Commissioner of Internal Revenue vs. Ritegroup Incorporated

DECISION

UY, J.:

Before the Court En Bane are two (2) consolidated Petitions for Review, namely: CTA EB No. 1686, entitled "Commissioner of

Internal

Revenue, Petitioner, v.

Ritegroup

Incorporated, Respondent" filed on August 8, 2017; and CTA EB No. 1687, entitled "Ritegroup Incorporated, Petitioner, v. Commissioner of Internal Revenue, Respondent", filed on August 9, 2017; both assailing the CTA EB No. 1686 and 1687 Decision dated January 25, 20171 and the Amended Decision dated June 29, 20172 rendered by the Third Division of this Court (Court in Division) in CTA Case No. 8651 entitled "Ritegroup Incorporated, Petitioner, v. Commissioner of Internal Revenue, Respondent", the dispositive portions of which respectively read: Decision dated January 25, 2017:

"WHEREFORE, premises, considered, the instant Petition for Review is PARTIALLY GRANTED. The assessments covering deficiency income tax, VAT, EWT, and FBT for TY 2008 are UPHELD but in the modified amount of P2,844,542.63, inclusive of the twenty-five percent (25o/o) surcharge imposed under

Section

248(A)(3) of the NIRC of 1997, as amended, in the amount of P6,250.1 0, twenty percent (20°/o) deficiency and delinquency interest on the partial deficiency EWT payment of ,.6, 175.32 or in the aggregate sum of P2,850, 792.73, computed as follows:

Tax Type

Basic

Surcharge

Total

Income Tax

p 1,626,348.56 p 406,587.14 p 2,032,935.70

VAT

616,188.11 154,047.03 770,235.14

EWT

21,526.50 5,381.63 26,908.13

FBT

11,570.93 2,892.73 14,463.66

Subtotal

p 2,275,634.10 p 568,908.53 p 2,844,542.63 25% surcharge, 20% deficiency and delinquency interest on the P6, 175.32 deficiency EWT paid by petitioner on p 6,250.10 Oct. 9, 2012

Subtotal

p 6,250.10

TOTAL

p 2,850,792.73 In addition, petitioner is liable to pay: a) Deficiency interest at the rate of 20% per annum on the basic deficiency income tax, VAT, EWT, and FBT computed from the dates indicated below until full payment thereof 1 Docket (CTA EB No. 1686), pp. 22 to 60; and Docket (CTA EB No. 1687), pp. 88 to 126.

2 Docket (CTAEB No. 1686), pp. 62 to 80; and Docket (CTAEB No. 1687), pp. 68 to 86. fl

CTA EB No. 1686 and 1687 pursuant to Section 249(8) of the NIRC of 1997, as amended:

Type of Tax

Basic Tax

Deficiency

interest computed from

Income Tax

P1 ,626,348.56 April 15, 2009

VAT

p 616,188.11 January 25, 2009

EWT

p 21,526.50 January 15, 2009

FBT

p 11,570.93 January 10, 2009 b) Deficiency interest at the rate of 20% per annum on the total amount of P2,844,542.63 and on the deficiency interest which have accrued as afore-stated in (a) computed from February 13, 2012 until full payment thereof pursuant to Section 249(C) of the NIRC of 1997, as amended.

Reconsideration (On the Decision of the Honorable

Court dated 25 January 2017) is DENIED for lack of merit. However, petitioner's Motion for Reconsideration (Re: Decision dated 25 January 2017) is PARTIALLY GRANTED.

Accordingly, the Court's Decision dated January 25, 2017, is hereby modified to read as follows: 'WHEREFORE, premises, considered, the instant Petition for Review is PARTIALLY GRANTED.

The assessments covering deficiency income tax, VAT, EWT, and FBT for TV 2008 are UPHELD but in the modified amount of P2,696,629.82, inclusive of the twenty-five percent (25%) surcharge imposed under Section 248(A)(3) of the NIRC of 1997, as amended, in the amount of P6,250.10, twenty percent (20%) deficiency and delinquency interest on the partial deficiency EWT payment of P6, 175.32 or in the aggregate sum of P2, 702,879.92, computed as follows:

CTA EB No. 1686 and 1687

Tax Type

Basic

Surcharge

Total

Income Tax

p 1 ,528,360.47 p 382,090.12 p 1,910,450.59

VAT

595,845.95 148,961.49 744,807.44

EWT

21,526.50 5,381.63 26,908.13

FBT

11,570.93 2,892.73 14,463.66

Subtotal

p 2,157,303.85 p 539,325.97 p 2,696,629.82 25% surcharge, 20% deficiency and delinquency interest on the P6, 175.32 deficiency EWT p 6,250.10 paid by petitioner on Oct. 9, 2012

Subtotal

p 6,250.10

TOTAL

p 2, 702,879.92 In addition, petitioner is liable to pay: a) Deficiency interest at the rate of 20°/o per annum on the basic deficiency income tax, VAT, EWT, and FBT computed from the dates indicated below until full payment thereof pursuant to Section 249(8) of the NIRC of 1997, as amended:

Type of

Basic Tax

Deficiency interest

Tax

computed from

Income Tax

P1 ,528,360.47 April 15, 2009

VAT

p 595,845.95 January 25, 2009

EWT

p 21,526.50 January 15, 2009

FBT

p 11,570.93 January 10, 2009 b) Deficiency interest at the rate of 20% per annum on the total amount of P2,696,629.82 and on the deficiency interest which have accrued as afore-stated in (a) computed from February 13, 2012 until full payment thereof pursuant to Section 249(C) of the NIRC of 1997, as amended.

THE FACTS

The CIR is the Commissioner of the Bureau of Internal Revenue (BIR), vested by law with authority to perform the duties of said office, including, among others, the power to assess and collect all national internal revenue taxes, fees and charges, and to enforce all forfeitures, penalties, and fines connected therewith. He holds office at the BIR National Office Building, Agham Road, Diliman, Quezon City.

Ritegroup is a domestic corporation duly organized under Philippine laws, engaged in the business of supplying medical and laboratory products.

Its principal office is located at Unit 2202 Prestige Tower, Ortigas Jr. Road, Ortigas Center, San Antonio, Pasig City.

On November 23, 2009, the CIR issued the Letter of Authority No. LOA 2008 0049704 and received by Ritegroup on December 1, 2009, authorizing revenue officers to examine Ritegroup's books of accounts and other accounting records for all internal revenue taxes covering the period from January 1, 2008 to December 31, 2008. On July 18, 2011, Ritegroup received the Notice of Informal Conference dated July 6, 2011. Subsequently, Ritegroup received a Preliminary Assessment Notice on January 4, 2012. On January 12, 2012, Ritegroup received the Formal Letter of Demand (FLO) dated January 13, 2012 with Detail of Discrepancies and Final Assessment Notices (FAN), assessing it for alleged deficiency taxes for taxable year (TY) 2008 in the aggregate amount of P1 0,941 ,323.58, computed as follows:

TYPE

AMOUNT DUE

Deficiency Income Tax

p 7,770,554.22

Deficiency Value-added Tax

3,005,918.88

Deficiency Expanded Withholding Tax

44,763.11

Deficiency Fringe Benefit Tax

108,087.37

Compromise Penalty Fee

12,000.00

Total (with Income Tax Return)

P1 0,941,323.58 Ritegroup disputed the aforesaid FAN on January 26, 2012. ~

CTA EB No. 1686 and 1687

On September 25, 2012, Ritegroup received the letter dated September 7, 2012 issued by Jonas DP. Amora, OIC-Regional Director of Revenue Region No. 7, Quezon City, stating that the investigating officer of Revenue District Office (ROO) No. 43A-Pasig City recommended the reiteration of the assessments issued against Ritegroup. The letter also requested the payment of Ritegroup's tax liabilities and indicated that it was a final decision. On October 9, 2012, Ritegroup filed with the BIR the Letter of Appeal dated October 7, 2012.

