Republic of the Philippines

COURT OF TAX APPEALS

. Quezon City

SECOND DIVISION

CATERING PROFESSIONALS CTA Case No. 8852

INC.,
Petitioner, Members:
CASTANEDA, JR., Chairperson,
CASANOVA, and
MANAHAN, JJ.
-versus-

COMMISSIONER OF INTERNAL Promulgated:

REVENUE,
Respondent. NOV 2 8 2017 /
1/ f:/o t·~ ·
x---------------------------------------------------------------------------- ----x
DECISION

CASANOVA, J.:

This resolves the Petition for Review filed on July 30, 2014 by
petitioner, Catering Professionals, Inc., praying that judgment be
rendered finding pet itioner not liable for deficiency taxes for taxable
year 2010, and orderi ng respondent to cancel and terminate the
corresponding deficiency tax assessments, Preliminary Collection
Letter and Final Notice Before Seizure issued against petitioner for
taxable year 2010.

The facts, as stated in the parties' Stipulation of Facts 1 and as

found in the records of t his case ,are as follows:

Petitioner, Catering Professionals, Inc., is a corporation duly

organized and existi ng under the laws of the Philippines, with c.-

1
Docket, (Vol. I), pp. 255-257.
DECISION
C.T.A. CASE NO. 8852
Page 2 of 25

principal office address at Unit 2 Phase 2 Busunuaga, Tierra Nueva,

Cupang, Muntinlupa City. 2

On the other hand, respondent Commissioner of Internal

Revenue is duly appointed and empowered to perform the duties of
his office, including, among others, the power to decide, cancel and
abate tax liabilities as provided by law. 3

Petitioner is registered with the Bureau of Internal Revenue

(BIR) as evidenced by its Certificate of Registration bearing Tax
Identification No. 227-315-088-000 and OCN 9RC0000107997, 4 and
is primarily engaged in the conduct of restaurant and catering
services 5 •

Sometime in 2012, petitioner received Letter Notice No.

53BRLF 10-00021 dated February 27, 2012, informing it that a
computerized matching conducted by the BIR disclosed
discrepancies on the information/data provided by third party
sources against petitioner's declarations per VAT returns for the
calendar year ended 2010. 6

On December 27, 2013, petitioner received a Preliminary

Assessment Notice (PAN) dated December 26, 2013, finding that
petitioner has deficiency income tax and VAT due for taxable year
2010.7

Thereafter, petitioner sent a letter dated January 7, 2014

addressed to the respondent thru Mr. Nestor Valeroso 8 , requesting
for a re-audit and reinvestigation of respondent's findings in the
PAN.

Respondent later issued a Formal Assessment Notice (FAN)

dated January 20, 2014, a Preliminary Collection Letter (PCL) datecb_

2
Par. 2, The Parties, Petition for Review, Docket (Vol. I), p. 6; and Par. 1, Summary of Admitted
Facts, Joint Stipulation of Facts (JSF), Docket (Vol. I), p. 255.
3
Par. 2, Summary of Admitted Facts, JSF, Docket (Vol. I), p. 255.
4
Par. 4, Summary of Admitted Facts, JSF, Docket (Vol. I), p. 255.
5
Par. 3, Summary of Admitted Facts, JSF, Docket (Vol. I), p. 255.
6
Par. 5, Summary of Admitted Facts, JSF, Docket (Vol. I), p. 256; Exhibit "P-9".
7
Par. 6, Summary of Admitted Facts, JSF, Docket (Vol. I), p. 256; Exhibit "P-11".
8
Par. 7, Summary of Admitted Facts, JSF, Docket (Vol. I), p. 256; Exhibit "P-12".
DECISION
C.T.A. CASE NO. 8852
Page 3 of 25

May 29, 2014, and a Final Notice Before Seizure (FNBS) dated June
16, 2014, which were all allegedly received on June 30, 2014. 9

Due to the FNBS issued by respondent, petitioner filed the

instant Petition for Review 10 on July 30, 2014.

11
On November 12, 2014, respondent filed his Answer
interposing the following special and affirmative defenses:

"5. In the Petition filed by Catering Professionals,

Inc., as admitted under paragraphs 12 and 30 of the
Petition for Review, the FAN with attached Details of
Discrepancies was received by petitioner on June 30,
2014, elevating this case unto this Honorable Court
without filing an administrative protest as required by
Section 228 of the National Internal Revenue Code
(NIRC).

