CTA Decisions CTA Case No. EB 3068EB 3068 2026-09-17

COMMISSIONER OF INTERNAL REVENUE v. GOLDEN DONUTS, INC.

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS Quezon City ENBANC COMMISSIONER OF CTA EB NO. 3068 INTERNAL REVENUE, (CTA Case No. 10336) Petitioner, - versus- GOLDEN DONUTS, INC., Respondent. X- - - - - - - - - - - - - - - - - - - - - - X GOLDEN DONUTS, INC., CTA EB NO. 3076 Petitioner, (CTA Case No. 10336) Present: \ -versus- RINGPIS-LIBAN, P.]., BACORRO-VILLENA, MODESTO-SAN PEDRO, REYES-FAJARDO, CUI-DAVID FERRER-FLORES, ANGELES, TESTON, and CENTENO-DIJAMCO, 11. COMMISSIONER OF INTERNAL REVENUE, Respondent. X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X

CTA EB NOS. 3068 and 3076 (CTA Case No. 10336) Commissioner of Internal Revenue v. Golden Donuts, Inc. and Golden Donuts, Inc. v. Commissioner of Internal Revenue DECISION X - -- --- --- ---- -- --- ---- - -- -- -- - - -- -- -- --- - - - --- ----- --- --- -- - -- -- -- - -·X DECISION BACORRO-VILLENA, ].,_: Few powers of the State intrude more directly into the affairs of the citizen than the power to open the latter's books and search the latter's accounts.' Conscious of this, the law has long insisted that this power be wielded only by those to whom it has been expressly delegated, and only within the compass of that delegation. 2 The instrument of delegation is the Letter of Authority (LOA) - "the statutorily defined modality" 3 through which the Commissioner of Internal Revenue's (CIR's) power to examine is transmitted to revenue officers. Absent the same, an examination is no examination at all, and any assessment born out of it is "inescapably void." 4 It is upon this settled principle - reiterated by the Supreme Court with a warning against a "disturbing trend"s of disregard for the LOA requirement - that the present case turns. Before the Court En Bane are the consolidated Petitions for Review filed by petitioner CIR on 10 February 2025, docketed as CTA EB No. 3068, 6 and by petitioner Golden Donuts, Inc. (GDI) on 20 February 2025, docketed as CTA EB No. 3076, 7 both pursuant to Section 3(b), 8 Rule 8 of the Revised Rules of the Court of Tax Appeals (RRCTA). Both petitionst Section 6(A), NIRC of 1997, as amended; See Republic oft he Philippines v. Robiegie Corporation, G.R. No. 260261, 03 October 2022. Commissioner of Internal Revenue v. Sony Philippines. Inc., G.R. No. 178697, November 17, 2010. Republic of the Philippines v. Robiegie Corporation, supra at note I. Medicard Philippines. Inc. v. Commissioner of Internal Revenue, G.R. No. 222743, 05 April 2017; Commissioner of Internal Revenue v. A1cDonald's Philippines Realty Corp., G.R. No. 242670, 10 May 2021. See Republic v. Robiegie Corporation, supra at note 1. Rollo (CTA EB No. 3068), pp. 9-22. Rollo (CTA EB No. 3076), pp. 9-53. SEC. 3. Who may appeal; period tofile petition. - (b) A party adversely affected by a decision or resolution of a Division of the Court on a motion for reconsideration or new trial may appeal to the Court by filing before it a petition for review within fifteen days from receipt of a copy of the questioned decision or resolution. Upon proper motion and the payment of the full amount of the docket and other lawful fees and deposit for costs before the expiration of the reglementary period herein fixed, the Court may grant an additional period not exceeding fifteen days from the expiration of the original period within which to file the petition for review.

CTA EB NOS. 3068 and 3076 (CTA Case No. 10336) Commissioner of Internal Revenue v. Golden Donuts. Inc. and Golden Donuts, Inc. v. Commissioner of Internal Revenue DECISION X- - -- --- - -- - ----- - --- - - -- -- -- -- - -- -- -- - -- -- - -- --- -- - -- ---- ---- -- -- --- -X assail the Decision dated 30 July 2024 9 (assailed Decision) and Resolution dated 03 January 2025 10 (assailed Resolution) of the Third Division" in CTA Case No. 10336, entitled Golden Donuts, Inc. v. Commissioner of Internal Revenue, which upheld in part and cancelled in part respondent CIR's deficiency income tax, value-added tax (VAT), final tax (FT), expanded withholding tax (EWT) and documentary stamp tax (DST) assessments against GDI for calendar year (CY) 2010, and ordered GDI to pay respondent CIR the aggregate amount of P41,853·o2o.oo, inclusive of surcharge and interest. PARTIES OF THE CASE CIR is the duly appointed head of the Bureau of Internal Revenue (BIR), with office address at the BIR National Office Building, Sen. Miriam Defensor-Santiago Avenue (formerly BIR Road), Diliman, Quezon City. 12 On the other hand, GDI is a corporation duly organized and existing under the laws of the Republic of the Philippines, with principal office address at the GDI Building, Reliance corner Sheridan Streets, Highway Hills, Mandaluyong City.lt is the master franchisor of Dunkin' Donuts in the Philippines. It is registered with the BIR with Tax Identification No. (TIN) ooo-122-56s-ooooo under the BIR Large Taxpayers Service, Revenue District Office (RDO) No. u6 - Regular Large Taxpayers (LT) Division 1.'3 FACTS OF THE CASE On 10 October 2011, GDI received Letter of Authority (LOA) No. u6-2on-oooo0151 (eLA2onoooo3039) dated o6 October 2011,'4 designating Revenue Officers (ROs) Riza Budafio (Budaiio), Aurora Pelayo (Pelayo), Olivia Aviles (Aviles), Olivia Sison (Sison), and Rogelio Gonzales (Gonzales), under Group Supervisor (GS) Marivict Division Docket, Volume V, pp. 3237-3294. 10 ld., pp. 3364-3375. " Penned by Associate Justice Catherine T. Manahan (Ret.), with the concurrence of Associate Justice HenryS. Angeles: Associate Justice Marian Ivy F. Reyes- Fajardo was on leave. 12 See The Parties, Decision dated 30 July 2024, supra at note 9, p. 3238 IJ See id., p. 3237. Exhibit "P-2", Division Docket, Volume I, p. 71.

CTA EB NOS. 3068 and 3076 (CTA Case No. 10336) Commissioner of Internal Revenue v. Golden Donuts, Inc. and Golden Donuts, Inc. v. Commissioner of Internal Revenue DECISION X -- -- - - -- --- - - - - - - --- - - -- -- -- - -- - - - -- - - - - - - - --- - - - - - --- --- - - - - -- - - - - - -X Bautista (Bautista), to examine GDI's books of accounts and accounting records for CY 01 January 2010 to 31 December 2010 (2010 ).'s On 14 February 2013, GO! executed a Waiver of the Defense of Prescription under the Statute ofLimitations'6 (First Waiver) under the National Internal Revenue Code (NIRC) of 1997, as amended, valid until 31 December 2014, which OIC-Assistant Commissioner (OIC-Asst. Comm.) Alfredo V. Misajon (Misajon) accepted on 22 March 2013.'7 On 27 March 2013, GO! received a Letter' 8 dated the same date, signed by Cesar D. Escalada (Escalada), Chief of the Regular LT Audit Division 1 (RLTAD-1), designating ROs Tito R. Monforte (Monforte) and Arnalda T. Ancheta (Ancheta) to assist GS Juvy S. deJa Pefia (dela Peii.a) in examining GDI's books pursuant to the LOA dated o6 October 2ou. On 14 October 2014, a Memorandum'9 addressed to Nestor S. Valeroso (Valeroso), OIC-Asst. Comm. of the Large Taxpayers Service (LTS), was issued by ROs Budafio, Ma. Gracielle F. San Pedro (San Pedro), Monforte and Ancheta, and GS Allan M. Maniego (Maniego), recommending the issuance of a Preliminary Assessment Notice (PAN). GDI received the PAW 0 dated 19 November 2014, on even date, for alleged deficiency income tax, VAT, FT, withholding tax on compensation (WTC), EWT and DST, in the aggregate amount of P312,o88,978.s6, inclusive of interest and penalties. GDI filed its protest to the PAN on 02 December 2014. 21 On 04 December 2014, GDI executed another Waiver of the Defense of Prescription under the Statute of LimitationS 22 (Second Waiver), which OIC-Asst. Comm. Valeroso accepted on 16 December 2014. 2 3 On os January 2015, a Memorandum 24 addressed to OIC-Asst. Comm. Valeroso was issued by ROs Budafio, San Pedro, Monforte and 15 Summary of Admitted Facts, JSFI, id., Volume II, p. 754. t lh Exhibit "P-4", id., Volume I, p. 76. 17 Summary of Admitted Facts, JSFJ, id., Volume II, p. 754. 18 Exhibit "P-5", id., p. 77. 19 Exhibit "R-7", id., BIR Records, pp. 1498-1507. 00 Exhibit "P-12", Division Docket, Volume I. pp. 87-99. 1 : Exhibit '·P-13'', id., pp. 100-119. ,. Exhibit ''P-14", id., p. 120. 23 Summary of Admitted Facts, JSFJ, id., Volume II, p. 755. 24 Exhibit "R-1 0", BIR Records, pp. 1634-1646.