Due to the inaction of the CIR, Ritegroup filed a Petition for Review on May 7, 2013 before the Court in Division. The case was docketed as CTA Case No. 8651.

In his Answer filed on July 19, 2013, the CIR interposed certain special and affirmative defense, to wit: (1) Ritegroup failed to submit all relevant supporting documents to its protest; hence, the same had become final and demandable under Section 228 of the National Internal Revenue Code (NIRC) of 1997; (2) Ritegroup was fully appraised of the facts and the law on which the Final Assessment was issued; (3) there were no supporting documents submitted to substantiate the Meeting and Conference Expense, contrary to the allegations of Ritegroup that it did make available the said documents during the audit investigation; (4) with the disallowance of the overstated purchases of Ritegroup, it follows that Ritegroup should not be allowed to claim input tax deductions for said disallowed purchases; and (5) there is no evidence on record to prove that the plane ticket which was subjected to Fringe Benefit Tax (FBT) is not a First Class Plane Ticket.

Ritegroup filed its Reply on July 31, 2013 and received by the Court in Division on August 5, 2013. Thereafter, Ritegroup filed its Pre-Trial Brief on August 27, 2013; while the CIR's Pre-Trial Briefwas submitted on September 27, 2013.

On November 14, 2013, Ritegroup moved to comm1ss1on Sonny Bonilla as the Independent Certified Public Accountant (I CPA) for the case, which the Court in Division granted on November 28, 2013.

~

CTA EB No. 1686 and 1687

The parties submitted their Joint Stipulation of Facts and Issues on November 22, 2013. Subsequently, the Court in Division a Pre- Trial Order on December 13, 2013.

During

trial,

Ritegroup

presented

Sonny

Bonilla,

Mhay

Madlangbayan, and Mayzl Domingo as its witnesses. On the other hand, the CIR presented the following witnesses: Revenue Officers John Byron Jakes T. Lasam and Leyte C. Portugal. Thereafter, CTA Case No. 8651 was considered submitted for decision on February 11, 2016 taking into consideration Ritegroup's Trial Memorandum filed on February 5, 2016 and the Records Verification Report of the Judicial Records Division dated February 9, 2016 stating that the CIR failed to file his Memorandum In the assailed Decision dated January 25, 2017,3 the Court in Division partially granted Ritegroup's "Petition for Review", upholding the assessments covering deficiency income tax, value-added tax (VAT), expanded withholding tax (EWT), and FBT forTY 2008, but in the modified aggregate amount of P2,850, 792.73, plus deficiency and delinquency interests.

Consequently, the CIR filed a "Motion for Reconsideration (on the Decision of the Honorable Court" dated 25 January 2017) on

February

10, 2017;4 while

Ritegroup

filed its "Motion for Reconsideration (Re: Decision dated 25 January 2017)" on February 13, 2017. 5 In the assailed Amended Decision dated June 29, 2017,6 the Court in Division denied the CIR's "Motion for Reconsideration" for lack of merit;

but partially granted

Ritegroup's "Motion

for Reconsideration", reducing the aggregate amount to be paid by Ritegroup to P2,702,879.92, and still adding deficiency and delinquency interests.

3 Docket (CTA EB No. 1686), pp. 22 to 60; and Docket (CTA EB No. 1687), pp. 88 to 126; and Division Docket (CTA Case No. 8651)- Vol. 6, pp. 3621 to 3660. 4 Division Docket (CTA Case No. 8651)- Vol. 6, pp. 3661 to 3670. 5 Division Docket (CTA Case No. 8651)- Vol. 6, pp. 3671 to 3709. 6 Docket (CTA EB No. 1686), pp. 62 to 80; and Docket (CTA EB No. 1687), pp. 68 to 86; and Division Docket (CTA Case No. 8651)- Vol. 6, pp. 3763 to 3781. ~

CTA EB No. 1686 and 1687

On July 25, 2017, the CIR filed a "Motion for Extension of Time To File Petition for Review" before the Court En Bane7 in CTA EB No. 1686 entitled "Commissioner of Internal Revenue, Petitioner, v. Ritegroup Incorporated, Respondent", praying that it be granted a final extension of fifteen (15) days, within which to file his Petition for Review.

The Court En Bane granted the CIR a final and non- extendible period of fifteen (15) days from July 25, 2017, or until August 9, 2017 to file the said Petition for Review. 8 On the other hand, on even date, July 25, 2017, Ritegroup likewise filed in CTA EB No. 1687, entitled "Ritegroup Incorporated, Petitioner, v. Commissioner of Internal Revenue, Respondent", filed on August 9, 2017, a "Motion for Time" with the Court En Bane, 9 praying that it be allowed an additional period of fifteen (15) days from July 25, 2017 or until August 9, 2017, within which to file its Petition for Review. The Court En Bane also granted Ritegroup the same final and non-extendible period of fifteen (15) days, within which Ritegroup must file its Petition for Review. 10 The CIR filed his "Petition for Review" on August 8, 2017; 11 while Ritegroup filed its "Petition for Review" on August 9, 2017. 12 In the Minute Resolution dated August 10, 2017, 13 the Court En Bane consolidated CTA EB No. 1687 with CTA EB No. 1686. Subsequently, in the Resolution dated August 23, 2017, 14 with the consolidation of the instant cases, the parties were ordered by the Court En Bane to file their respective comment. Ritegroup filed its "Comment/Opposition (To: Petition for Review)" on August 30, 2017. 15 The CIR, however, failed to file his "Comment''. 16 In the Resolution dated November 27, 2017, 17 the Court En Bane gave due course to the Consolidated Petitions for Review, and

CTA EB No. 1686 and 1687 the parties were granted a period of thirty (30) days within which to file their respective memorandum.

Ritegroup then filed a "Motion for Time" on January 15, 2018, 18 praying that it be allowed an additional period of ten (10) days from January 14, 2018, or until January 24, 2018, within which to file its Memorandum.

Thus, the Court En Bane granted Ritegroup the period prayed for, but qualified it as "final and non-extendible". 19 On January 24, 2018, Ritegroup filed its "Consolidated Memorandum". 20 On the other hand, the CIR failed to file his Memorandum.21 In the Resolution dated February 20, 2018,22 the instant consolidated cases were deemed submitted for decision. Hence, this Decision.

THE ISSUES

Culled from the allegations in the CIR's Petition for Review in CT A EB Case No. 1686, are the following issues, to wit: I.

WHETHER THE ASSESSMENT NOTICES ISSUED TO

[RITEGROUP]

HAD

ALREADY

BECOME

FINAL, EXECUTORY AND DEMANDABLE.

II.

WHETHER RITEGROUP'S PURCHASES WERE NOT

SUPPORTED BY DOCUMENTARY EVIDENCE.

CTA EB No. 1686 and 1687

Ill.

WHETHER

RITEGROUP'S

UNACCOUNTED

EXPENSES

ARE

TO

BE

CONSIDERED AS

AN

UNACCOUNTED SOURCE OF CASH.

IV.

WHETHER THE PURCHASE INVOICES NOT BEARING

THE TAX IDENTIFICATION NUMBER OF RITEGROUP

SHOULD BE CONSIDERED AS DEDUCTION FROM ITS

GROSS INCOME.

On the other hand, in CTA EB Case No. 1687, Ritegroup explicitly raises the following issues for the Court En Bane's resolution, to wit:

"1. WHETHER OR NOT THE 3rd DIVISION ERRED IN

UPHOLDING THE SIMULTANEOUS IMPOSITION OF

DEFICIENCY AND DELIQUENCY INTEREST.

