REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS

QUEZON CITY

FIRST DIVISION
*********
MCDONALD'S PHILIPPINES CT A Case No. 8655
REALTY CORPORATION,
Petitioner, Members:

DEL ROSARIO, Chairperson ,

-versus- UY, and
MINDARO-GRULLA, JJ.

COMMISSIONER OF INTERNAL Promulgated:_

REVENUE,
Respondent. OCT 03 20161 . 2 ,. ~o ~,..
~ I

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

RESOLUTION

UY, J.:

For resolution is respondent's "MOTION FOR

RECONSIDERATION (Re: Decision dated 1 June 2016)" filed on
June 17, 2016, with petitioner's "COMMENT/OPPOSITION (RE:
MOTION FOR RECONSIDERATION DATED JUNE 17, 2016)" filed
on July 29, 2016, seeking the reconsideration of this Court's Decision
dated June 1, 2016, the dispositive portion of which reads:

"WHEREFORE , in light of the foregoing

consideration , the instant Petition for Review is
GRANTED. The deficiency VAT assessment issued by
respondent against petitioner for CY 2006 is
CANCELLED and SET ASIDE .

SO ORDERED. "

In his Motion, respondent argues as follows:

1. The instant case does not fall under paragraph 17 of Revenue

Memorandum Order (RMO) No. 12-2007;
2. RMO No. 17-2007 does not state that violation thereof would
cancel the assessment; ('d
RESOLUTION
CTA Case No. 8655
Page 2 of8

3. The audit investigation conducted by Revenue Officer (RO)

Rona Marcellano was made with proper authority under Letter
of Authority (LOA) No. 000006717; and
4. Petitioner is estopped from questioning the Authority of the RO.

On the other hand, petitioner, in its Comment, contends as

follows:

1. RO Rona B. Marcellano, Group Supervisor (GS) Frances E.

Leonida, and GS Juvy S. Dela Pena had no authority to
investigate petitioner's books of accounts and other accounting
records for calendar year (CY) 2006;
2. Referral Memo No. 122-LOA-1208-00039 (Exhibit "R-1") did not
validly grant RO Rona Marcellano authority to investigate
petitioner's books of accounts and other accounting records for
CY 2006; and
3. Petitioner is not estopped from questioning the authority of RO
Rona Marcellano.

THE COURT'S RULING

We deny respondent's Motion for Reconsideration.

To reiterate, Sections 6(A) and 13 of the National Internal

Revenue Code (NIRC) of 1997 provide as follows, 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.

XXX XXX xxx." (Emphases supplied)

"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 f1
RESOLUTION
CTA Case No. 8655
Page 3 of8

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." (Emphases supplied)

In Commissioner of Internal Revenue vs. Sony Philippines, Inc.

(hereinafter referred to as the "Sony case"), 1 the Supreme Court said:

"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 Cl R 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." (Emphases
supplied)

Based on the foregoing, the law and jurisprudence thereto is

clear: in the absence of a Letter of Authority (LOA) to examine
any taxpayer, the assessment or examination is a nullity.

In this case, to show that RO Rona Marcellano has the

authority to examine petitioner's records, respondent offered in
evidence merely the Referral Memo No. 122-LOA-1208-00039 dated
December 2, 2008. 2 In fact, it is, in effect, admitted by respondent
that no LOA was ever issued in favor of RO Rona Marcellano.
1
G.R. No. 178697, November 17, 2010.
;fl
2
Exhibit "R-1", BIR Records, p. 2
RESOLUTION
CTA Case No. 8655
Page 4 of8

Thus, even without RMO 12-2007, the fact remains that RO

Rona Marcellano was without authority to conduct the examination of
petitioner's records. Correspondingly, pursuant to the above-quoted
Sections 6(A) and 13 of the NIRC of 1997 in relation to the Sony
case, RO Rona Marcellano's examination of petitioner's records and
the resulting tax assessments are a nullity. As a corollary,
respondent's arguments that the instant case does not fall under
paragraph 17 of RMO No. 12-2007, and that the same issuance3
does not state that violation thereof would cancel the assessment,
are both of no consequence.

In any event, paragraph 17 of RMO 12-2007 has even

bolstered the said provisions and jurisprudence when it stated that
"[t]he practice of issuing ... referral memoranda .. .for the purpose of
audit examination and assessment of internal revenue taxes
is .. .strictly prohibited."

In this connection, respondent alleges, inter alia, that the said

paragraph refers to original issuances of the said documents for the
purpose of audit examination and assessment; that it does not cover
cases where a LOA was already issued authorizing the audit of a
taxpayer; that it is not always the case that the revenue officers
indicated in the original LOA would be able to complete their
investigation for some reasons; that that is the reason why referral
memoranda and memorandum of assignments are given to other
revenue officers to continue the audit investigation made by the
original revenue officers; that their authority to audit is not derived
from the referral memoranda or memorandum of assignment, but
from the original LOA; and that the memorandum is merely for the
continuation of the audit.

We do not agree.

To the mind of the Court, these allegations find no basis, in fact

or in law. Moreover, respondent did not present any evidence to
support said allegations.

Lastly, respondent contends that petitioner is estopped from

questioning the authority of the RO, because petitioner allegedly
never questioned said authority, and only when petitioner received an
adverse assessment, that it raises the argument that said RO had no
such authority.