CTA EB NOS. 3068 and 3076 (CTA Case No. 10336) Commissioner of Internal Revenue v. Golden Donuts. Inc. and Golden Donuts, Inc. v. Commissioner of Internal Revenue DECISION X - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X Ancheta, and GS Maniego, recommending the Issuance of a Final Assessment Notice (FAN). GDI received a Formal Letter of Demand 2 s (FLD) dated 02 February 2015, together with its FAN of even date, assessing deficiency taxes in the aggregate amount of P272,615,7I0-30. 26 GDJ filed a letter 27 dated 03 March 2015 (Protest) on 04 March 2015. On 30 July 2020, GDI received the Final Decision on Disputed Assessment 28 (FDDA) and corresponding Assessment Notices, demanding payment of total deficiency taxes of Pl59,296,7o3.65, broken down as follows; 2 9 Tax Type Basic Deficiency Interest Total Amount Tax Income Tax P25,68o,581.o2 J> 40,644,268.61 J>66,J24,849·63 VAT 32,509,243-18 52,876,952.02 8 5,386,1 95 .20 FT 522,228.26 852,276-52 1,374.504-78 EWT 2,310,597-')0 1,770,895-13 6,081,492.63 DST 49,161.11 8o,5oo.3o 129,661.41 Total f'6I,071,811.07 !"98,224,892-58 f'l59·296,703.65 On 28 August 2020, GDI filed a Petition for Review3° before this Court, praying for the nullification and cancellation of the aforesaid deficiency assessments for CY 2010. PROCEEDINGS BEFORE THE COURT IN DIVISION GDI's Petition for Review31 was initially raffled to the First Division. In support thereof, GDJ asserted the following grounds: (1) the FLO was not accompanied by FANs in violation of Section 2283 2 of the NIRC of 1997, as amended; (2) the FLO/FAN are void for failure to indicate a definite amount of tax liabilities and due date for payment; t 05 Exhibit "P-15''. Division Docket, Volume I, pp. 121-136. 26 Summary of Admitted Facts, JSFI, id., Volume II, p. 755. " Exhibit "P-16". id., Volume V, pp. 3065-3079. " Exhibit "P-17'', id., Volume I, pp. 152-153; See Exhibit "R-14'', BIR Records, p. 1777. 29 Summary of Admitted Facts, JSFI, Division Docket, Volume II, p. 755. 30 !d .. Volume I. pp. 6-43. 31 ld. 32 SEC. 228. Protesting of Assessment.

CTA EB NOS. 3068 and 3076 (CTA Case No. 1 0336) Commissioner of Internal Revenue v. Golden Donuts, Inc. and Golden Donuts, Inc. v. Commissioner of Internal Revenue DECISION X- -- --- - -- - --- -- - -- - - -- - -- -- -- -- -- --- - - ---- - - -- ----- - --- -- --- -- -- -- - --X (3) the ROs who conducted the audit did not have the requiSite authority; and (4) the 2010 deficiency tax assessments issued against GDI are void for having been issued without legal or factual basis. On 16 November 2020, the CIR filed his or her Answer,33 averring that: (1) the Court of Tax Appeals's (CTA's) judicial power over the CIR's decisions on disputed assessments is by nature exclusive and strictly appellate and GDI should not be allowed to raise issues for the first time on appeal; (2) the FLO is valid and was received by GDI; (3) there is no requirement in the law that the ROs must be identified in the LOA to have authority; (4) any memorandum (or memorandum of assignment) subsequently issued derived its authority from the original LOA initially issued; and (s) the deficiency assessment issued against GDI is correct. On 20 May 2021, CIR filed his or her Pre-trial Brie£34 while GDI's Pre-Trial Briefls was filed on 25 June 2021. Following the Pre-Trial Conference held on 01 July 20213 6 and the submission of a Joint Stipulation of Facts and Issues 37 (JSFI) on 16 July 2021, the First Division issued a Pre-Trial Order38 on o8 April 2022. During trial, GDI presented Jeffrey G. Manzano (Manzano), its Accounting Services Senior Manager, who testified using his Judicial Affidavit dated 27 September 2021.3 9 On the witness stand, Manzano declared that: (1) he was involved in the preparation of the protest letters and their supporting documents; (2) the ROs authorized to audit GDI's books were: ROs Budafio, Pelayo, Aviles, Sison, Gonzales and GS Bautista; (3) apart from the foregoing names, the following persons a/so examined GDI's books namely ROs Monforte and Ancheta, and GS de Ia Perra pursuant to Letter dated 17 March 2013 signed by Escalada, ChiefRLTAD-1; (4) GDI received the PAN and FLO/FAN and filed protests against both; (s) the FDDA received on 30 July 2020, bore a due date of 31 December 2019, rendering compliance impossible-the due date having already lapsed when GD!t 33 Division Docket, Volume I, pp. 577-595. 34 Id., pp. 723-727. 35 ld., pp. 731-739. "' See Minutes of the Hearing dated 01 July 2021, id., Volume II, pp. 745-748. 37 !d., pp. 754-759. 3 R Id .. Volume V, pp. 3001-3017. 39 See Order dated 05 October 2021, id., Volume II, pp. 897-899.

CTA EB NOS. 3068 and 3076 (CTA Case No. 10336) Commissioner of Internal Revenue v. Golden Donuts. Inc. and Golden Donuts, Inc. v. Commissioner of Internal Revenue DECISION X - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X received the FDDA; (6) on the merits of the assessment, GDI is not liable for deficiency income taxes, as it has available NOLCO credits exceeding the adjusted gross income of P8s,601,936.73 per the FDDA; (7) with regard to VAT, the Local Advertising Fund and Local Promotional Fund do not represent cash collections of GDl, as rooted in Sections 8.02 and 8.03 of the Franchise Agreement; (8) with regard to Final Tax, GDI's stockholders are composed of domestic corporations and individuals- dividends paid to domestic corporations are not subject to final withholding tax, while those paid to individuals are subject to 10% final withholding tax; (9) that the EWT findings were based on assumptions, as the legal and factual basis of each item was not disclosed by the BIR to GDI; and (w) that Revenue Memorandum Circular (RMC) No. 46-2014, issued in 2014, cannot be applied retroactively to 2010. 40 During his cross-examination, Manzano clarified that he could not specifically recall whether the FANs were attached to the FLO when he received it in February 2015 but maintained that no FANs were found in the company's files at that time. He acknowledged that the FLO itself did not indicate a payment due date and that GDI searched for the allegedly attached FANs but could not locate them in its records. Although ClR asserted that Manzano had signed and received the FANs, Manzano explained that GDI only obtained copies of those documents after the case was elevated to the CTA and the BlR furnished its exhibits. It was only then that they learned that a due date was indicated in the FANs attached to the FLD.4' No redirect examination was conductedY GDI then presented its second witness, Michael L. Aguirre (Aguirre), the Court-commissioned Independent Certified Public Accountant (ICPA), who testified using his Judicial Affidavit dated 13}anuary 2022 and identified the !CPA Report43 dated 19 November 2021 he submitted to the First Division. 44 t Exhibit "P-40'', Judicial Affidavit of Jeffrey G. Manzano dated 27 September 2021, id., pp. 921- 940. TSN dated 05 October 2021, pp. 30-35. !d., p. 30-35. 4) Exhibit "P-41", Division Docket, Volume IV, pp. 2139-2182. See Order dated 19 Apri12022, id., Volume V, pp. 3022-3023.