II. WHETHER OR NOT THE 3rd DIVISION ERRED IN

NOT RULING THAT [THE CIR]'S ASSESSMENT FOR

DEFICIENCY INCOME TAX, ARISING FROM A

MERE

'DISCREPANCY'

BETWEEN

WHAT

IS

RECORDED AS PURCHASES IN [RITEGROUP]'S

BOOKS AND THAT REPORTED IN THE AUDITED

FINANCIAL STATEMENT IS VAGUE, AND WITHOUT LEGAL OR FACTUAL BASIS, AND, HENCE, VOID AB

INITIO FOR BEING VIOLATIVE OF [RITEGROUP]'S

CONSTITUTIONALLY PROTECTED RIGHT TO DUE

PROCESS.

Ill. WHETHER OR NOT THE 3rd DIVISION ERRED IN

DISALLOWING

CERTAIN

PURCHASES

AS

DEDUCTIONS

FROM

GROSS

INCOME,

NOTWITHSTANDING THE

FACT THAT THESE

PURCHASES WERE SUPPORTED BY ORIGINAL

OFFICIAL RECEIPTS ISSUED BY THE LAND BANK

OF THE PHILIPPINES.

IV.WHETHER OR NOT THE 3rd DIVISION ERRED IN

DISALLOWING

CERTAIN

PURCHASES

AS

DEDUCTIONS

FROM

GROSS

INCOME, t

CTA EB No. 1686 and 1687

NOTWITHSTANDING

THE

FACT

THAT

THE

PURCHASES WERE SUPPORTED BY CREDIBLE

UNCONTROVERTED

DOCUMENTARY

AND

TESTIMONIAL

EVIDENCE,

AND

BY

THE

INDEPENDENT TESTIMONY OF THE ICPA.

V. WHETHER OR NOT THE 3rd DIVISION ERRED IN NOT APPLYING THE '50°/o RULE' ONLY ON THAT

PORTION OF [RITEGROUP]'S EXPENSES THAT

ARE ABSENT SUPPORTING DOCUMENTS.

VI.WHETHER OR NOT THE 3rd DIVISION ERRED IN

SUSTAINING

WHAT

IS

CLEARLY

A

'TABLE ASSESSMENT,' SPECIFICALLY,

ONE

WHICH

MINDLESSLY AND

RECKLESSLY

REITERATED

THE FINDINGS IN THE PAN WITH RESPECT TO

ALLEGED DEFICIENCY FBT APPLIED TO AN

AIRLINE TICKET, WHICH FINDING HAS, IN FACT,

ALREADY BEEN EARLIER RECOMMENDED TO BE

CANCELLED BY THE BIR EXAMINER'S AUDIT

INVESTIGATION FINDINGS."23 The CIR's arguments:

The CIR argues that assessment notices issued to Ritegroup had already become final, executory and demandable by reason of its failure to submit supporting documents to its administrative protest. Moreover, the CIR contends that Ritegroup's purchases were not supported by documentary evidence; that the unaccounted expenses of Ritegroup are to be considered as an unaccounted source of cash; and that the purchase invoices not bearing Tax Identification Number of Ritegroup should not be considered as deduction from its gross income.

Ritegroup 's arguments:

Quoted hereunder are the primary arguments raised by Ritegroup in its Consolidated Memorandum, to wit: "A.

THE

CIR'S

PETITION

FOR

REVIEW

IS

CTA EB No. 1686 and 1687

FORMALLY DEFECTIVE AND MUST BE DISMISSED

OUTRIGHT FOR NOT BEING ACCOMPANIED BY

PROOF

OF

SERVICE

PURSUANT TO

RULE

8 SECTION 4(b) OF THE REVISED RULES OF COURT OF TAX APPEALS ('CTA Rules'), IN RELATION TO SECTIONS 5 AND 7, RULE 43 OF THE RULES OF COURT.

B.

THE HONORABLE 3rd DIVISION WAS CORRECT

IN RULING THAT THE FAN DID NOT BECOME

FINAL AND EXECUTORY SINCE [RITEGROUP]

HAD, IN FACT, SUBMITTED DOCUMENTS IN SUPPORT OF ITS PROTEST. IT IS SETTLED IN

THIS JURISDICTION THAT THE BUREAU OF

INTERNAL REVENUE ('BIR') CANNOT DEMAND

WHAT TYPE OF DOCUMENTS ARE TO BE

SUBMITTED IN SUPPORT OF A PROTEST.

MORE IMPORTANTLY, THE PREROGATIVE TO SUBMIT SUPPORTING DOCUMENTS, IF ANY, LIES WITH THE TAXPAYER.

C.

THE 3rd DIVISION ERRED IN UPHOLDING THE

SIMULTANEOUS IMPOSITION OF DEFICIENCY

AND

DELINQUENCY

INTEREST.

SUCH

INTERPRETATION IS SIMPLY TOO ONEROUS

AND

UNJUST

TO

THE

TAXPAYER

WHO

DUTIFULLY

CHOSE

TO

SEEK

RECOURSE

BEFORE THE HONORABLE COURT RATHER

THAN JUST BEND TO THE WHIMS OF CIR'S

AGENTS.

THIS COULD NOT HAVE BEEN

CONTEMPLATED BY THE FRAMERS OF THE

LAW.

D.

AUSPICIOUSLY,

WITH

THE

PASSAGE

OF

REPUBLIC ACT NO. 10963, THE APPARENT

AMBIGUITY IN THE NIRC HAS FINALLY BEEN

CLARIFIED BY LEGISLATIVE ACTION AND THE

ORIGINAL INTENTION OF THE FRAMERS HAS

NOW BEEN REDUCED TO BLACK LETTER LAW. E.

EVEN THE CIR, UNDER REVENUE REGULATION NO.

18-2013,

CONCEDES

THAT

THE

DELIQUENCY

INTEREST

ONLY

ATTACHES

WHEN THE ASSESSMENT BECOMES FINAL

EXECUTORY AND DEMANDABLE. AND RIGHTLY ~

CTA EB No. 1686 and 1687

SO, BECAUSE BY ANALOGY, IN CIVIL CASES,

JUDGMENT OF A COURT AWARDING SUM OF

MONEY

THAT

BECOMES

FINAL

AND

EXECUTORY SHALL BE IMPOSED THAT 6%

LEGAL RATE OF INTEREST PER ANNUM ONLY

FROM FINALITY OF THE JUDGMENT TO ITS

SATISFACTION.

F.

IT IS SETTLED IN OUR JURISPRUDENCE THAT

TAX BURDENS ARE NOT TO BE IMPOSED, NOR

PRESUMED TO BE IMPOSED BEYOND WHAT

THE STATUTE EXPRESSLY PROVIDES.

THUS,

SECTION

249(B)

OF

THE

NIRC,

IN

THE

IMPOSITION OF DEFICIENCY INTERESTS, IS

CLEAR IN STATING THAT THE SAME ONLY

APPLIES TO 'ANY DEFICIENCY IN THE TAX DUE, AS THE TERM IS DEFINED IN THIS CODE.' PURSUANT TO SECTIONS 56( B), 93 AND 104 OF THE NIRC,

DEFICIENCY INTERESTS WERE

ONLY DEFINED AND THEREFORE, SHOULD

ONLY BE IMPOSED IN RELATION TO INCOME

TAX, ESTATE TAX, AND DONOR'S TAX.

G.

THE 3rd DIVISION GRAVELY ERRED IN NOT

RULING

THAT

CIR'S

ASSESSMENT

FOR

DEFICIENCY INCOME TAX, ARISIG FROM A

MERE 'DISCREPANCY'

BETWEEN WHAT

IS

RECORDED AS PURCHASES IN RITEGROUP'S

BOOKS AND THAT REPORTED IN THE AUDITED

FINANCIAL

STATEMENT,

IS

VAGUE,

AND

WITHOUT LEGAL OR FACTUAL BASIS.

H.