6. Section 228 of the NIRC provides for the

procedure for protesting an assessment. It states:

SECTION 228. Protesting of Assessment. -

When the Commissioner or his duly
authorized representative finds that proper
taxes should be assess, he shall first notify
the taxpayer of his findings: Provided,
however, that a preassessment notice shall
not be required in the following cases:

(a) When the finding for any deficiency

tax is the result of mathematical error in
the computation of the tax as appearing
on the face of the return; or

(b) When a discrepancy has been

determined between the tax withheld
and the amount actually remitted by the
withholding agent; or~

9 Exhibits "P-13 to P-15".

10 Docket (Vol. I), p. 6-24.
11
Docket (Vol. I), pp. 109 to 117.
DECISION
C.T.A. CASE NO. 8852
Page 4 of 25

(c) When a taxpayer who opted to claim

a refund or tax credit of excess
creditable withholding tax for a taxable
period was determined to have carried
over and automatically applied the same
amount claimed against the estimated
tax liabilities for the taxable quarter or
quarters of the succeeding taxable year;
or

(d) When the excise tax due on

excisable articles has not been paid; or

(e) When an article locally purchased or

imported by an exempt person, such as,
but not limited to, vehicles, capital
equipment, machineries and spare
parts, has been sold, traded or
transferred to non-exempt persons.

The taxpayers shall be informed in

writing of the law and the facts on
which the assessment is made;
otherwise, the assessment shall be void.

Within a period to be prescribed by

implementing rules and regulations, the
taxpayer shall be required to respond to
said notice. If the taxpayer fails to
respond, the Commissioner or his duly
authorized representative shall issue as
assessment based on his findings.

Such assessment may be protested

administratively by filing a request for
reconsideration or reinvestigation within
thirty (30) days from receipt of the
assessment in such form and manner as
may be prescribed by implementing
rules and regulations. Within sixty (60)
days from filing of the protest, all
relevant supporting documents shal!,
DECISION
C.T.A. CASE NO. 8852
Page 5 of 25

have been submitted; otherwise, the

assessment shall become final.

If the protest is denied in whole or in

part, or is not acted upon within one
hundred eighty (180) days from
submission of the documents, the
taxpayer adversely affected by the
decision or inaction may appeal to the
Court of Tax Appeals within thirty (30)
days from receipt of the said decision,
or from the lapse of the one hundred
eighty (180)-day period; otherwise, the
decision shall become final, executory
and demandable.

7. In the instant case, petitioner timely filed a

protest after receiving the PAN. In response thereto,
respondent issued the FAN with attached Details of
Discrepancies. Pursuant to Section 228 of the NIRC, the
proper recourse of petitioner was to dispute the
assessments by filing an administrative protest within 30
days from receipt thereof. Petitioner, however, did not
protest the final assessment notice. Instead, it filed a
Petition for Review with this Honorable Court;

8. Considering the circumstances in the case at

bar, it is clear that respondent failed to file a valid
protest within the thirty (30) day period, as required by
Section 228 of the 1997 Tax Code. Consequently, the
assessment became final, executory and unappealable;

9. The Court of Tax Appeals, being a court of

special jurisdiction, can take cognizance only of matters
that are clearly within its jurisdiction (Allied Banking
Corporation vs. Commissioner of Internal
Revenue, G.R. No. 175097, February 5, 2010). Its
jurisdiction may only [be] invoked in the particular
instances enumerated in Section 7 of Republic Act (RA)
No. 1125, as amended by Section 7 of RA No. 9282
(Moog Controls Corporation Philippine Branch vs.
Commissioner of Internal Revenue, CTA EB No.
44, May 10, 2005).,-
DECISION
C.T.A. CASE NO. 8852
Page 6 of 25

10. In the case of Protector's Services, Inc. vs.

Court of Appeals 330 SCRA 404, promulgated on
April 12, 2000, the Supreme Court upheld this
Honorable Court's ruling that the assessment became
final after thirty days from receipt of demand letters by
the petitioner, without the latter interposing a
reconsideration, thus:

We note that indeed on December 10, 1987,

petitioner received the SIR's assessment notices.
On January 12, 1988, petitioner protested the 1983
and 1984 assessments and requested for a re-
investigation. From December 10, 1987 to January
12, 1988, thirty-three days had lapsed. Thereafter
petitioner may no longer dispute the correctness of
the assessment. Hence, in our view, the Court of
Tax Appeals correctly dismissed the appeal for lack
of jurisdiction.

11. In this regard, Section 7(a)(1) of Republic

Act 9282 (An Act Expanding the Jurisdiction of the
Court of Tax Appeals) provides that:

Section 7. Jurisdiction. -The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by

appeal, as herein provided:

(1) Decision of the Commissioner of the Internal

Revenue in cases involving disputed assessments,
refunds of the internal revenue taxes, fees or other
charges, penalties in relation thereto, or other
matters arising under the National Internal Revenue
or other laws administered by the CIR.