CTA EB NOS. 3068 and 3076 (CTA Case No. 10336) Commissioner of Internal Revenue v. Golden Donuts, Inc. and Golden Donuts, Inc. v. Commissioner of Internal Revenue DECISION X -- - --- -- - ---- -- -- - ---- - -- -- -- - --- -- -- ---- - - --- -- --- --- --- -- - - - - - -- - --X On the witness stand, ICPA Aguirre testified that: (I) he completed the examination and submitted his written report to the Court; (2) the originals of the documents enumerated in the Report were in petitioner's premises, to which he was given full access during the examination; (3) he was likewise provided with photocopies and print-outs, which he verified to be faithful reproductions of the original documents and/or original computer print-outs; (4) the procedures performed generally involved analysis, vouching, inquiry, verification, and matching with original source documents and other reliable sources; and (s) unless otherwise stated in the ICPA Report, the exhibits identified therein and saved in the Universal Serial Bus (USB) submitted to the Court are faithful copies or reproductions of the originals, consisting of photocopies, certified true copies and original print-outs. 45 On cross-examination, ICPA Aguirre clarified that GDI's sales to its franchisees and dealers are excluded from the coverage of royalties and management fees, and that it would not be appropriate to treat sales corresponding to such royalties and management fees as GDI's own reportable sales.4 6 No redirect examination was conducted.47 GDI's Formal Offer of Evidence 48 (FOE) was filed on 05 May 2022, and, following the CIR's Comment 49 thereto, the First Division, in a Resolution dated r8 August 2022,5a admitted GDI's Exhibits "P-I" through "P-43", inclusive of their sub-markings and !CPA-series exhibits, as well as Exhibits "A-ICPA" through "0-ICPA." However, certain exhibits were denied: (a) those not found in the records of the case; and (b) Exhibits "P-23-F.IS-ICPA" and "P-23-F.74-ICPA," which were totally unreadable, blurred, or almost blank. GDI moved for reconsideration of the denied exhibits on 15 September 2022.5' Except . for Exhibits "P-23-E.103-ICPA" to "P-23-E.ng-ICPA", "P-23-E.I79- t 45 Exhibit "P-42". Judicial Affidavit of Michael L. Aguirre dated 13 January 2022, id., Volume IV, pp. 2718-2722. TSN dated 19 April 2022. pp. 24-29. 47 !d., p. 29. 48 Division Docket, Volume V, pp. 3029-3059. 49 !d., pp. 3087-3088. 50 !d., pp. 3108-3118. S> !d., pp. 3124-3127.

CTA EB NOS. 3068 and 3076 (CTA Case No. 10336) Commissioner of Internal Revenue v. Golden Donuts, Inc. and Golden Donuts, Inc. v. Commissioner of Internal Revenue DECISION X - - -- - - -- --- - - - - - - - - - - - -- -- -- - - - - - - -- - - - - - - - - - - - - - - - --- --- - - -- - - - - - - - -X ICPA", "P-23-£.228-ICPA" and "P-33-AQ.2-ICPA", 52 which remained unfound in the records of the case, all other denied exhibits were reconsidered and admitted. 53 GDI was then declared to have rested its case. 54 The CIR, on the other hand, presented RO Budafio as his or her lone witness. Testifying via her Judicial Affidavit dated 16 November 2020,55 RO Budafio declared that her authority to examine GDI's books was sourced from the LOA dated o6 October 2011, and she confirmed the issuance of the First, Second and Final Notices of Requirements, the two Waivers of the Statute of Limitations, and the PAN, FLO and FDDA. 56 On cross-examination, RO Budafio confirmed that only one LOA -the LOA dated o6 October 2011- was ever issued for the audit ofGDI's books. She was asked to explain her use of the pronoun "we" in her Judicial Affidavit, in reference to the Memoranda dated os January 2015 and 31 October 2019, and clarified that "we" referred to herself together with ROs San Pedro, Monforte and Ancheta - none of whom, save for Budafio, had been named in the LOA dated o6 October 2011. Budafio explained that the ROs originally named in the LOA, other than herself, had since resigned, and that ROs San Pedro, Monforte and Ancheta were brought in to take their place. It was further revealed, in the course of that hearing, that the officer who issued the Memoranda [of Assignment] held a rank lower than Regional Director (RD), and thatt Exhibit No. Description "P-23-E.I 03- 20 I 0 Supporting Documents for EWT Recon Items !CPA" to "P- 23-E.119- !CPA", "P-23- E.I79-JCPA" and "P-23- E.228-JCPA" "P-33-AQ.2- 2010 Supporting Documents for Utilization of National Advertising Fund !CPA" 53 See Resolution dated 06 January 2023, Division Docket, Volume V, pp. 3141-3144. " 55 !d. See Order dated 07 March 2023, id., pp. 3146-3147. 56 Exhibit "R-15", Judicial Affidavit ofRO Riza F. Budaflo, id., Volume I, pp. 596-602.

CTA EB NOS. 3068 and 3076 (CTA Case No. 10336) Commissioner of Internal Revenue v. Golden Donuts, Inc. and Golden Donuts, Inc. v. Commissioner of Internal Revenue DECISION X- - - - --- - -- - - - - - - - --- --- - -- -- -- --- - --- - ---- --- --- -- --- -- - - - - - - - - -- --- -X WHEREFORE, in light of the foregoing considerations, the present Petition for Review is PARTIALLY GRANTED. The assessments issued by [CIR] against [GDI] covering deficiency IT, VAT, FT, and DST for CY 2010 are to be UPHELD IN PART, while the assessment on EWT shall be CANCELLED. Accordingly, [GDI] is ORDERED TO PAY [CIR] the aggregate amount of FORTY-ONE MILLION EIGHT HUNDRED THIRTY-FIVE THOUSAND TWO HUNDRED THIRTEEN AND 17/wo (P41,835,213.17}, inclusive of 25% surcharge, 20% deficiency interest and 20% delinquency interest imposed under Sections 248(A)(3}, 249(B) and (C)(3) of the NIRC of 1997, as amended, computed until December 31, 2017 ... In addition, [GDI] is ORDERED TO PAY [CIR] delinquency interest at the rate of twelve percent (12%) per annum on the total unpaid deficiency taxes, due as of March 31, 2015, in the amount of 1"23,024,049·76 or equivalent to 1"7,569.55 per day, computed from january 1, 2018 until full payment thereof pursuant to Section 249(C) of the NIRC of 1997, as amended by RA No. 10963, also known as Tax Reform for Acceleration and Inclusion (TRAIN) and as implemented by RR No. 21-2018. SO ORDERED. In ruling so, the Third Division found that while portions of the assessments for deficiency income tax, VAT, FT and DST were supported by the evidence on record, several assessment items lacked factual and legal bases or violated petitioner's right to due process. In particular, the Third Division cancelled assessment items that were introduced only at the FDDA stage, those based merely on unverified third-party information without the required confirmation requests and sworn statements from the third-party sources, and those unsupported by sufficient documentation. The Third Division likewise cancelled the EWT assessment after finding that, upon reconciliation, GDI should not be held liable for withholding tax on the questioned income payments. Accordingly, the Third Division upheld the assessments only in part and reduced GDI's liability to P41,835,213·17• with delinquency interest to accrue until full payment.t

CTA EB NOS. 3068 and 3076 (CTA Case No. 10336) Commissioner of Internal Revenue v. Golden Donuts. Inc. and Golden Donuts, Inc. v. Commissioner of Internal Revenue DECISION X- -- --- --- - ----- --- - - -- - -- -- -- -- -- ---- ----- - --- ------ ----- --- -- -- -- - --X Both parties moved for reconsideration. GDI filed its "Motion for Reconsideration (of the [assailed Decision])" 68 (MR) on 20 August 2024, while the CIR filed his or her "Motion for Partial Reconsideration (Re: [assailed Decision])" 69 (MPR) on 22 August 2024. For GDI, the Third Division failed to consider that: (1) the assessments issued against it are null and void for want of authority of the ROs and GS to examine its books since among the ROs who recommended the issuance of PAN and FLD/FAN against GDI, only RO Budaii.o was named in the LOA; (2) the Letter dated 27 March 2013 signed by Escalada is not the equivalent of an LOA; and (3) the mandatory requirements for a valid assessment (i.e., computation of tax liabilities, demand for payment within the prescribed period and statement of the legal and factual bases used) are not present in this case. On the other hand, the CIR insisted in his or her MPR that GDI is liable to the full amount ofthe assessment as indicated in the FDDA. On 03 January 2025, the Third Division issued the assailed Resolution7o denying GDI's MR but partially granting the CIR's MPR insofar as it sought to increase the DST deficiency. The pertinent portion of the said assailed Resolution reads: WHEREFORE, premises considered, [GDI's] Motion for Reconsideration (of the Decision dated 30 July 2024) is hereby DENIED but the [CIR's] Motion for Partial Reconsideration (Re: Decision dated 30 July 2024) is PARTIALLY GRANTED: Accordingly, the [Third Division's] dated july 30, 2024 is hereby amended to read as follows: "WHEREFORE, in light of the foregoing considerations, the present Petition for Review is PARTIALLY GRANTED. The assessments issued by [CIR] against [GDI] covering deficiency IT, VAT, IT, and DST for CY 2010 are to be UPHELD IN PART, while the assessment on EWT shall be CANCELLED. Accordingly, [GDI] is - _ _ _ _ _o_R_D_E_R_ED_T_O PAY [CIR] the aggregate amount ofFORTY-t 68 Division Docket, Volume V, pp. 3295-3334. 69 Id., pp. 3337-3346. Supra at note 10; Citation omitted, emphasis and italics in the original text.