CIR'S

FAILURE TO

SUFFICIENTLY

INFORM

RITEGROUP OF THE LEGAL AND FACTUAL

BASIS OF THE ASSESSMENT IS FATAL AND

VIOLATES RITEGROUP'S CONSTITUTIONALLY

PROTECTED RIGHT TO DUE PROCESS. SUCH

DEFECT IN THE ASSESSMENT RENDERS THE

SAME VOID IN INITIO AND WITH LEGAL EFFECT. I.

ASSUMING

ARGUENDO

THAT

THE

ASSESSMENT IS NOT VOID, THE 3rd DIVISION

ERRED IN DISALLOWING CERTAIN PURCHASES

AS

DEDUCTIONS

FROM

GROSS

INCOME,

NOTWITHSTANDING THE FACT THAT THESE

CT A EB No. 1686 and 1687

PURCHASES WERE SUPPORTED BY ORIGINAL

OFFICIAL RECEIPTS ('ORs') ISSUED BY THE

LAND BANK OF THE

PHILIPPINES ('LBP').

THESE OFFICIAL RECEIPTS ARE THE PRIMARY

AND

BEST EVIDENCE

OF

THE

FACT OF

PAYMENT

FOR

THE

PURCHASES/

IMPORTATIONS

MADE.

THE

SUPPORTING

IMPORT ENTRY DECLARATIONS ('lEOs') ARE MERELY CORROBORATIVE EVIDENCE.

J.

THE FACT THAT THE LAND BANK OFFICIAL

RECEIPTS DO NOT SHOW THE BREAKDOWN

OF THE VAT COMPONENT DOES NOT DEVIATE

FROM THE FACT THAT RITEGROUP PAID FOR

LEGITIMATE

PURCHASES/

IMPORTATIONS

THAT SHOULD BE DEDUCTIBLE FROM INCOME.

WHETHER OR NOT THEY ARE VALID SOURCE

OF

INPUT VAT

IS A DIFFERENT MATTER

ALTOGETHER.

K.

THE PHOTOCOPIES lEOS ARE ADMISSIBLE,

AND HAVE IN FACT BEEN ALREADY ADMITTED

IN EVIDENCE.

L.

THE PHOTOCOPIED lEOS HAVE NOT BEEN CONTROVERTED BY THE CIR.

M.

THESE lEOs HAVE BEEN CONSIDERED AND CAREFULLY EXAMINED BY THE ICPA, AND

HAVE BEEN FOUND TO BE CONSISTENT WITH

AND CORROBORATIVE OF OTHER PIECES OF

EVIDENCE, SPECIFICALLY, THE ORIGINAL LBP

ORs AND THE QUARTERLY VAT RETURNS FOR

THE PERIOD.

N.

THESE lEOS ARE ALSO CORROBORATED BY

THE

TESTIMONIES

OF

RITEGROUP'S

WITNESSES.

0.

THE ORIGINAL LBP ORs ARE THE PRIMARY

EVIDENCE PRESENTED BY RITEGROUP.

THE

lEOs

WERE

MERELY

SUPPORTING

DOCUMENTS.

CTA EB No. 1686 and 1687

P.

ASSUMING

ARGUENDO

THAT

THE

ASSESSMENT IS NOT VOID, THE 3rd DIVISION

ERRED IN DISALLOWING CERTAIN PURCHASES

AS

DEDUCTIONS

FROM

GROSS

INCOME,

NOTWITHSTANDING

THE

FACT

THAT

THE

PURCHASES WERE ALREADY ADMITED

IN

EVIDENCE

AND

WERE

SUPPORTED

BY

CREDIBLE UNCONTROVERTED DOCUMENTARY

AND

TESTIMONIAL

EVIDENCE

OF

RITEGROUP'S

WITNESSES,

AND

BY

THE

INDEPENDENT TESTIMONY OF THE ICPA.

Q.

THE HONORABLE THIRD DIVISION CORRECTLY

RULED THAT THE SIR'S DEFICIENCY TAX

ASSESSMENT

ON

THE

ALLEGED

UNACCOUNTED EXPENSE OF [RITEGROUP] IS

PATENTLY

MISPLACED.

INDEED,

THE

ALPHALIST

SUBMITTED

BY

[RITEGROUP]

CONTAINS THE SAME FIGURES AS THOSE

DECLARED IN THE 2008 FINANCIAL STATEMENT

('FS'),

SUCH

THAT

THERE

IS

NO

UNACCOUNTED

EXPENSE

TO

SPEAK

OF.

MORE IMPORTANTLY, THESE EXPENSES WERE

NEVER

CLAIMED

AS

DEDUCTIONS

AND

THEREFORE, MAY NOT BE CONSIDERED AS INCOME, SUBJECT TO TAX.

R.

THE HONORABLE THIRD DIVISION IS CORRECT

IN

HOLDING

THAT

THE

PURCHASES

SUPPORTED

BY

INVOICES

ARE

VALID

DEDUCTIONS FOR INCOME TAX PURPOSES

ALTHOUGH THESE INVOICES DO NOT BEAR

THE

[RITEGROUP]'S

TAX

IDENTIFICATION

NUMBER ('TIN').

CONTRARY TO THE SIR'S

POSITION, SEC. 34(A)(1 )(b) OF THE NATIONAL

INTERNAL REVENUE

CODE, AS AMENDED ('NIRC'}, IS CLEAR THAT DEDUCTIONS FROM

GROSS INCOME MAY BE SUBSTANTIATED BY

SUFFICIENT

EVIDENCE

SUCH

AS

OTHER

ADEQUATE RECORDS.

S.

THE 3rd DIVISION ERRED IN NOT APPLYING THE '50°/o

RULE' ONLY ON THAT PORTION OF

RITEGROUP'S EXPENSES THAT ARE ABSENT

SUPPORTING DOCUMENTS.

THERE IS NO

~

CT A EB No. 1686 and 1687

COGENT OR LOGICAL REASON TO APPLY THIS

ESTIMATE ON THAT PART OF THE EXPENSES

WHICH ARE DULY SUPPORTED BY OFFICIAL

RECEIPTS.

T.

THE 3rd DIVISION ERRED IN SUSTAINING WHAT

IS

CLEARLY

A

'TABLE ASSESSMENT,' SPECIFICALLY, ONE WHICH JUST MINDLESSLY

AND RECKLESSLY REITERATED THE FINDINGS

IN THE PAN WITH RESPECT TO AN ALLEGED

DEFICIENCY

FBT

ARISING

FROM

THE

PURCHASE OF AN AIRLINE TICKET, WHICH

FINDING

HAS,

IN

FACT,

ALREADY

BEEN

EARLIER RECOMMENDED TO BE CANCELLED

BY THE BIR EXAMINER'S AUDIT INVESTIGATION

FINDINGS.

IN

OTHER WORDS,

THE

BIR

EXAMINER WAS ALREADY SATISFIED WITH

PROOF PRESENTED BY RITEGROUP SHOWING

THAT THE SAME WAS USED FOR A LEGITIMATE

BUSINESS TRIP."24

THE COURT EN BANC'S RULING

Both petitions lack merit.

An appeal to the Court En Bane must be preceded by the filing of a timely motion for reconsideration or new trial with the Court in Division.

Section 18 of Republic Act (RA) No. 112525, as amended by RA No. 928226, provides as follows:

24 EB Docket (EB No. 1686), pp. 136 to 141. 25 AN ACT CREATING THE COURT OF TAX APPEALS. 26 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. 1125, AS AMENDED, OTHERWISE KNOWN AS THE LAW CREATING THE COURT OF TAX APPEALS, AND FOR OTHER PURPOSES.

