUTION CTA CASE NO. 8738 SO ORDERED.3 In his Motion for Rec nsideration, respondent insists that Revenue Officer ("RO") De fin Sunga ("RO Sunga") had the necessary authority to investi ate petitioner's books of accounts and other accounting records. R spondent reasons that RO Sunga's authority actually emanated f om the Letter of Authority ("LOA") previously issued to peti ioner, and not necessarily from Memorandum of Assignment No. 43A-0000559 dated December 7, 2011 ("MOA") signed by Rev nue District Officer ("RDO") Florante Aninag ("RDO Aninag"). Respondent continues that the MOA was only issued pursuant to parag~aph 7.34 of Revenue Memorandum Order ('RMO") No. 62-20105 followi~g the transfer of petitioner to Revenue District Office No. 43A ("RDO ~o. 43A"). Respondent claims that ! the MOA issued by RDO Aninag is valid. Relying on the format o~ a MOA attached as Annex A of RMO No. 62-2010, respondent avers! that the power to issue the same has been delegated to the RD . This is apparent, according to respondent, by the fact that t e header of the formatted document indicates "INVESTIGATING FFICE", which in the instant case, is RDO No. 43A; and the presc ibed signatory indicates "HEAD OF AUTHORIZED REVENUE FFICIAL/HEAD, INVESTIGATING OFFICE", which during that tire, is RDO Aninag. I ! I Respondent further clai s that the authority to conduct audit investigation should not be li ited to the ROs named in the LOA. Respondent explains there re cases when the ROs originally assigned to investigate a taxp yer may not be able to complete the audit investigation because o unforeseen circumstances or natural occurrence of things, such as tesignation, retirement, re-assignment, sickness, or death; thus, there lis a need to issue referral memoranda or MOAs for the continuatio+ of the audit. To rule then that only those ROs indicated in the LOft\ are authorized to continue the audit investigation of taxpayers !will be, according to respondent, detrimental to the governmentf ! t 3 Emphases retained.XXX XXX XXX 4 7. A Memorandum of Assignment (MO~) (Annex "A") with a system-generated number shall be issued through the LAMS under the follpwing instances: 1 7.3 Reassignment to another R due to referral of the case to another investigating office (e.g., cases refe red to SID by the RDO); and 5 Supplemental Guidelines on the Electro ic Issuance of Letters of Authority and Related Audit Policies and Procedures, July 1, 2010. �

RESOLUTION CTA CASE NO. 8738 I Respondent asserts that ~here is no conflict between Section 136 of the 1997 National Internal Revenue Code7, as amended ("1997 NIRC") and RMO No. 62-2010. While lsection 13 of the 1997 NIRC mentions that the RO may conduct the a~dit investigation pursuant to an LOA issued by the Regional Direftor, said provision also takes into consideration other rules and regulations issued by the Bureau of 1 Internal Revenue ("BIR"), such! as RMO No. 62-2010. Respondent thus submits that there should be n~ question on the power of the RDO to issue the MOA which has beeljl validly delegated to him, as head of the investigating office. I ! Finally, respondent alle~e that petitioner is already estopped from questioning the authorit}' of RO Sunga to conduct the audit investigation considering tha~ in the course of the investigation, petitioner actively participated in all stages of the audit and did not 1 question RO Sunga's authority. Respondent insists in upholding the validity of the assessment as t~is would be consistent with the public policy embodied in the princifle that taxes are the lifeblood of the government. 1 i I In its Comment, petitio*er counters that RO Sunga had no authority to conduct the audit Iinvestigation of its books of accounts because of the absence of a neB LOA naming him as the RO to whom the case was re-assigned. Petit oner asserts that RMO No. 62-2010 is merely a supplemental guideli e on the electronic issuances of LOAs, and it does not provide that a MOA is equivalent to a grant of 1 1 authority under an LOA. Atnt Annex A of RMO No. 62-2010, petitioner avers that the same annat bolster respondent's claim that RO Sunga was empowered o continue the audit investigation because, according to petitioner, the assignment of an RO to conduct audit through a MOA does ndt dispense with the requirement that the examiner must have been granted power via an LOA duly signed by the Regional Director. Acco~dingly, petitioner submits that a mere MOA cannot be the source pf RO Sunga's authority. Petitioner continues that to say that a MbA is tantamount to a delegation of I ' 6 SEC. 13. Authority of a Revenue Officer. - S~bject to the rules and regulations to be prescribed by the Secretary of Finance, upon recommenda�on of the Commissioner, a Revenue Officer assigned to perform assessment functions in any disttict may, pursuant to a Letter of Authority issued by the Revenue Regional Director, examine taxtpayers within the jurisdiction of the district in order to collect the correct amount of tax, or to recommend the assessment of any deficiency tax due in the same manner that the said acts could ha e been performed by the Revenue Regional Director himself. 7 Republic Act No. 8424, January 1, 1998.