CTA EB NOS. 3068 and 3076 (CTA Case No. 10336) Commissioner of Internal Revenue v. Golden Donuts. Inc. and Golden Donuts, Inc. v. Commissioner of Internal Revenue DECISION X- -- ---- --- ------ ---- ---- -- -- - -- - - - --- - ---- --- --- ------- ------- ---- -- -X ONE MILLION EIGHT HUNDRED FIFTY[-]THREE THOUSAND TWENTY PESOS (1'4r,853,02o.oo), inclusive of 25% surcharge, 2o% deficiency interest, and 20% delinquency interest imposed under Sections 248(A)(3), 249(B) and (C)(3) of the NIRC of 1997, as amended, computed until December 31, 2017.·· In addition, [GDI] is ORDERED TO PAY [CIR] delinquency interest at the rate of twelve percent (12%) per annum on the total unpaid deficiency taxes due as of March 31, 2015, in the amount of 1'23,033,86r.91 or equivalent to 1'7,572,78 per day, computed from january r, 2018 until full payment thereof pursuant to Sectio 249(C) of the NIRC of 1997, as amended by RA No. 10963, also known as Tax Reform for Acceleration and Inclusion (TRAIN) and as implemented by RR No. 21-2018." SO ORDERED. The assailed Resolution amended the dispositive portion of the assailed Decision by increasing the aggregate amount due to I'41,853,02o.oo, computed on the same bases. PROCEEDINGS BEFORE THE COURT EN BANC On 24 January 2025, the CIR filed a "Motion for Extension of Time to File Petition for Review",7 1 following his or her receipt of the assailed Resolution on 09 January 2025. The Court En Bane granted the CIR a non-extendible period of fifteen (15) days, or until o8 February 2025, within which to file his or her Petition for Review. 72 On 10 February 2025, the CIR filed his or her Petition for Review, docketed as CTA EB No. 3068.73 GDI, for its part, received the assailed Resolution on 22 January 2025 and filed a "Motion for Extension of Time (To file Petition for Review)" 74 on 05 February 2025. The Court En Bane granted GDI a non- . extendible period of 15 days, or until 21 February 2025, within which tot 71 Rollo (CTA EB No. 3068), pp. 1-4. " 7) Minute Resolution dated 27 January 2025, id., p. 8. Supra at note 6. " Rollo (CTA EB No. 3076), pp. 1-3.

CTA EB NOS. 3068 and 3076 (CTA Case No. 10336) Commissioner of Internal Revenue v. Golden Donuts, Inc. and Golden Donuts, Inc. v. Commissioner of Internal Revenue DECISION x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x file its Petition for Review. 75 On 20 February 2025, GDI filed its Petition for Review, docketed as CTA EB No. 3076J6 In a Minute Resolution dated 21 February 2025/7 the Court En Bane consolidated CTA EB Nos. 3068 and 3076 pursuant to Section 1, Rule 31 of the Rules of Civil Procedure (RCP), as amended. In a Minute Resolution dated 04 April 2025, 78 the Court En Bane directed GDI to file a comment on the CIR's Petition for Review. GDI filed its "Comment (To [CIR's] Petition for Review dated 10 February 2025)" 79 on 10 April 2025. However, the CIR, on the other hand, failed to file a corresponding comment on GDI's Petition for Review in CTA EB No. 3076. 80 Thereafter, the consolidated cases were referred to the Philippine Mediation Center-Court of Tax Appeals (PMC-CTA); 8' in a Minute Resolution dated 17 September 2025, 82 the Court En Bane noted that the parties had decided against mediation. The consolidated cases were accordingly deemed submitted for decision. 83 ISSUES The issues for resolution before the Court En Bane are as follows- I. WHETHER THE THIRD DIVISION ERRED IN UPHOLDING THE VALIDITY OF THE ASSESSMENTS; AND II. WHETHER THE THIRD DIVISION GRAVELY ERRED IN HOLDING GOLDEN DONUTS, INC. LIABLE TO PAY DEFICIENCY 2010 INCOME TAX DESPITE THE AVAILABILITY OF UNUTILIZED NET OPERATING LOSS CARRY-OVER (NOLCO) CREDITS 84 t " 76 Minute Resolution dated I0 February 2025, id., p. 8. Supra at note 7. 77 Rollo (CTA EB No. 3068), p. I 00. 78 !d., p. 101. 79 !d., pp. 102-106. See Records Verification dated 30 April2025, id., p. 110. " Minute Resolution dated 28 May 2025, id .. p. Ill. ld., p. 113. !d. See Assignment of Error, Petition for Review, supra at note 6, p. 12; cf see Assignments of Error, Petition for Review, supra at note 7, p. 19.

CTA EB NOS. 3068 and 3076 (CTA Case No. 10336) Commissioner of Internal Revenue v. Golden Donuts, Inc. and Golden Donuts, Inc. v. Commissioner of Internal Revenue DECISION X-- -- ---- --- - - - - - - --- - --- -- -- -- --- - --- - -- -- --- --- -- -- --- - - - - - -- -- --- --X ARGUMENTS The CIR maintains that the assessment on undeclared royalty must be sustained even though the item did not appear until the FOOA, since the finding was based on GOJ's own declarations in its protest and GO! never presented documents to refute it. On the discrepancy in ending inventory, the CIR argues that GO! had ample opportunity to reconcile its inventory lists against its audited financial statements (AFS) and income tax returns (ITRs), and its failure to do so confirms the assessment. As to income payments not subjected to EWT, the CIR relies on GDI's own Trial Balance and Alphalist of Payees, which he or she argues clearly identify the items subject to EWT. On the assessment for additional undeclared sales, the CIR points to discrepancies between GDI's sales per AFS/ITR and its Summary List of Sales, Summary Alphalist of Withholding Tax, and third-party information obtained through the BIR's Reconciliation of Listing for Enforcement (RELIEF) system, all of which, he submits, are sworn and reliable, and were furthermore confirmed through letters sent to GOI's counterparties. On the VAT assessment, the CIR submits that GDI's own Notes to Financial Statements disclose that it collects amounts from its franchisees for a nationwide advertising and promotional fund, which collections constitute gross receipts subject to VAT under Sections 105 and 108 of the NIRC of 1997, as amended; since this finding was drawn from GOI's own submissions, the CIR cannot be faulted for including it in the assessment, and the !CPA's own findings confirm the discrepancy. On FT, EWT and OST, the CIR argues, respectively, that income payments subject to FT were not properly withheld and remitted, that GDI failed to subject all income payments reflected in its Trial Balance and AFS to EWT, and that OST on debt instruments and lease contracts remained unpaid without proof that these had already been collected upon original issuance. Finally, the CIR invokes the lifeblood doctrine and the presumption of correctness attaching to tax assessments and submits that GDI failed to discharge its burden of proving the assessments erroneous. GO!, for its part, argues that the 2010 deficiency assessments are void because they were results of an invalid audit. According to GDI, the ROs who conducted the audit were bereft of any valid grant of authority. GDI points out that while the LOA dated o6 October 2011 named ROs t