CTA EB No. 1686 and 1687

"SEC. 18. Appeal to the Court of Tax Appeals En Bane. - No civil proceeding involving matters arising under the National Internal Revenue Code, the Tariff and Customs Code or the Local Government Code shall be maintained, except as herein provided, until and unless an appeal has been previously filed with the CTA and disposed of in accordance with the provisions of this Act. A party adversely affected by a resolution of a Division of the CTA on a motion for reconsideration or new trial, may file a petition for review with the CTA en bane." (Emphasis and underscoring supplied) On the basis thereof, a party intending to file a petition for review before this Court En Bane, must be adversely affected by a "resolution", not an "amended decision", of a Division of this Court on a motion for reconsideration or new trial. In the case of Asiatrust Development Bank, Inc.

vs.

Commissioner of Internal Revenue, 27 the Supreme Court held: "Section 1, Rule 8 of the Revised Rules of the CTA states:

SECTION 1. Review of cases in the Court en bane. - In cases falling under the exclusive appellate jurisdiction of the Court en bane, the petition for review of a decision or resolution of the Court in Division must be preceded by the filing of a timely motion for reconsideration or new trial with the Division. Thus, in order for the CTA En Bane to take cognizance of an appeal via a petition for review, a timely motion for reconsideration or new trial must first be filed with the CTA Division that issued the assailed decision or resolution.

Failure to do so is a ground for the dismissal of the appeal as the word 'must' indicates that the filing of a prior motion is mandatory, and not merely directory.

27 G.R Nos. 201530 and 201680-81, April19, 2017. ~

CTA EB No. 1686 and 1687

The same is true in the case of an amended decision. Section 3, Rule 14 of the same rules defines an amended decision as '[a]ny action modifying or reversing a decision of the Court en bane or in Division.' As explained in CE Luzon Geothermal Power Company, Inc. v. Commissioner of Internal Revenue, 28 an amended decision is a different decision, and thus, is a proper subject of a motion of reconsideration. In this case, the CIR's failure to move for a reconsideration of the Amended Decision of the CTA Division is a ground for the dismissal of its Petition for Review before the CTA En Bane. Thus, the CTA En Bane did not err in denying the CIR's appeal on procedural grounds."

(Emphases and underscoring supplied) Based on the foregoing jurisprudential pronouncements, the failure of a party to move for the reconsideration of an Amended Decision, being a different decision of the CTA's Court in Division, is a ground for dismissal of an appeal filed before the CTA's Court En Bane.

Thus, for the CIR's failure to file a motion for reconsideration of the assailed Amended Decision dated June 29, 2017 rendered by the Court in Division, the instant appeal of the CIR must be dismissed. CTA EB No. 1687 The

Court

in

Division

had no jurisdiction to entertain Ritegroup's Petition for Review docketed as CTA

Case

No.

8651, since it was prematurely filed.

Even if not raised in the present petition, the Court is not prevented from considering the issue on the court's jurisdiction consistent with the well-settled principle that when a case is on appeal, the Court has the authority to review matters not specifically raised or assigned as error if their consideration is necessary in 28 G.R. Nos. 200841-42, August 26,2015,768 SCRA 269,275. ~

CTA EB No. 1686 and 1687 reaching a just conclusion of the case. 29 The matter of jurisdiction cannot be waived because it is conferred by law and is not dependent on the consent or objection or the acts or omissions of the parties or any one of them. 30 We rule that Ritegroup's Petition for Review in CTA Case No. 8651 was prematurely filed. Thus, the Court in Division was without jurisdiction to take cognizance of the same. Section 228 of the NIRC of 1997 provides as follows: "SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: xxx The taxpayer shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. Within 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 an 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 shall 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 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 29 Nippon Express (Philippines) Corporation vs. Commissioner of Internal Revenue, G.R. No. 191495, July 23, 2018.

30 lb'd ..

z ., c1tmg

CTA EB No. 1686 and 1687 lapse of the one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and demandable." (Emphasis supplied) Based on the foregoing legal provisions, in case the protest to the assessment is denied, whether wholly or in part, or the 180-day period had lapsed, the taxpayer adversely affected by the decision or inaction must file an appeal to this Court; otherwise, the decision shall become final, executory and demandable. Section 3 of Revenue Regulations No. 12-99 31 implements the above-quoted Section 228 as follows: "SECTION 3.

Due Process Requirement in the

Issuance of a Deficiency Tax Assessment. - 3.1 Mode of procedures in the issuance of a deficiency tax assessment:

XXX

XXX

XXX

3.1.5 Disputed Assessment. - xxx.

The taxpayer shall state the facts, the applicable law, rules and regulations, or jurisprudence on which his protest is based, otherwise, his protest shall be considered void and without force and effect. If there are several issues involved in the disputed assessment and the taxpayer fails to state the facts, the applicable law, rules and regulations, or jurisprudence in support of his protest against some of the several issues on which the assessment is based, the same shall be considered undisputed issue or issues, in which case, the taxpayer shall be required to pay the corresponding deficiency tax or taxes attributable thereto.

The taxpayer shall submit the required documents in support of his protest within sixty (60) days from date of filing of his letter of protest, otherwise, the assessment 31 SUBJECT: Implementing the Provisions of the National Internal Revenue Code of 1997 Governing the Rules on Assessment of National Internal Revenue Taxes, Civil Penalties and Interest and the Extra-Judicial Settlement of a Taxpayer's Criminal Violation of the Code Through Payment of a ~ Suggested Compromise Penalty.

f

CTA EB No. 1686 and 1687 shall become final, executory and demandable. The phrase 'submit the required documents' includes submission or presentation of the pertinent documents for scrutiny and evaluation by the

Revenue

Officer

conducting the audit.

The said Revenue Officer shall state this fact in his report of investigation. If the taxpayer fails to file a valid protest against the formal letter of demand and assessment notice within thirty (30) days from date of receipt thereof, the assessment shall become final, executory and demandable.

If the protest is denied, in whole or in part, !r£ the Commissioner, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from date of receipt of the said decision, otherwise, the assessment shall become final, executory and demandable.

In general, if the protest is denied, in whole or in part, by the Commissioner or his duly authorized representative, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from date of receipt of the said decision, otherwise, the assessment shall become final, executory and demandable: Provided, however, that if the taxpayer elevates his protest to the Commissioner within thirty

(30) days from date of receipt of the final decision of the Commissioner's duly authorized representative, the latter's decision shall not be considered final, executory and demandable, in which case, the protest shall be decided by the Commissioner. If the Commissioner or his duly authorized representative fails to act on the taxpayer's protest within one hundred eighty (180) days from date of submission, by the taxpayer, of the required documents in support of his protest, the taxpayer may appeal to the Court of Tax Appeals within thirty

(30) days from the lapse of the said 180-day period, otherwise, the assessment shall become final, executory and demandable."

(Emphasis

and underscoring supplied)

CTA EB No. 1686 and 1687

The foregoing provisions dichotomize the remedies available to the concerned taxpayer when the protest is denied by the CIR himself or herself, or by the latter's duly authorized representative. While in both cases, the taxpayer may already file an appeal before this Court the denial, whether in whole or in part, of the CIR or the said duly authorized representative, Section 3.1.5 gives the taxpayer the option to file an administrative appeal to the CIR, in case the denial was made by the same duly authorized representative. Furthermore, the said Section 3.1.5 mandates that in case of an administrative appeal, "the protest shall be decided by the Commissioner." Nevertheless, it must be stressed that the 180-day period referred to in Section 228 of the NIRC of 1997 is confined only the period within which either the CIR or his/her duly authorized representative may act on the initial protest against the FAN. If the taxpayer opts to appeal to the CIR the final decision of the latter's duly authorized representative, the taxpayer's remaining option is to await for the CIR's decision before it can elevate the case to this Court.