Thus, the Honorable Court of Tax Appeals

exercises appellate jurisdiction to review by appeal
decisions of the Commissioner of Internal Revenue in
cases, among others, involving disputed assessments.

It is neither the assessment nor the formal demand

letter itself that is appealable to this Honorable Court. It,
DECISION
C.T.A. CASE NO. 8852
Page 7 of 25

is the decision of the Commissioner of Internal Revenue

on the disputed assessment that can be appealed to this
Honorable Court (Commissioner of Internal
Revenue vs. Villa 22 SCRA 3). A disputed
assessment is one wherein the taxpayer or his duly
authorized representative filed an administrative protest
against the FAN within thirty (30) days from receipt
thereof;

12. In the case of Signer Finance Corporation

vs. Commissioner of Internal Revenue, CTA EB
Case No. 10 (CTA Case No. 6743), March 4, 2005,
the Honorable Court sitting En Bane held as follows:

'For purposes of this petition for review, We

reiterate Our ruling that an assessment
whether valid or void, shall become final and
executory, when no administrative protest is
filed within (30) days from receipt thereof, for
the very reason that:

'[An] administrative protest is an integral part

of the remedies given to the taxpayer in
challenging the legality or validity of an
assessment. It is absolutely necessary for the
taxpayer to file an administrative protest in
order for this court to acquire jurisdiction.'

It must be stressed that Section 228 of the

Tax Code of 1997 does not quality that only
valid assessments should be protested in
order that the same shall not become final.

XXX XXX XXX

Significantly, petitioner should have invoked

the issue of prescription as a defense at the
administrative level, by filing a protest before
respondent Commissioner of Internal
Revenue, to prevent the assailed assessments
from becoming final and executory. Failing in
this regard is procedurally detrimental to
petitioner ·Q'
DECISION
C.T.A. CASE NO. 8852
Page 8 of 25

Petitioner's argument that it is not duty-bound

to file an administrative protest against a void
assessment is misplaced. Precisely, one of the
grounds that a taxpayer can raise in
protesting an assessment is the defense of
prescription, which is found meritorious,
provides legal justification for the
Commissioner of Internal to revoke an
assailed assessment.

As held by the Supreme Court in the case of

Republic of the Philippines vs. Manila Port
Service, prescription is only a defense which
must be raised in the proper forum and at the
proper time. Thus, an assessment which is
contrary to the law, can attain finality, if the
same is not protested. It is a mere defense
that must be invoked at the proper time,
otherwise, it shall be considered waived. It is
not jurisdictional.

All the foregoing considered, the Court finds

no reversible error committed by the then
Court of Tax Appeals, in rendering the
assailed Resolutions dated January 29, 2004
and May 7, 2004 when it effectively denied
petitioner's Motion to Cancel Assessment filed
on October 28, 2003 and dismissed CTA Case
No. 6743 for lack of jurisdiction.'

13. In Subic Bay Motors, Corp., Inc. vs.

Commissioner of Internal Revenue, CTA EB No. 98
(CTA Case No. 7042) October 11, 2005, likewise the
honorable Court siting En Bane, had the occasion to
explain the consequences of failure to validly protest a
formal assessment notice, in this fashion:

'Unfortunately, based on the records and

documents submitted, there is no indication
that petitioner ever protested the said Formal
Assessment Notices. In fact, the allegations
and evidence presented by petitioner merely.,
DECISION
C.T.A. CASE NO. 8852
Page 9 of 25

showed that preliminary assessment notices

were received and protested but the Formal
Assessment Notices, although received were
not protested. Based on its allegations,
petitioner even considered the subject Formal
Assessment Notices have become final and
could not be the subject of appeal to this
Court. As provided for by Section 228 of the
1997 Tax Code, if the taxpayer fails to file an
administrative protest within the 30-
dayreglementary period, the assessment
becomes final and unappealable. This means
that after the lapse of the said thirty-day
period, the assessment may no longer be
disputed either administratively or judicially
through an appeal to this Court. The effect is
thus to make the assessed taxes collectible.
Incidentally, inasmuch as there is no disputed
assessment to speak of, appeal to this Court
is no .longer available.'

14. Well-settled is the rule that if the court has no

jurisdiction over the nature of an action, its only
jurisdiction is to dismiss the case. The court could not
decide the case on the merits (De Guzman, et al, vs.
Escalona, etal, G.R. No. L-51773, May 16, 1980).