CTA EB NOS. 3068 and 3076 (CTA Case No. 10336) Commissioner of Internal Revenue v. Golden Donuts, Inc. and Golden Donuts, Inc. v. Commissioner of Internal Revenue DECISION X- - - --- --- - --- -- - -- - - -- - -- -- -- -- -- -- -- - - - - - - - - - - - - - - - -- --- -- - -- -- -- - --X Budafio, Pelayo, Aviles, Sison and Gonzales, under GS Bautista, the Memoranda dated 14 October 2014 and 05 January 2015 recommending the issuance of the PAN and the FLO, were instead issued and signed by RO Budafio (together with ROs San Pedro, Monforte and Ancheta, and GS Maniego- who were never named in the LOA). GDI submits that a mere Letter dated 27 March 2013 cannot substitute for the requisite LOA and that, in any event, under Section D(4) of Revenue Memorandum Order (RMO) No. 43-90, 85 the CIR may only delegate the issuance of an LOA to an RD. Here, the Letter dated 27 March 2013 was not signed by an officer of that rank GDI further argues that it cannot be held liable under an FLO, FDDA and Assessment Notices that fail to indicate a definite amount of tax liability and a valid due date for payment, as Section 228 of the NIRC of 1997, as amended, and Section 3.1.4 of Revenue Regulations (RR) No. 12-99 require, citing Commissioner of Internal Revenue v. Fitness by Design, Inc. 86 GDI points out that the FLO conditioned the total amount due on the date of actual payment, stating that "the interest and total amount will have to be adjusted if paid beyond March 31, 2015", and that the Assessment Notices accompanying the FDDA, which GDI received only on 30 July 2020, indicated a payment due date of 31 December 2019 - a date that had already lapsed by the time GDI received the FDDA, rendering compliance impossible and the due date void. Finally, GDI argues that the Third Division gravely erred in holding it liable for deficiency 2010 income tax despite its unutilized NOLCO off'301,187,477·oo, carried over from taxable years 2007 to 2009, which the ICPA confirmed was more than sufficient to offset the 'P85,601,936.73 adjustment to GDI's gross income resulting from the audit. RULING OF THE COURT EN BANC THE INSTANT PETITIONS FOR~ REVIEW WERE TIMELY FILED. u 85 Amendment of Revenue Memorandum Order No. 37·90 Prescribing Revised Policy Guidelines for Examination of Returns and Issuance of Letters of Authority to Audit. G.R. No. 215957,09 November 2016.

CTA EB NOS. 3068 and 3076 (CTA Case No. 10336) Commissioner of Internal Revenue v. Golden Donuts, Inc. and Golden Donuts, Inc. v. Commissioner of Internal Revenue DECISION X- - ---- -- - ---- -- --- ---- - -- -- -- - --- -- -- --- --- --- -- --- --- --- ------- -----X Section 18 of Republic Act (RA) No. 1125, 87 as amended by RA 9282, 88 provides that a party adversely affected by a resolution of a Division of the CTA on MR or new trial, may file a Petition for Review with the Court En Bane. Section 3(b ), 89 Rule 8 of the RRCTA provides that a party adversely affected by a decision or resolution of a Division of the Court on a motion for reconsideration or new trial may appeal to the Court En Bane by filing a petition for review within 15 days from receipt of a copy of the questioned decision or resolution, without prejudice to the Court En Bane's authority to grant an additional, non-extendible period of 15 days9a from the expiration of the original period. The CIR received the assailed Resolution on 09 January 2025 and, within the reglementary period, filed a Motion for Extension of Time on 24 January 2025, which the Court En Bane granted, extending his or her deadline to o8 February 2025. 91 The CIR filed his or her Petition for Review9' on 10 February 2025.93 GDI, for its part, received the assailed Resolution on 22 January 2025, and, within the reglementary period, filed its own Motion for Extension of Time on 05 February 2025, which the Court En Bane likewise granted, extending its deadline to 21 February 2025. 94 GO! filed its Petition for Review 95 on that same date. Both Petitions for Review having been filed within their respective, timely-extended periods, the Court En Bane has acquired jurisdiction over the consolidated cases. The Court En Bane now proceeds to the merits of the cases.t 87 AN ACT CREATING THE COURT OF TAX APPEALS. 88 AN ACT EXPANDING THE JURISDICTION OF THE COURT OF TAX APPEALS (CTA). ELEVATING ITS RANK TO THE LEVEL OF A COLLEGIATE COURT WITH SPECIAL JURISDICTION AND ENLARGING ITS MEMBERSHIP. AMENDING FOR THE PURPOSE CERTAIN SECTIONS OF REPUBLIC ACT NO. I\25. AS AMENDED. OTHERWISE KNOWN AS THE LAW CREATING THE COURT OF TAX APPEALS. AND FOR OTHER PURPOSES. Supra at note 8. !d. 91 Supra at note 72. Supra at note 6. 93 Since 08 February 2025 fell on a weekend, the CIR had until the next working day, i.e., 10 February 2025 within which to file the petition. 94 Supra at note 75. 95 Supra at note 7.

CTA EB NOS. 3068 and 3076 (CTA Case No. 10336) Commissioner of Internal Revenue v. Golden Donuts, Inc. and Golden Donuts, Inc. v. Commissioner of Internal Revenue DECISION X - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X THE REVENUE OFFICERS (ROs) WHO CONDUCTED THE AUDIT WERE WITHOUT A GRANT OF AUTHORITY The requirement that an RO bears a grant of authority before examining a taxpayer's books is rooted in Sections 6(A) and 13 of the NIRC of 1997, as amended, which provide: SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement.- (A) Examination of Returns and Determination of Tax Due. - After a return has been filed as required under the provisions of this Code, the Commissioner or his [or her] duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax, notwithstanding any law requiring the prior authorization of any government agency or instrumentality: Provided, however, That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer. SEC. '3· Authority of a Revenue Officer. - Subject to the rules and regulations to be prescribed by 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 issued by the Revenue 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 any deficiency tax due in the same manner that the said acts could have been performed by the Revenue Regional Director himself. 96 The Supreme Court has consistently held that "there must be a grant of authority before any revenue officer can conduct an examination or assessment. Equally important is that the revenue officer so authorized must not go beyond the authority given. In the absence of such an authority, the assessment or examination is a nullity."97 t 96 Italics in the original text, emphasis and underscoring supplied. 97 Commissioner o.flnternal Revenue, v. Sony Philippines, Inc., G.R. No. 178697, 17 November 2010.

CTA EB NOS. 3068 and 3076 (CTA Case No. 10336) Commissioner of Internal Revenue v. Golden Donuts, Inc. and Golden Donuts, Inc. v. Commissioner of Internal Revenue DECISION X- -- --- - -- - --- -- --- - --- - -- -- - - - --- -- -- - -- -- --- --- -- -- - -- - - - - - -- -- -- - --X As the Supreme Court explained in Medicard Philippines, Inc. v. Commissioner of Internal Revenue:98 An LOA is the authority given to the appropriate revenue officer assigned to perform assessment functions. It empowers or enables said revenue officer to examine the books of account and other accounting records of a taxpayer for the purpose of collecting the correct amount of tax. An LOA is premised on the fact that the examination of a taxpayer who has already filed his tax returns is a power that statutorily belongs only to the CIR himself or his duly authorized representatives. Here, the LOA99 dated o6 October 2011 specifically named ROs Budafio, Pelayo, Aviles, Sison and Gonzales, under GS Bautista, as authorized to examine GDI's books for CY 2010. The Memoranda dated 14 October 2014 and os January 2015/o' however, recommending the 100 issuance of the PAN and FLD respectively, were issued by RO Budafio together with ROs San Pedro, Monforte and Ancheta and GS Maniego - none of whom, save for RO Budafio, were named in the LOA. RO Budafio herself confirmed, on cross-examination, that the pronoun "we," as used throughout her Judicial Affidavit in reference to the Memoranda recommending the PAN and FLD, referred to herself together with ROs San Pedro, Monforte and Ancheta- explaining that the ROs originally named in the LOA, other than herself, had since resigned from the BIR, to wit: 102 MS. BUDANO: A: This [LOA dated o6 October 2011] is the first (paused) the only LOA issued for taxable year 2010. ATTY. FERNANDEZ: Q: I refer you now to your answer in A.15 on page 3 of your judicial Affidavit where you stated and I quote, "we didn't receive any . ______re_p_l_y_f_ro_m_t_he petitioner nor the documents specified in the t G.R. No. 222743, 05 April 2017; Citation omitted, emphasis and underscoring supplied. "'100 Exhibit "P-2", supra at note 14. Exhibit "R-7", supra at note 19. 101 Exhibit "R- I 0", supra at note 24. 102 TSN dated 07 March 2023, pp. 8-13: Emphasis supplied.