In other words, upon filing of an administrative appeal, the concerned taxpayer is not given a fresh or separate 180-day period. Even RR No. 12-99 does not provide for a fresh or separate 180-day period for the Cl R to decide the appealed decision of the latter's duly authorized representative. A plain reading of Section 228 of the NIRC of 1997 and Section 3.1.5 of RR No. 12-99 reveals that there is only one ( 1 ) 180-day period to speak of. In this case, it is undisputed that on January 26, 2012, Ritegroup protested the FLO dated January 13, 2012; 32 that on September 25, 2012, Ritegroup received the letter dated September 7, 2012 issued by Jonas DP. Amara, OIC-Regional Director of Revenue Region No. 7, Quezon City, reiterating the tax assessments issued against Ritegroup; 33 that on October 9, 2012, Ritegroup filed with the Office of the CIR the Letter of Appeal dated October 7, 2012; 34 and that on May 7, 2013, Ritegroup filed its Petition for Review before the Court in Division.35 32 Exhibit "P-4", Division Docket (CTA Case No. 8651)- Vol. 4, pp. 2422 to 2425. 33 Par. 6, Joint Stipulation of Facts and Issues (JSFI), Division Docket (CTA Case No. 8651) - Vol. 4, p. 2159; and Exhibit "P-5", Division Docket (CTA Case No. 8651) - Vol. 1, p. 52.

CTA EB No. 1686 and 1687

Since Ritegroup filed its protest letter on January 26, 2012, and considering that it did not submit additional supporting documents within the 60-day period, the 180-day period to decide the protest should be reckoned from said date. Counting 180 days from January 26, 2012, the CIR or his/her duly authorized representative had until July 24, 2012 within which to decide the protest. Ritegroup did not appeal the inaction with this Court within 30 days after the lapse of the 180-day period, which ended on July 24, 2012. Instead, Ritegroup opted to wait for the CIR's authorized representative's decision on its protest.

After Ritegroup received the letter dated September 7, 2012, which is the final decision of the CIR's authorized representative, Ritegroup filed the Letter of Appeal with the CIR on October 9, 2012. When the CIR failed to act on Ritegroup's Letter of Appeal within 180 days, Ritegroup filed its Petition for Review with the Court in Division on May 7, 2013 and averred that the same was filed due to the CIR's inaction.

Applying the above-quoted provisions of Section 228 in relation to that of Section 3.1.5, the filing of the said Petition for Review was premature as there was yet no decision rendered by the CIR on its Letter of Appeal.

To stress, in case of an administrative appeal, Section 3.1.5 is explicit that the protest shall be decided by the CIR. In other words, Ritegroup erred in counting a new or fresh period of 180 days from October 9, 2012 for the CIR to decide on the appealed decision of the CIR's duly authorized representative, and in elevating the matter before the Court in Division after the lapse of the said period without action on the part of the CIR. Nevertheless, it must be emphasized that even if the CIR failed to act within 180 days from the filing of Ritegroup's Letter of Appeal on October 9, 2012, the inaction is no longer appealable to this Court. It is only after the CIR shall have rendered its final decision on the said Letter of Appeal that Ritegroup may file an appeal thereto. Correspondingly, since the CIR has yet to issue a final decision on Ritegroup's Letter of Appeal at the time of filing Ritegroup's Petition for Review on May 7, 2013, the said Petition for Review should have been dismissed by the Court in Division for lack of jurisdiction and prematurity.

Lack of jurisdiction of the court over an action or the subject matter of an action cannot be cured by the silence, acquiescence, or even by the express consent of the parties. If the court has no ~

CTA EB No. 1686 and 1687 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. 36

WHEREFORE, in light of the foregoing considerations, the Petition for Review filed by the CIR in CTA EB 1686 is DISMISSED for failure to file a motion for reconsideration of the assailed Amended Decision dated June 29, 2017 prior to the filing the said Petition for Review.

Moreover, the Petition for Review filed by Ritegroup in CTA EB No. 1687 is DENIED for lack of merit. Accordingly, the assailed Decision dated January 25, 2017 and Amended Decision dated June 29, 2017, both rendered in CTA Case No. 8651, are hereby REVERSED and SET ASIDE on jurisdictional ground.

WE CONCUR:

ER~.UY Assoc1ate Justice ,l..Q.., t,/' ~-~·¥"' ,, 0\ _'ff,li'\ SARlO tv cf" \.)

Presiding Justice

; 0 ~~c.~~ S2.

JU~NITO C. CASTANEDA~~R.

. FASON-VICTORINO

Associate Justice

36 Nippon Express (Philippines) Corp. vs. Commissioner of Internal Revenue, G.R. No. 186666, February 4, 2015.

CTA EB No. 1686 and 1687

~N.M~-G'~ CIELITO N. MINDARO-GRULLA

Associate Justice

~~ ~ h-" L..

( With Concurring and Dissenting Opinion )

MA. BELEN M. RINGPIS-LIBAN

Associate Justice

c~·J,~

( With Concurring and Dissenting Opinion )

CATHERINE T. MANAHAN

Associate Justice

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the cases were assigned to the writer of the opinion of the Court.

Presiding Justice

REPUBLIC OF THE PHILIPPINES

Court of Tax Appeals

QUEZON CITY

ENBANC

COMMISSIONER OF INTERNAL

REVENUE, Petitioner, -versus- RITEGROUP INCORPORATED, Respondent,

X-----------------------------------------X

RITEGROUP INCORPORATED, Petitioner, -versus-

Present:

DEL ROSARIO, P.J. , CASTANEDA, JR., UY, FASON-VICTORINO, MINDARO-GRULLA, RINGPIS-LIBAN, and MANAHAN, JJ.

SEPARATE CONCURRING OPINION

DEL ROSARIO, P.J.:

I concur in the dismissal of the Petition for Review (CTA EB No. 1686) filed by the Commissioner of Internal Revenue (CIR) for lack of jurisdiction.

I wish to clarify that it has been my consistent position that a party aggrieved by an amended decision of the Court in Division must file a motion for reconsideration or new trial before filing an appeal with the CTA En Bane. The pronouncement in Asiatrust ~

Separate Concurring Opinion

CTA EB Nos. 1686 & 1687 (CTA Case No. 8651)

Page 2 of2

Development Bank, Inc. vs. Commissioner of Internal Revenue I Commissioner of Internal Revenue vs. Asiatrust Development Bank, Inc. (Asiatrustyt is edifying, viz.: "Thus, in order for the CTA En Bane to take cognizance of an appeal via a petition for review, a timely motion for reconsideration or new trial must first be filed with the CT A Division that issued the assailed decision or resolution. Failure to do so is a ground for the dismissal of the appeal as the word 'must' indicates that the filing of a prior motion is mandatory, and not merely directory.

The same is true in the case of an amended decision. Section 3, Rule 14 of the same rules defines an amended decision as '[a]ny action modifying or reversing a decision of the Court en bane or in Division.' As explained in CE Luzon Geothermal Power Company, Inc. v. Commissioner of Internal Revenue, an amended decision is a different decision, and thus, is a proper subject of a motion for reconsideration."

Records show that the Cl R filed his Petition for Review before the Court En Bane upon receipt of the assailed Amended Decision. The failure of the CIR to file a motion for reconsideration of the Court in Division's Amended Decision which granted relief in favor of Ritegroup Incorporated prevents the Court En Bane from taking cognizance of the CIR's Petition for Review. The only adjudicatory power left with the Court En Bane is to dismiss the CIR's Petition for Review.

Anent the Petition for Review (CTA EB No. 1687) filed by Ritegroup Incorporated, I concur in the dismissal thereof for lack of jurisdiction and prematurity.

All told, I CONCUR in the result.

Presiding Justice

1 G.R. Nos. 201530 and 201680-81, April19, 2017.

' .

REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS

QUEZON CITY

En Bane

COMMISSIONER OF

INTERNAL REVENUE, Petitioner, -versus-

RITEGROUP

INCORPORATED, Respondent.

x----------------------------------------x

RITEGROUP

INCORPORATED, - versus- Petitioner,

COMMISSIONER OF

INTERNAL REVENUE, Respondent.