15. Clearly from the foregoing, the Court's

jurisdiction covers only those assessments which are
disputed. In this case, failure of herein petitioner to file
its protest on time makes the said assessment
undisputed, thus, cannot be the subject of appeal to this
Court. Also, it must be stressed that the Court of Tax
Appeals is a court of special jurisdiction. As such, it can
take cognizance only of such matters as are clearly
within its jurisdiction (Commissioner of Internal Revenue
vs. Villa, 22 SCRA 3), the filing of a protest within the
period prescribed under Section 228 of the 1997 Tax
Code being a jurisdictional matter. In fine, failure of the
petitioner to comply with the thirty (30)-day statutory
period would bar appeal and deprive this Court of its
jurisdiction to entertain and determine the correctness of
the assessment (Commissioner vs. Western Pacific Corp., ~
DECISION
C.T.A. CASE NO. 8852
Page 10 of 25

L-18804, May 27, 1965). The assessments having

become final, such may no longer be amended,
modified, much less, set aside by this Court (Subic Bay
Motors Corp., Inc. vs. CIR, CTA Case No. 98,
October 11, 2005).

16. Evidently, based on the above mentioned rules

and jurisprudence, filing of an administrative protest
against the FAN is of paramount importance since it
must be done in the proper form and within the time
prescribed by law, for failure to do so as committed by
petitioner in this case, the assessment shall become
final, executory and unappealable to this Honorable
Court;

17. On the other hand, assuming without admitting

that this Honorable Court has jurisdiction to act on the
instant petition, petitioner was assessed for deficiency
income tax and value-added tax for taxable year 2010,
for the reason that during the administrative
investigation of its tax case by the BIR, petitioner failed
to substantiate or submit supporting evidence against
the BIR findings, more specifically shown under the
Details of Discrepancies attached to the PAN dated
December 26, 2013 and FAN dated January 20, 2014,
which are briefly discussed hereunder, viz:

A) On undeclared Income amounting to

P179,844.14:

-In the partial tally of the computerized

matching conducted by the Bureau on
information/dated provided by this party
sources against petitioner's declaration per
Income and VAT returns disclosed a
discrepancy of P10,463,961.53. However,
this was adjusted after ascertaining that the
gross sales declared on petitioner's Income
Tax returns amounted to P34,925,265.95.
The resulting undeclared income amounted
to P179,844.14 after multiplying the
adjusted discrepancy by petitioner's Gross
Profit Rate. The same is subject to income..-..
DECISION
C.T.A. CASE NO. 8852
Page 11 of 25

tax pursuant to Section 32 of the NIRC, as

amended.

B) On Undeclared Sales amounting to

P8,272,507 .88:

-As discussed on income tax, the

discrepancy noted per Letter Notice was also
compared with the petitioner's gross sales
per VAT Returns and resulted to adjusted
discrepancy of P8,272,507.88. The same is
also subject to VAT pursuant to provision of
Section 105 of the NIRC which states that,
'Any person who, in the course of trade or
business, sells, barters, exchanges, leases
goods or properties, renders services, and
any. person who imports goods shall be
subject to value-added tax (VAT) imposed in
Section 106 and 108 of this Code.'

18. Petitioner further argued under paragraph B of

the Petition that, 'A Letter Notice, by itself, is not a valid
basis of tax assessments.' However, this issue was
resolved already by this Honorable Court wherein it ruled
that an assessment arising from a Letter Notice is valid
even if not covered by a Letter of Authority.

To declare that the CIR, in the determination

of deficiency VAT, should at all times
necessarily issue an LOA is to deprive her of
the vast powers given her by the National
Internal Revenue Code (Tax Code) to make
assessments and collect the right amount of
taxes. Thus, while the examination of
taxpayers by a Revenue Officer working under
an LOA is one way by which the CIR collects
deficiency taxes under Section 13 of the Tax
Code, Section 6 does not in any way limit the
power of the CIR to determine tax deficiencies
only through the issuance of LOAs.
(Medicard Philippines, Inc., vs. ~
DECISION
C.T.A. CASE NO. 8852
Page 12 of 25

Commissioner of Internal Revenue, CTA

Case No. 7948, June 5, 2014 )'

19. Petitioner interposes prescription so as to

exculpate it form its tax liabilities. To that, suffice it to
state that allegations of prescription must be clearly
shown. Since prescription is one of the affirmative
defenses of the taxpayer, 'it is incumbent upon [it] to
positively establish when the prescriptive period started
to run and when the same ended.' (Taligaman Lumber
Co. v. Collector, G.R. No. L-15716, March 31,
1962)

Under Section 222 (a) of the 1997 Tax Code, it is

clearly provided that:

'In the case of a false or fraudulent return

with intent to evade tax or of failure to file a
return, the tax may be assessed, or a
proceeding in court for the collection of such
tax may be filed without assessment, at any
time within ten (10) years after the discovery
of the falsity, fraud or omission.'