RESOLUTION CTA CASE NO. 8738 Page4 of 6 power to assess, as if it w~s an LOA, IS contrary to law and established jurisprudence. Lastly, petitioner submit's that the allegation of estoppel is without basis because esto pel cannot validate an act that contravenes law or is against p blic policy. I i The Court will now 1 r e s o l v e respondent's Motion for Reconsideration. 1 After a careful consider~tion and evaluation of the parties' respective arguments, the Court finds no new or substantial matter, or any compelling reason to ju~tify the reversal or modification of the Court's findings in the Assail d Decision. Consequently, the Court finds respondent's Motion for econsideration devoid of merit. ' ! Respondent's arguments evolve upon the issue on whether RO Sunga had the necessary autho ity to conduct the audit investigation of petitioner's books of accoun s and other accounting records for the period from January 1, 2009 to December 31, 2009. Respondent is of the view that in cases of re-ass gnment arising from the transfer of a taxpayer to another RDO, as i~-the instant case, a MOA is sufficient to confer authority to a new Rb to continue the audit investigation. Besides, according to respond�nt, to require the issuance of a new LOA or to subscribe to the yiew that only those ROs originally indicated in the LOA are ! authorized to conduct the audit I investigation, will be detrim~tal to the government who will be made to suffer for the na ral occurrence of things, such as resignation, re-assignment, or eath of the BIR's employees. ! The Court is not convince~. i I No less than the Suprerpe Court has held in the case of in Commissioner of Internal Revelue v. Sony Philippines, Inc.s ("Sony Philippines") that it is the LOA which empowers an RO to examine the books of accounts and ccounting records of the taxpayer. Accordingly, all acts of an Rb who is not armed with an LOA specifically designating him/h~r to conduct the audit investigation are void. � s G.R. No. 178697, November 17, 2010, 635 SfRA 234.

RESOLUTION CTA CASE NO. 8738 Based on Section 1B of the Tax Code, a Letter of Authori or LOA is the uthori iven to the a ro riate erform assessment functions. It em owers or enables sai revenue officer to examine the books of account and othe accountin records of a tax a er for the the correct amount of tax ... XXX XXX XXX I Clearly, there must te a grant of authority before any revenue officer can condu~t an examination or assessment. I Equally important is that ~he revenue officer so authorized I must not go beyond the uthority given. In the absence of such an authori the asses mentor examination is a nulli 9 i In the instant case, no ~OA was ever issued in favor of RO Sunga. In fact, his authority w s merely based on Memorandum of Assignment No. 043A-000055 10. Accordingly, pursuant to Section 1311 of the 1997 NIRC, in relati n to the above Sony Philippines case, RO Sunga's examination of pe itioner's books of accounts and other accounting records for the peripd from January 1, 2009 to December 31, 2009 and the resulting a~sessment for deficiency taxes are a nullity. � i Anent the issue on estop*el, it bears to note that this issue was raised for the first time in this :frviotion for Reconsideration before the Court. The said issue was neve~ raised by respondent in his Answer12 or in any of the proceedings be~ore this Court. The rule is well-settled that points of law, theories, i~sues and arguments not previously ventilated cannot be raised for ~he first time on appeal,13 much more I 9 Underscoring ours. i 10 BIR Records, Folder 1, Exhibit "R-1," Mernor ndum ofAssignment dated December 7, 2011, p. 258. 11 SEC. 13. Authority of a Revenue Officer. - S bject to the rules and regulations to be prescribed by the Secretary of Finance, upon recommenda �on of the Commissioner, a Revenue Officer assigned to perform assessment functions in any dist ict may, pursuant to a Letter of Authority issued by the Revenue Regional Director, examine tax ayers within the jurisdiction of the district in order to collect the correct amount of tax, or to rec mmend the assessment of any deficiency tax due in the same manner that the said acts could hafe been performed by the Revenue Regional Director himself. � 12 Records, Vol. 1, Answer, pp. 59-62. 13 Multi-Realty Development Corporation v. ~akati Tuscany Condominium Corporation, G.R. No. 146726, June 16, 2006, 491 SCRA 9, 23; Philippine Basketball Association v. Court of Appeals, G.R. No. 119122, August 8, 2000, 297 SCRA 402; Ruby Industrial Corporation v. Court of Appeals, G.R. Nos. 124185-87, January 20, 1998, 284 SCRA 445; $alao v. Court of Appeals, G.R. No. 107725, January 22, V� 1998, 284 SCRA 493; Heirs of Pascasio Uriarte Court of Appeals, G.R. No. 116775, January 22, 1998, 284 SCRA 511. i

RESOLUTION CTA CASE NO. 8738 in a motion for reconsiderationJ as in this case, because this would be offensive to the basic rules of fa~r play, justice and due process.14 I Having said the foregoin$, the Court finds no cogent reason to reverse or modify the conclusiops reached in the Assailed Decision. WHEREFORE, premises considered, respondent's Motion for 1 Reconsideration (on the Decis~on of the Honorable Court dated 16 August 2017) is hereby DENiijD for lack of merit. Accordingly, the Assailed Decision dated Augu~t 16, 2017 is hereby AFFIRMED and UPHELD. I SO ORDERED. LOVELL~. BAUTISTA Associate Justice WE CONCUR: FABON-VICTO~INO <lbA. ~ A� ' - :As ociate Justice MA. BELEN M. RINGPIS-LIBAN Associate Justice 14 Sta. Rosa Realty Development Corporation <f. Amante, G.R. No. 112526, March 16, 2005, 453 SCRA 432,478. I