Present:

DEL ROSARIO, PJ, CASTANEDA, JR., UY, PABON-VICTORINO, MINDARO-GRULLA, RINGPIS-LIBAN, and MANAHAN,JL

Promulgated:

)(- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - -)(

CONCURRING & DISSENTING OPINION

RINGPIS-LIBAN,.£:

With due respect to my esteemed colleague, Associate Justice Uy, I CONCUR with the ponenda in finding that the Court en bane that the Court in ~

Concurring & Dissenting Opinion

CTA EB Nos. 1686 & 1687 (CTA Case No. 8651)

Page 2 of 5

Division had no jurisdiction to entertain Ritegroup's Petition for Review (CTA Case No. 8651) since it was prematurely flied. However, as regards the dismissal of the Commissioner of Internal Revenue's Petition, it is my opinion that the failure of the CIR to file a Motion for Reconsideration of the Amended Decision is not a fatal flaw that would deprive the Court en bane of jurisdiction over the petition. For the orderly administration of justice, I maintain my position that the ruling laid down by the Supreme Court in Asiatrust Development Bank, Inc. v. Commissioner of Internal Revenue1 should only be applied in instances of similar factual milieu. My Concurring Opinion in Phi/am Properties Corporation v. Commissioner of Internal Revenur?, expounds on Asiatrust should not be applied in each and every case, as dictated by sound procedural rules. The relevant portions are quoted below:

Before the Court En Bane could take cognizance of a Petition for Review concerning a case falling under its exclusive appellate jurisdiction, the litigant must sufficiently show that it sought prior reconsideration or moved for a new trial with the concerned division, following Section 1, Rule 8 of the Revised Rules of the Court of Tax Appeals. This has always been the rule, and it still is. Said section provides, to wit:

"RULE 8

PROCEDURE IN CIVIL CASES

SECTION 1. Review of cases in the Court en bane. - In cases falling under the exclusive appellate jurisdiction of the Court en bane, the petition for review of a decision or resolution of the Court in Division must be preceded by the filing of a timely motion for reconsideration or new trial with the Division. (n)" On July 13, 2015, the Third Division (court in Division) promulgated a Decision denying Philam's claim for refund or issuance of a tax credit certificate for insufficiency of evidence ...

XXX

XXX

XXX

G.R. Nos. 201530 & 201680-81, April19, 2017. CTA EB No. 1406, July 07, 2017.

/

Concurring & Dissenting Opinion

CTA EB Nos. 1686 & 1687 (CTA Case No. 8651)

Page 3 of 5

On August 04, 2015, Philam flied

a Motion for

Reconsideration alleging that its claim was fully substantiated. On December 03, 2015, the court in Division issued an Amended Decision partially granting Philam's Motion for Reconsideration and ordering the Commissioner of Internal Revenue (CIR) to issue a tax credit certificate in the amount of Php612,287.61.

Thereafter, the CIR filed a Motion for Reconsideration on the Amended Decision, which was denied by the court in Division in a Resolution. Subsequently, Philam flied the instant Petition with this Court.

Hence, as borne by the records of the case, it is very clear that Philam already sought prior reconsideration with the court in Division before it filed a Petition for Review with the Court En Bane. The mandatory requirement under Section 1 of Rule 8 of the Revised Rules of the Court of Tax Appeals was already complied with.

I am not unaware of the recent pronouncement of the Supreme Court in Asiatrust Development Bank, Inc. v. Commissioner of Internal Revenue. However, I humbly stress and emphasize that the factual milieu of the said case differs significantly from the case at bar. Asiatrust is not on all fours with the instant case and should not be applied to the same.

At first glance, the facts of Asiatrust and this case may seem similar for in both cases, an amended decision was promulgated by the court in division partially granting the motion for reconsideration to the original decision. A perusal of the case however discloses that prior to the issuance of the amended decision, the court set a hearing for the presentation of the originals of the documents attached to

Asiatrust's

motion for reconsideration, documentary exhibits were presented and marked, a witness was recalled, and a supplemental formal offer of evidence was flied. Otherwise stated, a formal hearing was held which became the foundation of the amended decision in Asiatrust. Therefore, it is only proper that the Commissioner of Internal Revenue in Asiatrust file a motion for reconsideration to the amended decision as to the findings made by the Court in division during the hearing.

~

Concurring & Dissenting Opinion

CTA EB Nos. 1686 & 1687 {CTA Case No. 8651)

Page 4 of 5

In contrast with the case at bar, the only basis for the court in Division's Amended Decision dated December 03, 2015 was Philam's Motion for Reconsideration dated August 04, 2015. No hearing was set nor additional evidence presented. Moreover, to insist that Philam file a motion for reconsideration of the Amended Decision would only force Philam to reiterate its argument in its Motion for Reconsideration to the original decision, i.e., that its claim for refund was fully substantiated, which was already passed upon and resolved by the court in Division in its Amended Decision. Otherwise stated, to apply the rule in Asiatrust to include all situations involving issuance of an Amended Decision despite the fact that the issues to be raised in the "second motion for reconsideration" were already included in the motion for reconsideration ftled and passed upon by the court when it promulgated the Amended Decision would set a dangerous and mischievous precedent. A second motion for reconsideration which contains mere iterations and reiterations of the same points and arguments over and over again becomes, in effect, a mere dilatory strategy and consequently nothing more than pro forma. To reiterate, the use of precedents should not be mechanical. Application of a particular doctrine is appropriate only in cases involving similar facts. When the facts vary, one should analyze and re-examine if the same doctrine would still apply. As aptly put by the Supreme Court in Philippine Carpet Manufacturing v. Ignacio B.

Tagyamon:

"Under the doctrine of stare decisis, when a court has laid down a principle of law as applicable to a certain state of facts, it will adhere to that principle and apply it to all future cases in which the facts are substantially the same, even though the parties may be different. Where the facts are essentially different. however. stare decisis does not apply) for a perfectly sound principle as applied to one set of facts might be entirely inappropriate when a factual variant is introduced. (Emphasis supplied)" Similar to Phi/am, both the petitioner in CTA Case No. 8651, Ritegroup, Incorporated, and the respondent in the same case, the CIR, filed their respective Motions for Reconsideration to the assailed Decision dated January 25, 2017. Petitioner ftled its Motion for Reconsideration on February 13, 2017, while respondent ftled his Motion for Reconsideration on February 10, 2017. Second, /"-

Concurring & Dissenting Opinion

CTA EB Nos. 1686 & 1687 (CTA Case No. 8651)

Page 5 of 5

the only basis for the Court in Division's assailed Amended Decision was the parties' respective Motions for Reconsideration. And third, no hearing was set nor additional evidence presented for the resolution of the parties' motions for reconsiderations. Hence, I believe that the Court en bane may properly entertain these petitions.

I therefore vote to DISMISS the Petitions for Review in CTA EB No. 1686 and CTA EB No. 1687 for lack of jurisdiction; 2) SET ASIDE the Decision dated January 25, 2017 and the Amended Decision dated June 29, 2017 rendered by the Court in Division in CTA Case No. 8651; 3) DISMISS the Petition for Review filed by Ritegroup Incorporated in CTA Case No. 8651 for lack of jurisdiction, without prejudice to its right to appeal the Final Decision of the CIR on its pending appeal within thirty (30) days from receipt thereof. ~- ~ ..JI- MA. BELEN M. RINGPIS-LIBAN

Associate Justice

REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS

QUEZON CITY

ENBANC

COMMISSIONER OF INTERNAL

REVENUE, Petitioner, -versus- RITEGROUP INCORPORATED, Respondent.