In relation thereto, this Court sitting En Bane in the

case of COL Hotels (Phils.) Corporation vs. CIR, CTA
EB Case No. 339, August 10, 2009, held that:

'While the prescriptive period for assessment

is three years as prescribed under section 203
of the 1997 NIRC, as amended; however,
Section 222 of the 1997 NIRC provided for
exceptions to the period of Iimitation of
assessment and collection of taxes. We quote:

'SEC. 222. Exceptions as to Period of

Limitations of Assessment and Collection of
Taxes. -

(a) In case of a false or fraudulent return with

intent to evade tax or of failure to file a
return, the tax may be assessed or a
proceeding in court for the collection of such....,
DECISION
C.T.A. CASE NO. 8852
Page 13 of 25

tax may be filed without assessment, at any

time within (10) (sic) years after the discovery
of the falsity, fraud or omission: ... ;

(b) If before the expiration of the time

prescribed in Section 203 for the assessment
of the tax, both the Commissioner and the
taxpayer have agreed in writing to its
assessment after such time, the tax may be
assessed within the period agreed upon.

XXX XXX XXX

A reasonable understanding of the foregoing

law is that false return is different from
fraudulent return with intent to evade tax or
from failure to file a return. The above
provision should be interpreted to mean a
separation of the three different situations of
false return with intent to evade tax, and
failure to file a return. The difference between
'false return' and 'fraudulent return' cannot be
denied. While the first merely implies
deviation from the truth, whether intentional
or not, the second implies intentional or
deceitful entry with intent to evade the taxes
due. The ordinary period of prescription of 3
years within which to assess tax liabilities
under Sec. 203 of the 1997 NIRC, as
amended, should be applicable to normal
circumstances; but whenever the government
is placed at a disadvantage so as to prevent
its layvful agents from proper assessment of
tax liabilities due to false returns, fraudulent
returns intended to evade payment of tax or
failure to file returns, the period of ten years
as provided for in Section 222 of the 1997
NIRC, as amended, from the time of the
discovery of the falsity, fraud or omission
even seems to be inadequate and should be
the one enforced-#
DECISION
C.T.A. CASE NO. 8852
Page 14 of 25

In the case at bar, although petitioner filed its

monthly return as mandated by law, it failed
to declare thereto the income subject to the
tax under the belief that the income
supposedly subject to the withholding tax is
not an income but a deductible expense. The
returns filed by petitioner can be considered
as false return because it deviated from the
truth when no income was declared, when in
truth there was an income subject to tax.
Being considered as false return, it is
immaterial if petitioner intentionally omitted to
declare its income subject to final withholding
tax or not.

Considering that petitioner's return is false,

the applicable prescriptive period would be
ten years from the discovery of falsity. In the
case at bar, the latest return filed was on
January 11, 1999, while the FAN was issued
on January 29, 2002, such period being within
the ten-year period it follows that the
assessment had not yet prescribed.

Moreover, the Supreme Court had ruled that

the filing of deficient returns which prevent
the Commissioner of Internal Revenue from
computing the proper taxes is tantamount to
the non-filing. The Commissioner had to
determine and assess the taxes on data
obtained, not from the return, but from other
sources. Hence, the assessment for deficiency
final withholding tax, therefore, has not
prescribed.'

Applying the foregoing rule and jurisprudence in

the case at bar, a close scrutiny of the income tax and
VAT returns filed by petitioner clearly revealed that
respondent's declaration made therein were substantially
deficient in amount and did not disclose the truth
regarding the correct amount of income subject to tax
compared to the amount remitted to the BIR..,-
DECISION
C.T.A. CASE NO. 8852
Page 15 of 25

Hence, the FAN dated January 20, 2014 issued by

the respondent for deficiency income and value-added tax
for taxable year 2010 was validly made within the ten
(10) years prescriptive period from the discovery of the
said falsity under Section 222 (a) of the 1997 Tax Code.

20. The assessments issued against petitioner for

deficiency income tax and value-added tax for taxable
year 2010 were made in accordance with law and
regulations.

21. Assessment are prima facie presumed correct

and made in good faith. The taxpayer has the duty of
proving otherwise. In the absence of proof of any
irregularities in the performance of official duties, an
assessment will not be disturbed. (Aban, Law of Basic
Taxation in the Philippines, 1st Edition, p. 109)."

Petitioner filed its Reply 12 on November 24, 2014.

The case was subsequently set for Pre-Trial Conference on

February 5, 2015. 13 Petitioner's Pre-Trial Brief14 was filed on January
30, 2015, while respondent's Pre-Trial Brief15 was filed via registered
mail on February 2, 2015.

