EDS Manufacturing, Inc. v. Commissioner of Internal Revenue

THIRD DIVISION [C.T.A. CASE NO. 8913. June 25, 2020.] EDS MANUFACTURING, INC. , petitioner , vs. COMMISSIONER OF INTERNAL REVENUE , respondent . DECISION RINGPIS-LIBAN , J p : THE CASE The instant Petition for Review prays for the following: a) the Final Decision on Disputed Assessment (FDDA) dated September 22, 2014 and the Assessments made by respondent against the petitioner for fiscal year ending March 2010 be declared null and void; and b) the total alleged deficiency taxes of P228,909,376.19, inclusive of interest and penalties, against the petitioner for the same fiscal year be nullified. 1 THE PARTIES Petitioner EDS Manufacturing, Inc. is a corporation registered with the Bureau of Internal Revenue (BIR). 2 Respondent is the Commissioner of the BIR. 3 He was duly appointed and is empowered to perform the duties of his office, including, among others, the power to decide, cancel, and abate tax liabilities pursuant to Section 204 (B) of the Tax Code, as amended by Republic Act No. 8424, otherwise known as the "Tax Reform Act" of 1997, with office address at the BIR National Office Building, Agham Road, Diliman, Quezon City. 4 THE ANTECEDENTS On November 3, 2010, petitioner received a Letter of Authority (LOA) No. LOA-116-2010-00000137 (SN: eLA201000015094) dated October 26, 2010 issued by then Assistant Commissioner (ACIR) Nestor S. Valeroso of the BIR's Large Taxpayer Service Regular (LTSR), 5 authorizing Revenue Officers (ROs) Reynoso Bravo, Daniella Gabaon, Maribel Serafica, and Olivia Sison, and Group Supervisor (GS) Erlinda Ulgado, to examine petitioner's books of account and other accounting records for all internal revenue taxes for the period from April 1, 2009 to March 31, 2010. CAIHTE During the conduct of the audit and upon the request of the examiners of respondent, Mr. Tatsuo Karasaki, petitioner's Vice President, executed a series of Waivers of the Defense of Prescription Under the Statute of Limitations of the NIR C, as follows: a. On June 11, 2012, Mr. Karasaki executed a Waiver extending the period granted to the respondent to conduct his examination of petitioner until July 15, 2013 which was accepted by LTSR-ACIR Alfredo V. Misajon on June 19, 2012. 6 b. On January 21, 2013, Mr. Karasaki executed another Waiver extending the period granted to the respondent to conduct his examination of petitioner until December 31, 2013 which was accepted by LTSR-ACIR Alfredo V. Misajon on January 24, 2013. 7 c. On November 7, 2013, Mr. Karasaki executed a third Waiver extending the period granted to the respondent to conduct his examination of petitioner until July 31, 2014 which was accepted by LTSR-ACIR Alfredo V. Misajon on November 20, 2013. 8 On September 26, 2013, respondent issued a Notice of Informal Conference . 9 Thereafter, upon the recommendation of ROs Reynante P. Martinez, Rosario A. Arriola, Carolyn V. Mendoza, and Shella C. Samaniego, 10 respondent issued an undated Preliminary Assessment Notice (PAN), 11 finding deficiency taxes in the aggregate amount of P223,828,301.77, inclusive of interest and penalties. The said PAN was received by petitioner on October 25, 2013. 12 On November 8, 2013, petitioner filed with the BIR a letter evenly dated, replying to the said PAN, and mainly arguing that the assessment is null and void. 13 Subsequently, respondent issued an undated Formal Letter of Demand (FLD), 14 including Audit Results/Assessment Notices (FAN), against petitioner, assessing the latter of deficiency taxes in the aggregate amount of P221,204,721.86, inclusive of interest and penalties. The said FLD and FAN was received by petitioner on December 3, 2013. 15 Petitioner then filed, on December 27, 2013, its protest letter to the FLD and FAN with the BIR, 16 requesting for reinvestigation, and arguing that the same are null and void and have no basis both in fact and in law. On February 25, 2014, petitioner submits supporting documents for its protest. 17 Thereafter, the subject FDDA was issued by respondent, and received by respondent, on September 22, 2014. 18 Petitioner filed the instant Petition for Review with this Court on October 22, 2014. 