3
fD
Erroneously referred to by respondent as "RMO 17-2007" in the instant Motion for
Reconsideration.
RESOLUTION
CTA Case No. 8655
Page 5 of8

We find respondents contention untenable.

The doctrine of estoppel springs from equitable principles and

the equities in the case. It is designed to aid the law in the
administration of justice where without its aid injustice might result. 4

The elements of estoppel are: first, the actor who usually must
have knowledge, notice or suspicion of the true facts, communicates
something to another in a misleading way, either by words, conduct
or silence; second, the other in fact relies, and relies reasonably or
justifiably, upon that communication; third, the other would be harmed
materially if the actor is later permitted to assert any claim
inconsistent with his earlier conduct; and fourth, the actor knows,
expects or foresees that the other would act upon the information
given or that a reasonable person in the actor's position would expect
or foresee such action. 5

In this case, respondent failed to establish each of the said

elements.

Particularly, in relation to the first element, the Court observes

that respondent did not present any evidence to show that petitioner
had knowledge, notice or suspicion that RO Rona Marcellano had no
authority to examine its records. In fact, petitioner has proved that it
believed that the said RO had such authority, until it was discovered
otherwise. Petitioner's witness and Director for Accounting, Ms.
Cornelia M. Naguit, during her cross examination at the hearing held
on January 23, 2014, testified as follows:

"ATTY. SILERIO

Q So, did you assist the Revenue Officer of the BIR

particularly during the audit examination that
eventually led to this present case?

MS. NAGUIT

A Yes, I am.

ATTY. SILERIO

4
to
Megan Sugar Corporation vs. Regional Trial Court of Iloilo, et al., G.R. No. 170352,
June 1, 2011.
5
British American Tobacco vs. Camacho, et al., G.R. No. 163583, August 20, 2008.
RESOLUTION
CTA Case No. 8655
Page 6 of8

Q In your answer to Question No. 42 found in page 11,

you stated your basis on saying that the
Revenue Officer who conducted the audit
investigation had no authority to examine the
petitioner's books to conduct the informal
conference. Is that correct?

MS. NAGUIT

A That is true because we based on her

representation that she is the authorized person
to conduct the audit.

ATTY. SILERIO

Q So, did you question the Revenue Officer's authority

to conduct the audit during the time that she was
investigating the (interrupted)

MS. NAGUIT

A Actually now, when the Letter of Authority to conduct

the examination of the Books of Accounts of
MPRC for calendar year 2006 was served, it was
a different person, it was (interrupted)

ATTY. SILERIO

Q What I was trying to ask you is that did you particularly

question her (interrupted)

MS. NAGUIT

A Not really because (interrupted)

ATTY. SILERIO

Q Yes or no only.

MS. NAGUIT

A Can I just explain?

JUSTICE DEL ROSARIO

Ms. Naguit, kindly face the Court so that we can see you
also. ;A
RESOLUTION
CTA Case No. 8655
Page 7 of8

MS. NAGUIT

Okay, your Honors.

A Not really. I would just like to expound on my answer

because whenever the BIR Examiner's served
the Letter of Authority, they usually come in
group and when you take a look, you don't really
single read or remember the names indicated in
the Letter of Authority, it's only the being the
leader of the team that you recognized. So,
when she came to the office and represented the
Eulema Demadura was already reassigned to
another BIR office, she said to us that she is the
replacement to continue with the audit and we
took her representation.

ATTY. SILERIO

Q So, your company did not take any particular action on

the matter that the Revenue Officer had no
authority?

MS. NAGUIT

A Actually, we do not really bother to check until we

prepare the reply to PAN when we found out
about it that's why as early as reply to PAN, we
raised that issue that she lacks authority to
conduct or continue the audit."6 (Emphases
supplied)

In this connection, this Court finds the applicability of Section 3(x) of

the Rules of Court in favor of petitioner, to wit:

"SEC. 3. Disputable presumptions.- The following

presumptions are satisfactory if uncontradicted, but may
be contradicted and overcome by other evidence:

XXX XXX XXX

(x) That acquiescence resulted from a belief

that the thing acquiesced in was conformable to the
law or fact". (Emphasis supplied)
~
6
Transcript of Stenographic Notes at the hearing held on January 23, 2014, pp. 11 to 13.
RESOLUTION
CTA Case No. 8655
Page 8 of8

And even granting that petitioner had knowledge, notice or suspicion

that Rona Marcellano had no authority to examine its records, there
is no indication that it had communicated such fact to respondent "in
a misleading way, either by words, conduct or silence". No such
evidence was ever presented by respondent.

The basic rule is that mere allegation is not evidence and is not
equivalent to proof. 7

Hence, this Court finds no basis in ruling that petitioner is

estopped from questioning the authority of RO Rona Marcellano and
the resulting tax assessments.

WHEREFORE, premises considered, respondent's Motion for

Reconsideration is DENIED for lack of merit.

SO ORDERED.
•

ER~P.UY
Associate Justice

WE CONCUR:

/~
~~OSARIO Presiding Justice
~N.~~,c._AL..
CIELITO N. MINDARO-GRULLA
Associate Justice

7
De Jesus vs. Guerreo III, et al., G.R. No. 171491, September 4, 2009.