On February 25, 2015, the parties filed their Joint Stipulation of

16
Facts and a Pre-Trial Order was issued by the Court on March 9,
2015. 17

During the hearing held on March 15, 2015, the Court

approved the commissioning of Ms. Myra Celeste 0. Dabalos as
Independent Certified Public Accountant (CPA) for this case.~

12
Docket (Vol. I), pp. 121-127.
13
Docket (Vol. I), p. 120.
14
Docket (Vol. I), pp. 187-193.
15
Docket (Vol. I), pp. 195-199.
16
Docket (Vol. I), pp. 255-257.
17
Docket (Vol. I), pp. 264-268.
18
Minutes of the Hearing, Docket (Vol. I), p. 283.
DECISION
C.T.A. CASE NO. 8852
Page 16 of 25

Trial ensued, g1vmg both parties the opportunity to present

their respective documentary and testimonial evidence.

Petitioner presented as its witness Mr. Julius Caesar L.

Raymundo II 19 , petitioner's President, and the Independent CPA Ms.
Myra Celeste 0. Dabalos 20 •

After presentation, marking, identification and formal offer, the

Court admitted as part of petitioner's documentary evidence Exhibits
"P-1" to "P-48-A". 21

As to respondent, he presented as witnesses Ms. Fe H. Lucas 22 ,

BIR Revenue District Officer II at Revenue District Office No. 538,
Muntinlupa City, and Ms. Fritz Jihann P. Manabilang 23 , BIR Revenue
Officer I of BIR's Collection Division.

Except for Exhibits "R-2" and "R-2-a", the Court admitted as

part of respondent's evidence Exhibits "R-1" to "R-15-a". 24

Taking into consideration petitioner's Memorandum 25 filed on

December 5, 2016, and Memorandum for respondent 26 filed on
November 23, 2016, on December 21, 2016 the case was submitted
for decision. 27

The parties submitted the following issues 28 for this Court's

disposition:-.

19 Minutes of the Hearing Held on April 20, 2015, Docket (Vol. I), p. 288, Exhibit "P-16"- Judicial
Affidavit of Mr. Julius Caesar L. Reymundo II.
20 Minutes of the Hearing Held on April 29, 2015 and April 25, 2016, Docket (Vol. I), p. 318 and

(Vol. II), p. 584, respectively; Exhibit "P-39"- Judicial Affidavit of Miss Myra Celeste 0.
Dabalos.
21 Resolution dated July 14, 2016, Docket (Vol. II), pp. 720-722; Minutes of the Hearing Held on

July 18, 2016, Docket (Vol. II), p. 723.

22 Minutes of the Hearing Held on July 18, 2016, supra; Exhibit "R-14"- Judicial Affidavit of Ma.

Fe H. Lucas.
23 Minutes of the Hearing Held on August 10, 2016, Docket (Vol. II), p. 729; Exhibit "R-15"-

Judicial Affidavit of Fritz Jihann P. Manabilang.

24
Resolution dated October 21, 2016, Docket (Vol. II), pp. 740-741.
25 Docket (Vol. II), pp. 748-772.
26 Docket (Vol. II), pp. 773-779.
27
Resolution dated December 21, 2016, Docket (Vol. II), p. 781.
28
Issues, JSF, Docket (Vol. I), p. 256.
DECISION
C.T.A. CASE NO. 8852
Page 17 of 25

1. Whether or not petitioner is liable for deficiency

income tax and deficiency value added tax for the
taxable year ending 31 December 2010;

2. Whether or not the assessment made by respondent

is valid; and

3. Whether or not the Court has jurisdiction to entertain

the case at bar.

Petitioner alleges that the assessment violated its right to due

process. Thus, BIR has no basis other than the computerized
matching on information/data provided by third party sources in
computing petitioner's tax deficiencies. It further avers that no Letter
of Authority (LOA) was ever served upon petitioner; nor was there
any actual audit conducted by the BIR to determine the veracity of
the information provided in the computerized matching with third
party sources.

Petitioner further claims that the FAN, PCLs, and FNBS were
simultaneously served to petitioner on the same date. Thus,
petitioner has no opportunity to file a protest against the FAN.

Petitioner also claims that the Letter Notice, by itself, is not a

valid basis of tax assessment and that the right of respondent to
assess had already prescribed.

On the other hand, respondent claims that after the receipt of

the PAN by petitioner on December 27, 2013, the FAN dated January
30, 2014 was issued and sent to petitioner through registered mail on
the same day as evidenced by a return card. However, the same was
returned to sender for the reason that petitioner has already moved
out from its registered business address.

Respondent further maintains that the PCL dated May 29, 2014
was subsequently sent through registered mail as evidenced by a
receipt and return card but the same was returned to sender for the
same reason.~
DECISION
C.T.A. CASE NO. 8852
Page 18 of 25

Respondent, likewise, avers that the FNBS was received by Mr.

Brian A. Magallanes on July 1, 2014 for and in behalf of Ms. Rose
Marie C. Morada -accountant of petitioner.