CTA EB NOS. 3068 and 3076 (CTA Case No. 10336) Commissioner of Internal Revenue v. Golden Donuts, Inc. and Golden Donuts, Inc. v. Commissioner of Internal Revenue DECISION X- -- ---- --- ----- - --- - -- - -- -- -- -- -- -- -- ---- - - --- ----- --- --- -- -- - - ---- --X letter, so we issued a second notice of requirements dated 16 November 2011 and served to petitioner through registered mail on 17 November 2011." Now, you used the word "we" because apart from yourself there were other Revenue Officers who examined petitioner's 2010 books of account. Am I correct? MS. BUDANO: A: Yes, Attorney. ATTY. FERNANDEZ: Q: And specifically, when you used the word "we" in A.15 of your Judicial Affidavit, you were referring to the team comprised of yourself, Revenue Officers Ma. Gracielle F. San Pedro, Tito R. Monforte and Group Supervisor Allan M. Maniego. Am I correct? MS. BUDANO: A: Yes, Attorney. ATTY. FERNANDEZ: Q: I now refer you to your answer in A. 26 on page 4 of your judicial Affidavit, were you stated and I quote, "After gathering the documents submitted, we conducted the audit/ examination thereof and results of the investigation was arrived at". So, when you used the term "we", were you also referring to yourself, Revenue Officer Revenue Officers Ma. Gracielle F. San Pedro, Tito Monforte, Arnalda I. Ancheta, and Group Supervisor Allan Maniego? MS. BUDANO: A: Can I browse first? ATTY. FERNANDEZ: Yes. MS. BUDANO: A: I just have to check po iyong assigned PAN because during the course of the (Is it okay to elaborate?) During the course of the audit, some of the group members were assigned to different . Division, but I am the lead examiner on this case, so whether t

CTA EB NOS. 3068 and 3076 (CTA Case No. 10336) Commissioner of Internal Revenue v. Golden Donuts, Inc. and Golden Donuts, Inc. v. Commissioner of Internal Revenue DECISION X - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X the other groups were transferred, I am the one responsible preparing for the report. ATTY. FERNANDEZ: Q: Yes, but can you please check and answer my question? Who were the people you were referring to when you used the word, we, in A.26 on page 4 of your Judicial Affidavit? MS. BUDANO: A: Me and my group members if they are still in the Division. ATTY. FERNANDEZ: Q: Yes, but specifically who. I asking you who are these individuals. MS. BUDANO: A. Riza Budaiio, Ma. Gracille Ana ban, and Tito Monforte, but I am not sure po if they are still at that Division, Tito Monforte and Ancheta. And our Group Supervisor also resigned in 2016, so the PAN was issued 2019. ATTY. FERNANDEZ: Q: And you mentioned (interrupted) MS. BUDANO: Others were not already (inaudible) ATTY. FERNANDEZ: Q: You mentioned the Group Supervisor. What was his name? MS. BUDANO: A: Allan Maniego in the LOA, and since he resigned in 2016, it was replaced by Rosario Arriola. ATTY. FERNANDEZ: Q: Now, I refer you to answer in A.36 on page 5 of your judicial . Affidavit, where you stated and I quote, "GDI protest to thet

CTA EB NOS. 3068 and 3076 (CTA Case No. 10336) Commissioner of Internal Revenue v. Golden Donuts, Inc. and Golden Donuts, Inc. v. Commissioner of Internal Revenue DECISION X-- -- ---- --- - - - - - - --- - - -- -- -- -- - -- - - - - - ---- --- --- ---- --- - - - - - - - - - - - - - -X ATTY. FERNANDEZ: Q: What about the other Revenue Officer? MS. SUDANO: A. The other Revenue Officers were transferred to different group also, not with Group Supervisor Bautista. ATTY. FERNANDEZ: Q: So, are you saying that Revenue Officers Maria Graciella San Pedro, Tito Monforte, and Arnalda T. Ancheta, were intended to take the place of those Revenue Officers who were reassigned? MS. SUDANO: A: Yes, Attorney. There was a MOA for that assisting in the audit, but l am the lead examiner. On this record, the books and records of GDI were examined, at least in part, by ROs who were never named in the only LOA ever issued for the audit -that dated o6 October 2011. Where at least one (1) RO who participated in the audit was without the requisite grant of authority, the resulting assessment is void. As the Supreme Court held in the very recent case of Commissioner of Internal Revenue v. Standard Insurance Co., Inc.,'" 3 (Standard Insurance) an LOA is the formal instrument by which the Commissioner or his or her delegate empowers named ROs to conduct an audit of a particular taxpayer; "[i]t is the grant of authority to a named officer that defines the legitimacy of the audit, not the abstract existence of an investigation." Tax audits are person-specific; the participation of even one unauthorized officer taints the entire proceeding.t 103 G.R. No. 259729, 17 November 2025.

CTA EB NOS. 3068 and 3076 (CTA Case No. 10336) Commissioner of Internal Revenue v. Golden Donuts, Inc. and Golden Donuts, Inc. v. Commissioner of Internal Revenue DECISION X-- -- --- - -- ------ ---- -- - - - -- -- -- -- -- - - --- - -- -- - -- ----- ---- ---- -- -- --- -X THE REASSIGNMENT OF REVENUE OFFICERS (ROs) TO A NEW AUDIT ENGAGEMENT REQUIRES THE ISSUANCE OF A NEW LETTER OF AUTHORITY (LOA) In Commissioner of Internal Revenue v. McDonald's Philippines Realty Corp., 104 the Supreme Court described the typical, and typically defective, practice of reassigning ROs mid-audit: (i) a valid LOA is issued to an authorized revenue officer; (ii) the revenue officer named in the LOA is reassigned or transferred ... or is otherwise removed from handling the case covered by the LOA; (iii) the revenue district officer or a subordinate official issues a memorandum of assignment, referral memorandum, or such equivalent document to a new revenue officer for the continuation of the audit or investigation; and (iv) the new revenue officer continues the audit or investigation, supposedly under the authority of the previously issued LOA. Also, in Commissioner of Internal Revenue v. Opulent Landowners, Inc., '"5 the Supreme Court further reiterated that only the ROs actually named in the LOA are authorized to examine the taxpayer, to wit: Likewise, the CTA EB correctly held that the deficiency tax assessments were invalid due to the revenue officers' lack of authority to do so. Under prevailing jurisprudence, a LOA is statutorily required under the National Internal Revenue Code in order to clothe [the] revenue officers with authority to examine taxpayers. It is axiomatic that only the revenue officers actually named under the LOA are authorized to examine the taxpayer .... In the absence of a new LOA issued in favor of the revenue officers who recommended the issuance of the deficiency ta~ assessments against respondent, the ~.~suiting assessments are void.t 104 G.R. No. 242670. 10 May 2021; Citation omitted. "' G.R. Nos. 249883-84, 27 January 2020 (Resolution): Citations omitted, emphasis and underscoring supplied.

CTA EB NOS. 3068 and 3076 (CTA Case No. 10336) Commissioner of Internal Revenue v. Golden Donuts. Inc. and Golden Donuts, Inc. v. Commissioner of Internal Revenue DECISION X - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X The Court En Bane is not unmindful that reassignment and reorganization of audit teams is a normal administrative practice within any organization, including the BIR. That internal practice, however, cannot come at the expense of the taxpayer's right to due process in the conduct of a BIR audit, which requires that the taxpayer be notified of any change in the set of officers examining its books. Section C(s) of RMO No. 43-90 106 accordingly requires the issuance of a new LOA whenever revenue officers are reassigned or transferred to continue an audit: C. Other policies for issuance of [LOAs ]. 5· Any re-assignment/transfer of cases to another RO(s), and revalidation of [LOAs] which have already expired, shall require the issuance of a new [LOA], with the corresponding notation thereto, including the previous [LOA] number and date of issue of said [LOAs ]. The Supreme Court's ruling in Standard Insurance is squarely on point. There, as here, the BIR reassigned the audit of a taxpayer's books to ROs not named in the original LOA, without issuing a new LOA. The Supreme Court declared the resulting deficiency assessment "null and void for want of a valid LOA authorizing the examiners who made the assessment," holding that "[t]he absence of a new LOA upon the re-assignment of the DST audit to the new revenue officers is a clear violation of Section 13 of the NIRC and of RMO 43-90." 107 The Supreme Court rejected the CIR's argument that the absence of a new LOA did not invalidate the assessment, emphasizing that a memorandum or letter of assignment cannot substitute for the LOA that the law requires. In the case at bar, it is undisputed that only one (1) LON°8 - that dated o6 October 2011 -was ever issued for the audit of GDJ's books, a fact RO Budano herself confirmed. No new LOA was issued to authorizet Supra at note 85. Commissioner of Internal Revenue v. Standard Insurance Co., Inc., supra at note I 03. 108 Exhibit "P-2", supra at note 14.