19 On January 6, 2015, respondent filed her Answer , 20 interposing the following special and affirmative defenses, to wit: " SPECIAL AND AFFIRMATIVE DEFENSES Respondent incorporates and repleads all the foregoing averments and in further support of the Specific Denials herein set forth, respectfully alleges as her defense that: DETACa 4. The Petition for Review filed by petitioner deserves scant consideration. Petitioner is liable to pay deficiency taxes for taxable year ending March 2010 comprising of Income Tax, Expanded Withholding Tax, and Final Withholding Tax, plus Compromise Penalties, broken down as follows: Income Tax P115,007,889.33 Value-Added Tax 12,836,220.22 Withholding Tax on Compensation 53,900,564.05 Expanded Withholding Tax 13,669,705.99 Final Withholding Tax 24,196,324.58 Documentary Stamp Tax 9,298,672.02 TOTAL P228,909,376.19 5. To be sure, petitioner's tax liabilities were properly and legally assessed. Petitioner's internal revenue tax liabilities were investigated by Revenue Officers Reynoso Bravo, Daniella Gabaon, Maribel Serafica, Olivia Sision and Erlina Ulgado, of Large Taxpayer Regular Audit Division 1 pursuant to Letter of Authority No. 116-2010-00000137 dated October 26, 2010. 6. During investigation, petitioner was requested to produce certain documents needed in the audit examination of its books of accounts. 7. Upon submission of the preliminary report of investigation, petitioner through its representative was invited for a Notice of Informal Conference (NIC) on October 4, 2013 to inform it of the result of the investigation and to give it a chance to present other evidence to support its protest against the proposed assessment. 8. Subsequently, a Preliminary Assessment Notice (PAN) was issued against petitioner which the latter received on October 25, 2013. A letter-protest dated November 8, 2013 was filed by petitioner against the PAN. 9. The letter-protest was subsequently denied through a Formal Letter of Demand which petitioner received on December 3, 2013. On December 27, 2013 petitioner filed its protest letter to the Formal Letter of Demand. 10. Petitioner's protest was finally denied with finality via the issuance of a Final Decision on Disputed Assessment (FDDA) dated September 22, 2014. Right to Assess did not Prescribe 11. Petitioner contends that respondent can no longer assess the former as the Formal Letter of Demand was received by the petitioner only on 03 December 2013, in violation of the three (3)-year limitation as stated in Sec. 203 of the NIRC, as amended. 12. Petitioner, however, failed to inform this Honorable Court that it had executed at least two waivers of the prescription period in favor of the respondent. aDSIHc 13. The latest waiver, extended the period to assess up until December 31, 2013. This waiver was executed by TATSUO KARASAKI, on January 21, 2013 and accepted by ALFREDO V. MISAJON, the OIC-ACIR of Large Taxpayers Service in behalf of the respondent. Thus, respondent has until December 31, 2013 within which to assess petitioner. 14. Clearly, the right to assess did not prescribe. Petitioner's Income Tax Liability 15. Petitioner is liable for income taxes. Computerized matching of petitioner's sales reported in Summary List of Sales (SLS) as against Sales reported in its ITR revealed an undeclared sales. This undeclared sales were assess[ed] pursuant to Section 32 of the NIRC as amended. 16. Computerized matching of petitioner's purchases as against the summary list of sales submitted by its supplier revealed undeclared purchases. The said undeclared purchases were assessed using their cost ration to arrive at gross profit on undeclared purchases[.] 17. It is petitioner's position that the exchange rate that was used in conversion to Peso is the current rate for the month of the sale. On the other hand, in SLS, petitioner used the average exchange rate of the preceding month. Thus, the alleged discrepancy is something merely apparent than real brought about by conversion of the US$ to Philippine Peso in compliance with RR6-2006. 18. However, petitioner failed to submit relevant supporting documents regarding this stand within 60 days as mandated by the NIRC, prompting respondent to issue said assessment in[]order to protect the interest of the government. 19. Petitioner is also liable for income taxes based on its Gross Profit Rate on Undeclared Purchases. Computerized matching of Subject company schedule of purchases as against the SLS submitted by their supplier revealed undeclared purchases. The said undeclared purchases were assessed, using their cost ratio to arrive at gross profit on undeclared purchases, pursuant to Section 32 of the NIRC, as amended. 20. In this regard, petitioner counters that it was based on the timing difference in booking of purchases which caused the discrepancy. 21. However, again petitioner failed to submit relevant supporting documents to prove this stand within the period mandated by law, thus said amount was assessed against petitioner. 