CTA voids BIR’s P116-M tax assessment vs Barrio Fiesta

THE Court of Tax Appeals (CTA) has ruled in favor of Barrio Fiesta Manufacturing Corp., canceling the Bureau of Internal Revenue’s (BIR) tax deficiency assessment and the corresponding warrant of distraint and levy (WDL) worth nearly P116 million for 2013.

The CTA Second Division, in a decision promulgated on March 17, granted Barrio Fiesta’s petition for review filed on Nov. 13, 2019. 

The dispute involved alleged deficiencies in income tax, value-added tax (VAT), expanded withholding tax (EWT), and withholding tax on compensation (WTC) for the taxable year 2013, initially assessed at P155.92 million, including increments, as indicated in the WDL. The amount was later revised to P119.3 million in the Final Decision on Disputed Assessment (FDDA) dated June 19, 2019. 

The tribunal ruled in favor of the food manufacturer due to the invalidity of the letters of authority (LoAs) issued by the BIR.

The original LoA (No. LOA-024-2014-00000548), dated Nov. 14, 2014, authorized a revenue officer and a group supervisor to examine Barrio Fiesta’s 2013 books. However, after the revenue officer was reassigned, the audit was transferred to a new officer and supervisor through a memorandum of assignment (MoA) dated May 4, 2016.

The CTA held that this MoA did not constitute a valid LoA naming the new revenue officers, rendering the audit and assessments void.

“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 authority, the assessment or examination is a nullity,” Associate Justice Ma. Belen M. Ringpis-Liban wrote in the 12-page ruling.

“The lack of the revenue officer’s authority to conduct an audit goes to the core of the assessment’s validity. Without such authority, the assessment is void and has no legal effect,” the court said, citing Supreme Court rulings in AFP General Insurance Corp. vs Commissioner of Internal Revenue and Commissioner of Internal Revenue vs McDonald’s Philippines Realty Corp.

The CTA reiterated that only the Commissioner of Internal Revenue or a duly authorized representative may issue a LoA for tax examinations. Any assessment conducted without a valid LoA is null and void. The court added that reassigning revenue officers without an amended LoA violated the taxpayer’s right to due process.

A second LoA (No. 024-2018-00000490), dated Sept. 17, 2018, issued for reinvestigation, was also deemed insufficient to cure the defect, as the original audit and initial assessment notices had already been issued. The tribunal ruled that this LoA authorized only a reinvestigation and could not validate the original flawed audit.

Barrio Fiesta had filed a petition for review with the CTA on Nov. 13, 2019, challenging the BIR’s WDL and deficiency tax assessments for 2013.

The BIR issued a preliminary assessment notice (PAN) dated June 6, 2017, which Barrio Fiesta received on June 14, 2017, assessing deficiency taxes of P147.61 million. The company responded on June 29, 2017.

On Aug. 17, 2017, Barrio Fiesta received two formal letters of demand (FLDs) with assessment notices, both dated July 31, 2017. The company then filed a request for reinvestigation of the VAT assessment on Sept. 18, 2017, which the BIR granted on Nov. 23, 2017.

The FDDA, issued on June 19, 2019, assessed a total deficiency of P119.30 million. On Oct. 15, 2019, Barrio Fiesta received WDL No. RRS-2-AMS-DA-10-01-19-2112(024) dated Oct. 1, 2019, prompting the company to file the CTA petition.

Barrio Fiesta argued that the tax assessment was void due to the absence of a valid LoA, contending that the reassignment of revenue officers via a MoA without a corresponding amended LoA was invalid and violated its right to due process. — Chloe Mari A. Hufana