CTA EB NOS. 3068 and 3076 (CTA Case No. 10336) Commissioner of Internal Revenue v. Golden Donuts, Inc. and Golden Donuts, Inc. v. Commissioner of Internal Revenue DECISION X- - -- - - -- --- - - ---- - ---- --- -- --- --- -- -- --- - - - - - --- --- -- - --- ---- -- -- --- -X ROs San Pedro, Monforte and Ancheta, and GS Maniego, to continue the audit in place of the ROs originally named. The Third Division ruled that, because RO Budafio - the sole remaining officer from among those originally named in the LOA- was among those who conducted the audit examination and signed the report of findings, the assessment was valid, reasoning that as long as any one of the original ROs named in the LOA participated in the audit, the requisite authority was satisfied. The Court En Bane does not agree. To rule that an audit remains valid so long as any one originally- named officer continues to participate, notwithstanding the presence of other, unauthorized officers, would render the LOA requirement pointless, since the very purpose of naming specific officers in the LOA is to cabin the authority to examine a taxpayer's books to those officers alone, for that taxpayer, for that taxable period. To reiterate, "[t]hat the original audit was covered by an LOA does not save the subsequent one; each audit assignment must stand on its own authority... [i]t is the grant of authority to a named officer that defines the legitimacy of the audit, not the abstract existence of an investigation."109 The Third Division's approach reduces the LOA to a mere formality - satisfied, apparently, by the lingering presence of a single authorized officer, even as the bulk of the audit work falls to officers who never received the C!R's or his or her authorized representative's imprimatur. Unfortunately, that is not the law. The LOA names specific officers for a reason: the taxpayer is entitled to know, with certainty, who examines its books and by what authority."o An audit team composed substantially of unauthorized officers, propped up by the sole remaining requirement was designed to prevent. t authorized officer, is precisely the kind. of circumvention the LOA I 09 Commissioner of Internal Revenue v. Standard Insurance Co .. Inc., supra at note 103. 110 Commissioner of Internal Revenue v. McDonald's Philippines Realty Corp., supra at note 104.

CTA EB NOS. 3068 and 3076 (CTA Case No. 10336) Commissioner of Internal Revenue v. Golden Donuts, Inc. and Golden Donuts, Inc. v. Commissioner of Internal Revenue DECISION X- -- ---- -- - - - - - - - ---- -- - - - - - - - - - - - - -- - - ---- -- - - - - ---- --- - - - - - -- -- -- ---X The case of Standard Insurance is categorical in saying that the absence of a new LOA upon reassignment is a clear violation ofthe law, and the resulting assessment is a nullity. Nothing in that ruling conditions nullity on the complete absence of an originally- named officer; the violation lies in subjecting the taxpayer to examination by officers who bear no authority and that violation is no less real when the unauthorized officers are three (3) or four (4) rather than all. THE LETTER OR MEMORANDUM ON RECORD CANNOT SUBSTITUTE FOR A LETTER OF AUTHORITY (LOA) IN GRANTING AUTHORITY TO THE ADDITIONAL REVENUE OFFICERS (ROs) The Court En Bane adheres to the principle of substance over form in weighing whether a document may substitute for a defective or absent LOA. A memorandum or letter may, in appropriate cases, stand in the place of an LOA, provided it is issued by an officer authorized to issue one. The governing rule on who may issue an LOA IS stated with precision in Section D(4) of RMO No. 43-9o:m D. Preparation and issuance of [LOAs]. 4· For the proper monitoring and coordination of the issuance of Letter of Authority, the only BIR officials authorized to issue and sign Letters of Authority are the Regional Directors, the Deputy Commissioners and the Commissioner. For the exigencies of the service, other officials may be authorized to issue and sign Letters of AuthoritY. but only upon prior authorization by the Commissioner ~~mself.t Ill Supra at note 85.

CTA EB NOS. 3068 and 3076 (CTA Case No. 10336) Commissioner of Internal Revenue v. Golden Donuts. Inc. and Golden Donuts, Inc. v. Commissioner of Internal Revenue DECISION X-- -- ---- --- ----- - --- -- -- -- -- -- - -- ---- - -- -- --- --- -- --- -- - - - - - - - - -- --- -X In relation thereto, RMO No. 29-2007112 also authorizes Assistant Commissioner/Head Revenue Executive Assistants to issue LOAs relative to Large Taxpayers. Summing up the foregoing rules, only the following officials are properly conferred with authority to permit the examination of taxpayers for deficiency taxes: 1. CIR; 2. Regional Directors; 3· Deputy Commissioners; 4· Assistant Commissioner/Head Revenue Executive Assistants (for Large Taxpayers); and s. Other officials but only upon prior authorization by the CIR himself or herself. In the instant case, the Letter dated 27 March 2013/'3 authorizing ROs Monforte and Ancheta to assist GS dela Pefia, was signed by Escalada, Chief of the RLTAD-1 - a position not among the aforementioned officials. The Memoranda dated 14 October 2014"4 and os January 2015,"5 while signed and approved by Valeroso, OIC-Assistant Commissioner of the LTS, were addressed to Valeroso himself, not to GDI, and merely recommended the issuance of the PAN and FLD; the BIR Records contain no proof that GDI was ever furnished a copy of either Memorandum, nor any separate Memorandum of Assignment formally designating ROs San Pedro, Monforte, Ancheta and Maniego to the audit of GDI's books. In the course of that hearing with RO Budafio as witness, it was further revealed that the officer who issued the Letter dated 27 March 2013 (designating ROs San Pedro, Monforte, Ancheta and Maniego to the audit of GDI's books) held a rank lower than Regional Director, and having a rank of a Regional Director, viz:" 6 t that the point is these ROs were not authorized by any officer of the BIR II:! Prescribing the Audit Policies, Guidelines and Standards at the Large Taxpayers Service. 113 Exhibit "P-5", supra at note 18. ll4 Exhibit "R-7". supra at note 19. liS Exhibit "R-1 0", supra at note 24. ll6 TSN dated 07 March 2023, pp. 19-21; Emphasis supplied.

CTA EB NOS. 3068 and 3076 (CTA Case No. 10336) Commissioner of Internal Revenue v. Golden Donuts, Inc. and Golden Donuts. Inc. v. Commissioner of Internal Revenue DECISION X- - ---- -- --- - - ---- ---- - -- -- -- -- ---- --- - ---- -- - - - - - - - - -- --- -- ----------X [PRESIDING] JUSTICE DEL ROSARIO [RET.]: You mentioned of a Memorandum of Assignment. Who actually issued the Memorandum of Assignment, if you can remember? MS. BUDANO: Usually, po it's the Chief of the Office, Division Chief. [PRESIDING] JUSTICE DEL ROSARIO [RET.]: It is the Division Chief? MS. BUDANO: Yes po. [PRESIDING] JUSTICE DEL ROSARIO [RET.]: Can you give us an idea what is the rank of a Division Chief? Does it have the rank of a Regional Director or a Revenue District Officer? MS. BUDANO: Level to Revenue District Officer po. [PRESIDING] JUSTICE DEL ROSARIO [RET.]: I see. So, a Revenue District Officer is definitely lower than a Regional Director? MS. BUDANO: Yes, your Honors. [PRESIDING] JUSTICE DEL ROSARIO [RET.]: And based on your experience, is a Revenue District Officer authorized to issue a Letter of Authority? MS. BUDANO: No, your Honors. t

