The Court of Tax Appeals (CTA) has cancelled and set aside the P8.04 million documentary stamp tax (DST) deficiencies for taxable year 2008 allegedly incurred by Montalban Methane Power Corporation, a firm engaged in Clean Development Mechanism Project under the United Nations Convention on Climate Change.

In a decision issued last Sept. 21, the CTA's special first division granted the petition filed by Montalban Methane Power against the ruling of the Bureau of Internal Revenue (BIR). 

The dispositive portion of the decision stated: "Accordingly, the assailed Decision of the CIR (Commissioner of Internal Revenue) dated Jan.18, 2019, requesting petitioner to pay deficiency DST, including increments, in the aggregate amount of P8,041,269.04; the FDDA (Final Decision on Disputed Assessment) dated April 25, 2017 and the FAN (Formal Assessment Notice) dated Dec.13, 2013, issued against petitioner, for TY (taxable year) 2008, are cancelled and set aside."

“Unless reversed by higher courts, respondent (BIR) is enjoined and prohibited from collecting petitioner the deficiency assessment for TY 2008,” it added.

 The CTA noted that Montalban Methane Power challenged the validity of the deficiency tax assessment since the reinvestigation conducted by  Revenue Officer (RO) Pamela B. Tianco was “not preceded by a LOA (Letter of Authority).”

The petitioner also argued “respondent seriously erred in holding it liable for deficiency DST under Section 179 of the 1997 NIRC (National Internal Revenue Code), as amended, for ‘advances from shareholder’ indicated in its Audited Financial Statements (AFS) because not all so-called advances partake of borrowings nor reflect lending transactions subject to DST.”

 It told the tax court that such “such ‘advances’ refer to deposits for future stock subscriptions, hence, partake of the nature of capital contributions and not indebtedness.”

 “A LOA is the authority given to the appropriate RO assigned to perform assessment functions. It empowers or enables said RO to examine the books of accounts and other accounting records of a tax payer for the purpose of collecting the correct amount of tax. The LOA commences the audit process and informs the taxpayer that it is under audit for possible tax deficiency tax assessment,” the CTA said. 

 “It is well-settled that there must be a grant of authority before any RO can conduct an examination or assessment. Equally important is that the RO so authorized must not go beyond the authority given. In the absence of such authority, the assessment or examination is a nullity,” it stressed.

 It said that then BIR Regional Director Alfredo V. Misajo issued a LOA on Oct. 27, 2009 that authorized ROs Joel Andrew Evangelista and Josephine Elarmo “to examine petitioner’s books of accounts and other accounting records covering the period January 1, 2008 to December 31, 2008.”

 However, on April 25, 2017, then Regional Director Glen A. Geraldino issued a FDDA based on an undated memorandum from RO Pamela B. ianco.

 “Records show that RO Pamela B. Tianco was not authorized via an LOA to conduct a reinvestigation of petitioner, hence, rendering the tax deficiency assessments void,” the CTA pointed out.

 It said "the authority of RO Pamela B. Tianco is not sufficient to continue the examination of petitioner’s books of accounts and other accounting records, there being no new nor revised LOA issued in her favor.”

 “Such being the case, the subject tax assessments issued against petitioner for TY 2008 are void, for lack of authority,” it said. 

 “Being a void assessment, the same bears no fruit. Hence, the subject DST assessment cannot be legally enforced against petitioner nor can it be a valid basis for tax collection to proceed. Having ruled on the invalidity of the suject deficiency DST assessment for TY 2008, this Court finds it unncessary to rule on the remaining issues raised,” it added.