22. Petitioner's write off of Allowance deducted from Cost of Sales in the amount of P44,954,986.76 were also disallowed by respondent. Inventory related to non-moving which were previously provided with allowance for inventory obsolescence in 2009 were written off in 2010, since this inventory were not used to produce the inventory sold, this should not be allowed as part of cost of goods sold, but as operating expense pursuant to Section 34 of the NIRC. ETHIDa 23. Petitioner counters that the write off was allowed in BIR Ruling No. DA 608-06 dated October 11, 2006 and Additional allowable deduction in RR 11-2005. However, we stressed again that the write off is not allowed for the reason that the said inventory were not used to produce the goods sold. 24. Furthermore, certain expenses which were not subjected to Expanded Withholding Tax were disallowed pursuant to Section 34K of the NIRC. 25. Petitioner is of the position that to simply compare the entire amount reflected in the ITR with the EWT alphalist is erroneous. However, once again, petitioner failed to submit the necessary supporting documents to substantiate this claim. 26. The following expenses were also disallowed pursuant to Revenue Regulations No. 11-2005: Royalty Expenses $5,885,130.00 Freight & Brokerage 2,952,184.00 Overhead Materials 2,273,451.00 Repairs & Maintenance 610,291.00 Other Cost 403,285.00 Total Cost $12,124,341.00 Forex Rate Used P47.41 Total P574,815,006.81 27. It is petitioner's position that as long as the expenses/costs can be attributed in producing the goods/services, they are allowed as deductions for purposes of computing the 5% final tax. However, petitioner failed to submit the necessary documents to show that indeed, the above expenses in fact attributed in producing goods or services, thus were disallowed. Petitioner's VAT Liability 28. Petitioner was assessed on Miscellaneous Income and Proceeds from Sales of Property pursuant to Section 106 of the NIRC, and Miscellaneous Income as per its ITR. 29. Petitioner was also assessed VAT from the proceeds of its PPE disposal. Although petitioner stated that there were no actual sale of property, however, as per its Statement of Cash Flows, there was an additional cash from proceeds of PPE amounting to US$506,380.00. Withholding Tax on Compensation 30. Petitioner's ITR has discrepancies when compared to the Alphalist. Reconciliation of salaries and wages per Financial Statements/GL and Returns disclosed that the said amount was not subjected to withholding tax on compensation, hence, assessed in accordance with the provision on Section 79 of the NIRC. Thus: Taxable Basis per Returns/Alphalist P865,956,597.97 Add: Adjustment Discrepancy in ITR vs. Alphalist 90,381,547.41 Taxable Basis per Audit P956,338,145.38 Tax Due Per Alphalist P43,840,426.65 Discrepancy in ITR/Alphalist P28,922,095.17 P72,762,521.82 Less: Tax Paid per Compensation 43,840,426.65 Deficiency Withholding Tax on Compensation P28,922,095.17 31. In this regard, petitioner was assessed based on comparison of Compensation expenses per FS vs. amount appearing in BIR 1601C. The amount used in BIR Form 1601C included all expenses relating to compensation whether subject to withholding tax or not. cSEDTC Expanded Withholding Tax 32. Petitioner was assessed tax pursuant to Section 57B of the NIRC and as implemented by Revenue Regulations Nos. 2-98 and 17-2003. Thus: Tax Base Tax Due Matching of Expenses ITR vs. Alphalist Expenses to be subjected to 2% EWT P181,974,275.00 2% 3,639,485.50 Expenses to be subjected to 5% EWT 10,969,186.55 5% 548,459.33 Matching of payments per SLP vs. EWT Alphalist Expenses to be subjected to 1% EWT 312,693,014.01 1% 3,126,935.52 Total P505,637,014.01 7,314,880.35 Tax Due Per Alphalist P13,225,366.73 Discrepancy 7,314,880.35 20,540,247.08 Less: Tax Paid 13,225,366.73 Deficiency Expanded Withholding Tax P7,314,880.35 Final Withholding Tax 33. Petitioner was assessed FWT on claims or expenses which were not subjected to FWT hence assessed pursuant to Section 28(B)(1) of the NIRC as implemented by Sec. 2.57-1 of Revenue Regulation No. 2-98. 34. Petitioner contends that a confirmatory ruling was issued by the BIR confirming that royalties paid to Yazaki on April 23, 2010 and thereafter are subject to a reduced rate of income tax. 35. However, the period under audit is from April 1, 2009 to March 31, 2010, while the said ruling was issued on April 23, 2010, thus inapplicable to the case at bar. Documentary Stamp Tax 36. Petitioner failed to present proof of payments of the Documentary Stamp Tax due on its borrowings. Documentary stamp tax due thereon were assessed in accordance with the provisions of Section 179 of the NIRC. Thus: Borrowings $18,500,000.00 Exchange Rate 47.41 Borrowings P877,085,000.00 DST Tax Rate 1/200 Deficiency DST P4,385,425.00 37. Although petitioner contends that PEZA registered enterprises are subject to 5% GIT, in lieu of national and local taxes, including VAT and DST, petitioner yet again failed to submit supporting documents to support their contentions that the loan were used to finance the operation of petitioner's registered activity. 