CTA EB NOS. 3068 and 3076 (CTA Case No. 10336) Commissioner of Internal Revenue v. Golden Donuts. Inc. and Golden Donuts, Inc. v. Commissioner of Internal Revenue DECISION X-- -- ---- -- - ----- ---- - --- -- -- - -- - - - --- - ---- -- - --- ---- --- -- --- -- -- -- - --X [PRESIDING] JUSTICE DEL ROSARIO [RET.]: I see. So, if a Memorandum of Assignment is equivalent to a Letter of Authority, it would seem that the Memorandum of Assignment was not actually issued by someone who has authority to issue a Letter of Authority. MS. BUDANO: Yes, your Honors. [PRESIDING] JUSTICE DEL ROSARIO [RET.]: Kindly verbalize your answer please. MS. BUDANO: Your Honors, I don't know if it's a MOA or just an existing notice po for the other members po. [PRESIDING] JUSTICE DEL ROSARIO [RET.]: Yes. It's only the authority of the issuing officer that the court is inquiring from you because you said that only a Regional Director can issue a Letter of Authority. MS. BUDANO: Yes, your Honors. [PRESIDING] JUSTICE DEL ROSARIO [RET.]: If a Memorandum of Assignment would be considered by the Court as a Letter of Authority, but the Memorandum of Assignment was issued by someone lower than the Regional Director, it would mean that the Memorandum of Authority or rather the Memorandum of Assignment was not issued by an officer duly authorized to do so. What do you mean by nodding your head? Please say it clearly. MS. BUDANO: Your Honors, the original LOA was retained. [PRESIDING] JUSTICE DEL ROSARIO [RET.]: It's not the LOA I am asking you. It's the MOA. Because the . MOA actually named two Revenue Officers you mentioned t

CTA EB NOS. 3068 and 3076 (CTA Case No. 10336) Commissioner of Internal Revenue v. Golden Donuts, Inc. and Golden Donuts, Inc. v. Commissioner of Internal Revenue DECISION X- -- --- --- - - - - - - --- - - -- - -- -- -- -- -- - - - - - - - - - - --- - - - - - - - - --- -- - -- -- -- - --X earlier, Revenue Officers Tito Monforte and Revenue Officer Arnalda T. Ancheta. MS. BUDANO: Yes po. [PRESIDING] JUSTlCE DEL ROSARIO [RET.]: And these Revenue Officers actually conducted an examination of the documents. Is it not that only duly authorized Revenue Officers can conduct examination of documents, and the Court is trying to elicit from you what their authority is in making that examination. Anyway, it seems (paused) Are you confused? The point is these Revenue Officers were not authorized by any officer of the BIR having a rank of a Regional Director. MS. BUDANO: Yes, your Honors. This infirmity is fatal. An LOA - or any document purporting to stand in its place - must issue from an officer competent to grant it. Where the officer who assigned the additional ROs lacked the rank required by the CIR's own regulations, the assignment conferred no authority at all. On this record, neither the Letter dated 27 March 2013"7 nor the Memoranda dated 14 October 2014" 8 and os January 2015 119 can validly substitute for an LOA conferring authority upon the additional ROs who participated in the audit. The assessments issued as a result of that audit were, accordingly, issued in violation of GDJ's right to due process, and are inescapably void. THE ASSESSMENTS BEING INESCAPABLY VOID, THE COURT EN BANC NEED N~ESOLVE THE REMAINING ISSUES D 117 Exhibit "P-5", supra at note 18. '" 119 Exhibit "R- T', supra at note 19. Exhibit "R-1 0", supra at note 24.

CTA EB NOS. 3068 and 3076 (CTA Case No. 10336) Commissioner of Internal Revenue v. Golden Donuts, Inc. and Golden Donuts, Inc. v, Commissioner of Internal Revenue DECISION X- -- --- --- ---- -- --- ---- - -- -- -- -- -- -- -- ---- - - --- - - - - - --- --- -- - - - - - -- - --X Having found that the 2010 deficiency assessments against GDI are void for want of a valid grant of authority to all the ROs who conducted the audit, the Court En Bane finds it unnecessary to further resolve GDJ's remaining contentions - that the FLO, FDDA and Assessment Notices failed to indicate a definite amount of tax liability and a valid due date under Section 228 of the NIRC of 1997, as amended, and that GDI's unutilized NOLCO was sufficient to offset the deficiency IT assessment. A void assessment is no assessment at all, and confers no liability, whatever its arithmetic or the taxpayer's available offsets might otherwise show. For the same reason, the CIR's own Petition in CTA EB No. 3068 - which asks that GDI be held liable for the full, undiminished amount of the deficiency assessments as reflected in the FDDA - cannot prosper: there is no valid assessment to which such a liability, full or partial, may attach. After all, settled is the rule that a void assessment bears no fruit.' 20 As a final note, the power to tax is an attribute of sovereignty - inherent, plenary, and indispensable to the existence of government. 121 But precisely because the taxing power is so formidable, the law has surrounded its exercise with procedural safeguards designed to temper its intrusion into the affairs of the taxpayer.' 22 Among these, the LOA requirement stands as the principal check against arbitrariness in the conduct of a BIR audit. It cabins the examination to officers specifically named by a competent authority, for a particular taxpayer, for a particular taxable period - no more, no less. The Supreme Court's consistent insistence on strict compliance with the LOA requirement, reaffirmed most recently in Standard Insurance, reflects the principle that the State, in the exercise of its vast power to examine and assess, bears the correlative responsibility to be the less - not the more - intrusive presence in the taxpayer's affairs. The LOA is not a mere administrative formality; it is the taxpayer's assurance that the revenue officers at its door are there by authority oflaw, " 3 and not by administrative convenience alone. Where that assurance i s t 12 ° Commissioner of Internal Revenue v. Liquigaz Phils. Corporation, G.R. Nos. 215534 & 215557, 18 Apri\2016, citing Commissioner of internal Revenue v. Azucena T. Reyes, G.R. Nos. 159694 & 163581, 27 January 2006. 121 See Romeo P. Gerochi. eta/. v. Department of Energy (DOE), eta/., G.R. No. 159796, 17 July 2007. 12:2 See Commissioner of Internal Revenue v. Jfetro Star Superama. Inc., G.R. No. 185371, 08 December 2010. 123 See Commissioner of Internal Revenue v. AkDonald's Philippines Realty Corp., supra at note 104.

CTA EB NOS. 3068 and 3076 (CTA Case No. 10336) Commissioner of Internal Revenue v. Golden Donuts, Inc. and Golden Donuts, Inc. v. Commissioner of Internal Revenue DECISION X- - - - --- --- ----- - -- ---- - -- -- --- --- -- -- --- -- --- --- ---- --- ----- -- -- -- - --X absent - where the BIR has substituted officers without the issuance of a new LOA, as it did here - the resulting assessment cannot stand, not because the State is denied its right to collect, but because it has failed to collect in the manner the law prescribes. A government that insists on strict compliance by its taxpayers must itself comply strictly with the safeguards it has imposed upon its own power. ACCORDINGLY, in view of the foregoing, the Petition for Review filed by petitioner Golden Donuts, Inc. in CTA EB No. 3076 is GRANTED. The Decision dated 30 July 2024 and the Resolution dated 03 January 2025 of the Third Division of this Court in CTA Case No. 10336 are REVERSED and SET ASIDE. The Formal Letter of Demand and Final Assessment Notices dated 02 February 2015 and the Final Decision on Disputed Assessment issued by respondent Commissioner of Internal Revenue against petitioner Golden Donuts, Inc. for calendar year 2010 are CANCELLED and SET ASIDE. Commissioner of Internal Revenue or any person duly acting on his or her behalf is hereby ENJOINED from pursuing any action against Golden Donuts, Inc. relative to the above-mentioned void assessments. The Petition for Review filed by petitioner Commissioner of Internal Revenue in CTA EB No. 3068 is DENIED for lack of merit. SO ORDERED. JEAN MA (1~~0-VILLENA e~ciate Justice WE CONCUR: ON LEAVE MA. BELEN M. RINGPIS-LIBAN Presiding Justice

CTA EB NOS. 3068 and 3076 (CTA Case No. 10336) Commissioner of Internal Revenue v. Golden Donuts, Inc. and Golden Donuts, Inc. v. Commissioner of Internal Revenue DECISION X- -- --- --- - - - - - - --- -- -- - -- -- -- -- -- - - - - - - - - - - --- - - - - - --- --- -- - - - - - -- - --X ~ &..-f.~ ~fa.j~ MARIAN IvY~ REYEgiFAJARif:>O Associate Justice D Associate Justice CO·G~~~ Associate Justice / HENRAGELES Associate Justice • DEBB JEAN I. CENTENO-DIJAMCO Associate Justice

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COMMISSIONER OF INTERNAL REVENUE v. GOLDEN DONUTS, INC.

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