Respondent also points out that the July 11, 2014 protest of
petitioner was filed beyond the prescriptive period for the filing
thereof. Hence, it is now precluded from disputing the correctness of
the assessment.

Respondent insists that petitioner was given an adequate

opportunity to contest the assessment, but it failed to take advantage
of the same when it discreetly transferred its business without
informing the BIR of its new address.

Also, while respondent agrees that an assessment notice issued

after the three-year period under Section 203 of the National Internal
Revenue Code (NIRC) is no longer valid and effective, he insists that
the exceptions are provided for under Section 223 of the same code,
specifically "when the taxpayer cannot be located in the address
given by him in the return filed upon which a tax is being assessed
and collected is applicable to petitioner's case."

Lastly, respondent claims that the Court already ruled in the

case of Medicard Philippine~ Inc. vs. Commissioner of Internal
Revenue/ CTA Case No. 7948, June 5, 2014, that an assessment
arising from a Letter Notice is valid even if not covered by a Letter of
Authority.

The Court has jurisdiction over

the instant Petition for Review

Records show that the instant petition is an appeal from the

FNBS issued by respondent which was received by petitioner on July
1, 2014. 29

This Court, therefore, has jurisdiction over the instant case as

the same falls on "other matters arising under the National Internal
Revenue Code or other laws administered by the Bureau of Internal 41

29
Exhibit "R-11" and "R-11-b", BIR Records.
DECISION
C.T.A. CASE NO. 8852
Page 19 of 25

Revenue". The pertinent portion of Section 7 of RA No. 1125, as

amended by RA No. 9282, reads:

"SEC. 7. Jurisdiction. -The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by

appeal, as herein provided:

( 1) Decisions of the Commissioner of Internal

Revenue in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other charges,
penalties in relation thereto, or other matters arising
under the National Internal Revenue Code or
other laws administered by the Bureau of Internal
Revenue;" (Emphasis supplied)

The subject assessment

is void because it is not
covered by any LOA

At the outset, it must be noted that the respondent has the

power to grant authority to examine and assess a taxpayer as
provided under Section 6 of the NIRC of 1997, to wit:

"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 duly authorized representative may
authorize the examination of any taxpayer and
the assessment of the correct amount of tax:
Provided, however, That failure to file a return shall not
prevent the Commissioner from authorizing the
examination of any taxpayer. x x x" (Emphasis supplied)t?--
DECISION
C.T.A. CASE NO. 8852
Page 20 of 25

To exercise such power, the Commissioner or his duly

authorized representative shall issue a Letter of Authority as required
under Section 13 of the NIRC of 1997, as amended, which provides:

"Sec. 13. 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."

From the foregoing, the LOA will empower or enable a

Revenue Officer to 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 case of Commissioner of Internal Revenue vs. Sony

Philippine~ Inc., 30 the Supreme Court 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.

Significantly, the importance of the issuance of an LOA was

further elucidated by the High Court in the recent case of Medicard
Philippine~ Inc. vs. Commissioner of Internal Revenue31, which also
reversed the ruling of this Court in CTA Case No. 7948 invoked by
respondent. The pertinent portion of the Supreme Court's ruling in
the Medicard case read:

"The absence of an LOA violated

MEDICARD's right to due processdiit

30
G.R. No. 178697, November 17, 2010.
31
G.R. No. 222743, April 5, 2017.
DECISION
C.T.A. CASE NO. 8852
Page 21 of 25

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.
Section 6 of the NIRC clearly provides as follows:

XXX XXX XXX

Based on the afore-quoted provision, it is clear that

unless authorized by the CIR himself or by his duly
authorized representative, through an LOA, an
examination of the taxpayer cannot ordinarily be
undertaken. The circumstances contemplated under
Section 6 where the taxpayer may be assessed through
best-evidence obtainable, inventory-taking, or
surveillance among others has nothing to do with the
LOA. These are simply methods of examining the
taxpayer in order to arrive at the correct amount of
taxes. Hence, unless undertaken by the CIR
himself or his duly authorized representatives,
other tax agents may not validly conduct any of
these kinds of examinations without prior
authority." (Emphasis supplied)

In other words, there must first be a grant of authority before a

revenue officer can conduct an examination and issue a tax
assessment. However, in this case, no LOA was issued to authorize
the examination and the assessment of petitioner's deficiency income
tax and VAT liability for the taxable year 2010.