X- - -

- - - - - - - - - - - - - - - - - -

- - X

RITEGROUP INCORPORATED,

Petitioner,

-versus-

COMMISSIONER OF INTERNAL

REVENUE, Respondent.

Present:

DEL ROSARIO, P.J., CASTANEDA, JR., UY, FABON-VICTORINO, MINDARO-GRULLA, RINGPIS-LIBAN, and MANAHAN, JJ.

Promulgated:

X- - - -

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

CONCURRING AND DISSENTING OPINION

MANAHAN, J.:

I concur th at the appeal of the Commissioner of Internal Revenue (CIR) docketed as CTA EB No. 1686 be dismissed for lack of jurisdiction for failure to file a motion for reconsideration on the assailed Amended Decision. However, I respectfully dissent to the dismissal of CTA EB No. 1687 due to premature filing of appeal at the division level.

It is my opinion th at the appeal should be entertained and the assessment should instead be cancelled for being void and issued without the requisite authority._._

CONCURRING AND DISSENTING OPINION

CTA EB Nos. 1686 & 1687 (CTA Case No.8651)

Page 2 of6

Records reveal that Ritegroup raised the issue of the LOA's validity before the Court in Division. Ritegroup stated that the LOA has not been revalided when the previous revenue officers failed to submit the report of their audit investigation within 120 days from the issuance of the LOA. 1 Ritegroup noted that the Memorandum of Re-Assignment, addressed to Revenue Officer (RO) Leyte S. Portugal and Group Supervisor Rodel Buenaobra, does not have the same effect as an LOA, because it merely re-assigns a new set of ROs to a given case.2 Ritegroup also stated that said Memorandum of Re-Assignment is signed only by the Revenue District Officer, and that the same is merely an internal communication addressed to the ROs.3 It is true that "failure of the revenue officer to request for revalidation of LA or the expiration of the revalidation period does not nullify the LA nor will it affect or modify the rules on the reglementary period within which an assessment may be validly issued."4 However, records also reveal that RO Leyte S. Portugal, who submitted the Memorandum Report of Investigation on the said taxable year, was not named in the LOA. Rather, as shown by the evidence and testified to by RO Portugal herself, she was re-assigned to take over and continue the audit and investigation of the case.s The authority of an RO to conduct an audit examination or investigation is based on Section 13 of the 1997 National Internal Revenue Code, as amended (NIRC), 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, 1 Docket, CTA Case No. 8651, Vol. 6, Trial Memorandum (For: Petitioner Ritegroup, Incorporated), pp. 3562-3565.

2 Docket, CTA Case No. 8651, Vol. 6, Trial Memorandum (For: Petitioner Ritegroup, Incorporated), p. 3565.

3 Docket, CTA Case No. 8651, Vol. 6, Trial Memorandum (For: Petitioner Ritegroup, Incorporated), pp. 3565-3566.

4 Rollo, Decision dated January 25, 2017, p. 32. 5 Docket, CTA Case No. 8651, Vol. 3, Exhibit "R-8", Judicial Affidavit, p. 2130. __

CONCURRING AND DISSENTING OPINION

CTA EB Nos. 1686 & 1687 (CTA Case No.8651)

Page 3 of6

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.

Pursuant to this, Revenue Memorandum Order (RMO) No. 43-906 specifically requires the issuance of a new LOA in cases of reassignment or transfer:

Any reassignment/transfer of cases to another RO(s), and revalidation of L/ As which have already expired, shall require the issuance of a new L/A, with the corresponding notation thereto, including the previous L/ A number and date of issue of said L/ As. (Underscoring ours) The use of the word "shalf' in RMO No. 43-90 can only mean that the issuance of a new LOA is mandatory in cases of reassignment. 7 Clearly, before an assessment can be conducted, the RO conducting the same must first be authorized to do so, pursuant to an LOA issued by the Revenue Regional Director. In case of reassignment or transfer of cases to another RO, a new LOA with a corresponding notation thereto must be issued.8 Unfortunately, the BIR failed to comply with the issuance of a new LOA when the investigation of Ritegroup's books was transferred and reassigned.

In LOA No. 2008-000497049 dated November 23, 2009, RO Gilquin B. Tolentino and Group Supervisor (GS) Edgar C. Espiritu were named as the authorized officers to examine Ritegroup's books of accounts and other accounting records for the period January 1 to December 31, 2008. 6 Amendment of Revenue Memorandum Order No. 37-90 Prescribing Revised Policy Guidelines for Examination of Returns and Issuance of Letters of Authority to Audit, September 20, 1990.

7 Nikken Philippines, Inc. v CIR, CTA EB No. 1569, June 7, 2018. 8 Nikken Philippines, Inc. v CIR, CTA EB No. 1569, June 7, 2018. 9 Docket, CTA Case No. 8651, Vol. 4, Exhibit "P-1", p. 2418; BIR Records, Exhibit "R-2",

p. 247.~

CONCURRING AND DISSENTING OPINION

CT A EB Nos. 1686 & 1687 (CT A Case No.8651)

Page 4 of6

In an undated Memorandum, 10 RO Leyte Portugal and GS Rodel Buenaobra were directed to continue the audit and investigation of Ritegroup for taxable year 2008. No new LOA was issued pursuant to RMO No. 43-90, thus, the investigation by the subsequent RO, Leyte Portugal, was without the requisite authority. In CIR v. Sony Philippines, Inc., 11 the Supreme Court explained the necessity of an LOA, as follows: Based on Section 13 of the Tax Code, a Letter of Authority or 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. The very provision of the Tax Code that the CIR relies on is unequivocal with regard to its power to grant authority to examine and assess a taxpayer.

XXX

XXX

XXX

Clearly, 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. (Underscoring ours) This was reiterated in Medicard Philippines, Inc. v. CIR, 12 as follows:

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 10 BIR Records, Exhibit "R-1 ", p. 593. u G.R. No. 178697, November 17, 2010. 12 G.R. No. 222743, AprilS, 2017.~

CONCURRING AND DISSENTING OPINION

CTA EB Nos. 1686 & 1687 (CTA Case No.8651)

Page 5 of6

to the

CIR

himself or his duly authorized representatives. 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: SEC. 6. Power of the Commissioner to Make

Assessments

and

Prescribe

Additional

Requirements for Tax Administration and

Enforcement. -

(A)

Examination

of

Return

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.

XXX

XXX

xxx (Emphasis and underlining ours) Based on the afore-quoted prov1s10n, 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.

XXX

XXX

XXX

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..,,.., __

CONCURRING AND DISSENTING OPINION

CTA EB Nos. 1686 & 1687 (CTA Case No.8651)

Page 6 of6

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. To reiterate, the LOA is the proof that the person/ s named therein is/are authorized to conduct the necessary investigation/ audit, it is an express grant of authority. 13 Thus, absent the necessary issuance of a new LOA specifically naming the person to whom the case will be reassigned with the corresponding annotation per RMO No. 43-90, there is no authority to conduct the investigation/ audit.1 4 In the instant case, the investigation and audit of Ritegroup's books of account for taxable year 2008 was transferred to RO Leyte S. Portugal. However, no new LOA was issued, hence, the said investigation and corresponding assessments are void.

WHEREFORE, I vote that the Petition for Review filed by the Commissioner of Internal Revenue, docketed as CTA EB No. 1686, be dismissed for lack of jurisdiction. Further, I vote that Ritegroup Incorporated's Petition for Review, docketed as CTA EB No. 1687, be GRANTED and that the Decision and Amended Decision in CTA Case No. 8651, dated January 25, 2017 and June 29, 2017, respectively, be REVERSED. The assessments against Ritegroup Incorporated for taxable year 2008 should be CANCELLED.

C~7·~

CATHERINE T. MANAHAN

Associate Justice

13 Nikken Philippines, Inc. v CIR, CTA EB No. 1569, June 7, 2018. 14 Jd.