Commissioner of Internal Revenue vs Sony Philippines Inc.
CTA 90 – Taxation – Coverage Period of a Letter of Authority
In November 1998, the Commissioner of Internal Revenue issued a Letter of Authority numbered 19734 (LOA 19734) which authorized certain revenue examiners to examine Sony Philippines’ books of accounts regarding revenue taxes for “the period 1997 and unverified prior years.”
After the examination of said books, the CIR found out, among others, that Sony Philippines is liable for deficiency taxes and penalties for value added tax amounting to P11,141,014.41.
Sony Philippines contested such finding as it argued that the basis used by the CIR to assess said deficiency were the records covering the period of January 1998 through March 1998 which was a period not covered by the letter of authority so issued. The CIR countered that the LOA phrase “the period 1997 and unverified prior years” should be understood to mean the fiscal year ending on March 31, 1998.
Eventually the case reached the Court of Tax Appeals and the CTA decided agreed with Sony Philippines on this one. So did the CTA en banc.
ISSUE: Whether or not the CIR is correct.
HELD: No. The LOA issued is clear on which period is covered by the examination to be conducted. It’s only meant to cover the year “1997 and unverified prior years” not the year 1998. The revenue officers who examined the records covering the period of January to March 1998 had exceeded the jurisdiction granted to them by the LOA.
Further, the LOA which covered “1997 and unverified prior years” is in violation of the principle that a Letter of Authority should cover a taxable period not exceeding one taxable year. If the audit of a taxpayer shall include more than one taxable period, the other periods or years shall be specifically indicated in the LOA (as embodied in Section C of Revenue Memorandum Order No. 43-90 dated September 20, 1990).