Tax court affirms canceled P224-M assessment on EDS

THE Court of Tax Appeals (CTA) affirmed the cancellation of the tax assessment on EDS Manufacturing, Inc. for the fiscal year 2010 worth P223.8 million, inclusive of interest and penalties.

In a 12-page decision on April 26, the CTA en banc said the commissioner of internal revenue’s (CIR) petition for review lacked merit as the revenue officers who undertook the examination of the company’s accounting books lack a letter of authority, or LOA.

“To be precise, except when petitioner himself, or the BIR (Bureau of Internal Revenue) officials duly authorized by law or petitioner who conducts the examination of the taxpayer, the issuance of a valid LOA by the petitioner or his duly authorized representatives in favor of revenue officers performing assessment functions is a pre-requisite for the validity of their tax examination and assessment,” according to a copy of the ruling penned by CTA Associate Justice Marian Ivy F. Reyes-Fajardo.

The court in division earlier granted the manufacturing company’s appeal to nullify the assessment due to an absence of a letter of authority.

The petitioner is the CIR, who has the power to decide, cancel, and abate tax liabilities provided by the country’s tax code.

The respondent is a company that manufactures and supplies electrical wire harnesses, battery cables, and other electrical components.

The CIR argued that the court in division failed to consider the memorandum of assignments, which the official claimed established the proper authority of the revenue officers to examine the books of accounting.

The company pointed out that the CIR’s reliance on the memorandum of assignments does not have merit since the documents were not identified by a competent witness. It added that these might not be a valid source to authorize revenue officers to legally audit a taxpayer.

The tax court agreed with the respondent, citing the issuance of a memorandum of assignments is not a substitute for a letter of authority.

“Specifically, it was found that the respective signatories therein, are BIR personnel devoid of authority to issue an LOA,” the tax court noted, citing the signatories in the memorandum of assignments.

The court in division earlier denied the admission of the memorandum since the pieces of evidence were substantiated by a competent witness.

“Petitioner failed to make an offer of proof or tender of excluded evidence for such denied documentary exhibits,” the CTA full court said. — John Victor D. Ordoñez

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