38. Respondents can enforce collection of the proper tax, when, upon proper investigation there is prima facie case of delinquent tax. This is a prerogative, duty, and the mandate of the respondent, and it is rests upon the petitioner to show that it is not liable to for the same. SDAaTC 39. Thus, respondent can validly enforce collection of the delinquent tax. 40. Assessments are presumed correct and made in good faith. The taxpayer has the duty of proving otherwise. In the absence of proof of any irregularities in the performance of official duties, an assessment will not be disturbed. Even an assessment based on estimate is prima facie valid and lawful where it does not appear to have been arrived at arbitrarily or capriciously. 41. The burden of proof is on the taxpayer contesting the validity or correctness of an assessment to prove not only that the Commissioner of Internal Revenue is wrong but the taxpayer is right. Otherwise the presumption of correctness of tax assessment stands. The presumption in favor of the correctness of tax assessment stands where evidence to the contrary is wanting. 42. All presumptions are in favor of the correctness of tax assessments. Dereliction on the part of petitioner to satisfactorily overcome the presumption of regularity and correctness of the assessment will justify the judicial upholding of said assessment notice." The pre-trial conference was initially set on March 10, 2015. 21 However, upon respondent's filing of an Urgent Motion to Defer Pre-Trial Conference on March 4, 2015, 22 the pre-trial conference was reset to, and held on, April 28, 2015. 23 Respondent transmitted the BIR Records of this case on March 6, 2015. 24 Petitioner's Pre-Trial Brief was filed on April 1, 2015; 25 while Respondent's Pre-Trial Brief was submitted on April 24, 2015. 26 The parties submitted their Joint Stipulations of Facts and Issues on May 8, 2015. 27 Subsequently, the Court issued the Pre-Trial Order dated June 23, 2015. 28 The trial of the case then ensued. During trial, petitioner presented documentary and testimonial evidence. As for its testimonial evidence, petitioner offered the testimonies of the following individuals, namely: (1) Ms. Maridel Paredes, 29 petitioner's Team Leader, (2) Ms. Myrla A. Daa, 30 Supervisor of General Accounting Department of petitioner; (3) Ms. Dolores Dugenia, 31 Assistant Section Chief of the Finance Department of petitioner; (4) Mr. Nestor Loresto Pascual, 32 Head of the General Affairs Department of petitioner; (5) Ms. Eloisa M. Altejos, 33 Assistant Manager of the Accounting Department of petitioner; and (6) Mr. Glenn Ian D. Villanueva, 34 the Court-commissioned Independent Certified Public Accountant (ICPA). 35 The ICPA Report was submitted on October 5, 2015. 36 On May 20, 2016, petitioner filed, its Formal Offer of Exhibits (with Motion to Re-Mark Exhibits) . 37 Respondent filed his Comment to Petitioner's Formal Offer of Evidence (Dated 6 May 2016) on May 27, 2016. 38 In the Resolution dated July 19, 2016, 39 the Court granted petitioner's Motion to Re-Mark Exhibits . The re-marked Exhibits were admitted by the Court in the Resolution dated September 7, 2016. 40 At the hearing held on November 21, 2016 for the presentation of respondent's evidence, respondent's counsel manifested that all the revenue officers who conducted the audit have resigned and cannot be located. Hence, respondent waived his right to present evidence. However, he stated that he still has several common Exhibits with petitioner which counsel for petitioner admitted. 41 The said Exhibits were marked accordingly. acEHCD On December 9, 2016, respondent filed Motion to Admit Attached Formal Offer of Evidence , 42 attaching therewith the said Formal Offer of Evidence . 43 Petitioner filed its Comments/Objections (To Respondent's Motion to Admit Attached Formal Offer of Evidence) on December 22, 2016. 44 In the Resolution dated and October 19, 2017, 45 the Court admitted petitioner's Exhibits; and respondent's Exhibits, except Exhibits "R-5", "R-6", "R-7", and "R-8", for failure to have the same identified. However, on November 21, 2017, petitioner filed a Motion for Partial Reconsideration , 46 praying that the Court deny the admission of respondent's Exhibits "R-1", "R-2", "R-3", and "R-4", for lack of proper identification and authentication. Petitioner filed its Memorandum on December 22, 2017. 47 In the Resolution dated March 21, 2018, 48 the Court partially granted petitioner's Motion for Partial Reconsideration , upholding the admission of respondent's Exhibit "R-1", but denying the admission of Exhibits "R-2", "R-3", and "R-4", for failure to have these exhibits identified. The Court deemed the instant case submitted for decision, in the Resolution dated April 11, 2018. 