Furthermore, while there was a Letter Notice issued by the

respondent, the same cannot be considered as the LOA required by
law..,._
DECISION
C.T.A. CASE NO. 8852
Page 22 of 25

In fact, in the same case of Medicard32, the Supreme Court

made a distinction between a Letter Notice and LOA, in this wise:

"The Court cannot convert the LN into the

LOA required under the law even if the same was
issued by the CIR himself. xxx

The following differences between an LOA and LN

are crucial. First, an LOA addressed to a revenue officer
is specifically required under the NIRC before an
examination of a taxpayer may be had while an LN is not
found in the NIRC and is only for the purpose of
notifying the taxpayer that a discrepancy is found based
on the SIR's RELIEF System. Second, an LOA is valid
only for 30 days from date of issue while an LN has no
such limitation. Third, an LOA gives the revenue officer
only a period of 10 days from receipt of LOA to conduct
his examination of the taxpayer whereas an LN does not
contain such a limitation. Simply put, LN is entirely
different and serves a different purpose than an
LOA. XXX

Contrary to the ruling of the CTA en bane, an LOA

cannot be dispensed with just because none of
the financial books or records being physically
kept by MEDICARD was examined. To begin with,
Section 6 of the NIRC requires an authority from the CIR
or from his duly authorized representatives before an
examination 'of a taxpayer' may be made. The
requirement of authorization is therefore not dependent
on whether the taxpayer may be required to physically
open his books and financial records but only on
whether a taxpayer is being subject to examination.

The SIR's RELIEF System has admittedly made the

SIR's assessment and collection efforts much easier and
faster. The ease by which the BIR's revenue
generating objectives is achieved is no excuse
however for its non-compliance with the
statutory requirement under Section 6 and with its
own administrative issuance. In fact, apart from being a~

32 G.R. No. 222743, April 5, 2017.

DECISION
C.T.A. CASE NO. 8852
Page 23 of 25

statutory requirement, an LOA is equally needed

even under the BIR's RELIEF System because the
rationale of requirement is the same whether or
not the CIR conducts a physical examination of
the taxpayer's records: to prevent undue
harassment of a taxpayer and level the playing
field between the government's vast resources for
tax assessment, collection and enforcement, on
one hand, and the solitary taxpayer's dual need to
prosecute its business while at the same time
responding to the BIR's exercise of its statutory
powers. The balance between these is achieved
by ensuring that any examination of the taxpayer
by the BIR' s revenue officers is properly
authorized in the first place by those to whom the
discretion to exercise the power of examination is
given by the statute.

That ·the BIR officials herein were not shown to

have acted unreasonably is beside the point because the
issue of their lack of authority was only brought up
during the trial of the case. What is crucial is
whether the proceedings that led to the issuance
of VAT deficiency assessment against MEDICARD
had the prior approval and authorization from the
CIR or her duly authorized representatives. Not
having authority to examine MEDICARD in the
first place, the assessment issued by the CIR is
inescapably void."

Considering that no LOA was issued in this case, the deficiency

taxes resulting from the unauthorized examination and assessment of
petitioner's tax liability for taxable year 2010 is a nullity.

At this juncture, it must be emphasized that an invalid

assessment bears no valid fruit. The law imposes a substantive, not
merely a formal, requirement. To proceed heedlessly with tax
collection without first establishing a valid assessment is evidently
violative of the cardinal principle in administrative investigations: that~
DECISION
C. T.A. CASE NO. 8852
Page 24 of 25

taxpayers should be able to present their case and adduce supporting

evidence. 33

Therefore, regardless of whether petitioner timely filed its

protest or whether there was proper service of the FAN, respondent
cannot collect the assessed tax deficiency in the FAN for being null
and void.

With the foregoing findings, there is no need for the Court to

address the remaining issues raised in the instant case.

WHEREFORE, premises considered, the instant Petition for

Review is hereby GRANTED. Accordingly, the assessment of
petitioner's deficiency income tax and value added tax for the taxable
year 2010, as well as the Preliminary Collection Letter and Final
Notice Before Seizure issued by the respondent to enforce the
collection of the said deficiency tax liabilities are CANCELLED and
DEEMED WITHDRAWN for being NULL AND VOID.

SO ORDERED.

CAESAR A. CASANOVA
Associate Justice

WE CONCUR:

~_..·A> G.~~~ ~ ~~J:~

llJA-NITO C. CASTANEDA~ :fR. CATHERINET.MANAHAN
Associate Justice Associate Justice

33
Commissioner of Internal Revenue vs. BASF Coating + Inks Phils. Inc., G.R. No. 198677,
November 26, 2014.
DECISION
C.T.A. CASE NO. 8852
Page 25 of 25

ATTESTATION

I attest that the conclusions in the above Decision were

reached in consultation before the case was assigned to the writer of
the opinion of the Court's Division.

~~~ c.QY-~~~~-
3\JANITo C. CASTANED~, JR.
Associate Justice
Chairperson, Second Division

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, and the

Division Chairperson's Attestation, it is hereby certified that the
conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the
Court.

Presiding Justice