49 Respondent filed an Omnibus Motion I. For Partial Reconsideration of the Resolution dated March 21, 2018 II. To Reopen the Case in Order for Respondent to Introduce Evidence III. To Hold in Abeyance the Filling of Respondent's Memorandum on April 20, 2018. 50 In the Resolution dated April 25, 2018, 51 the Court recalled and set aside its Resolution April 11, 2018, and ordered petitioner to comment on respondent's Omnibus Motion . Petitioner filed its Comment/Opposition thereon on May 3, 2018. 52 The Court granted respondent's motions To Reopen the Case in Order for Respondent to Introduce Evidence and To Hold in Abeyance the Filing of Respondent's Memorandum , and held in abeyance the resolution of the Motion For Partial Reconsideration of the Resolution dated March 21, 2018 , in the Resolution dated June 13, 2018. 53 SDHTEC During the hearing held on December 6, 2018, 54 respondent presented witness Ms. Carolyn V. Mendoza, 55 assigned at the Regular Large Taxpayers Audit Division I of the BIR. On December 27, 2018, respondent filed his Supplemental Formal Offer of Evidence . 56 Petitioner filed its Comment/Opposition to Supplemental Formal Offer of Evidence on January 14, 2019. 57 In the Resolution dated February 19, 2019, 58 the Court admitted respondent's Exhibits "R-1", "R-2", "R-3", "R-4", "R-9", "R-10", "R-11", and "R-12". The Supplemental Memorandum for Petitioner was filed on March 25, 2019; 59 while respondent filed his Memorandum on April 26, 2019. 60 The instant case was deemed submitted for decision on May 2, 2019. 61 THE ISSUE The parties submitted the following issue for the Court's resolution, to wit: "Whether or not the Petitioner is liable for alleged deficiency taxes in the total amount of Two Hundred Twenty Eight Million Nine Hundred Nine Thousand Three Hundred Seventy Six and 19/100 (Php228,909,376.19) as of 22 September 2014 representing alleged income, value added tax (VAT), withholding tax on compensation, expanded withholding tax (EWT)[,] final withholding tax (FWT)[,] and documentary stamp tax (DST)." 62 HSAcaE Petitioner's arguments: Petitioner argues that the tax audit and investigation, and the resulting assessment, are invalid for having been made in the absence of a revalidated LOA, outside the 120-day validity period of the LOA; that the assessment is invalid for failure by the respondent to accord petitioner the essential and fundamental right to due process; that respondent's right to assess taxes for fiscal year 2010 has prescribed; and that petitioner is not liable for alleged deficiency taxes in the total amount of P228,909,376.19 for fiscal year 2010. In addition, petitioner points out that the LOA dated October 26, 2010 issued by Assistant Commissioner Nestor S. Valeroso (ACIR Valeroso) of the Regular Large Taxpayer Service is void ab initio ; that assuming without conceding that the LOA issued by ACIR Valeroso could be accorded validity, the revenue officers who conducted the investigation and recommended issuance of an assessment against petitioner still acted without authority, hence, the tax investigation, and the resulting assessment, are void; and that the supposed waivers of the statute of limitation under the National Internal Revenue Code (NIRC), executed after prescription has set in, did not extend the three-year prescriptive period to assess taxes for fiscal year 2010. Respondent's counter-arguments: Respondent counter-argues that the non-revalidation of the LOA does not render the assessment void; that the requirement of due process was properly complied with; that this Court's power of judicial review over decisions of respondent on disputed assessment is by nature exclusive and appellate; that this Court should not rule on matters that were never substantiated in administrative level and petitioner may not be allowed to raise new issues on appeal; that assuming the Court may take cognizance of issues raised for the first time on appeal, respondent's right to assess has not prescribed; and that the assessment has bases both in law and in fact. THE RULING OF THE COURT The revalidation of the subject LOA is not required. The mere lack of revalidation does not render it invalid. Petitioner points out that the tax audit and investigation, and the resulting assessment, are invalid for having been made in the absence of a revalidated LOA, outside the 120-day validity period of the LOA. While this Court finds that the resulting subject tax assessments are void, as will be shown momentarily, the lack of a revalidation of the subject LOA is not the reason therefor. Without doubt, under Revenue Memorandum Order (RMO) No. 28-83 dated September 12, 1983, 63 the rule on the said 120-day period was established, to wit: "8. Reports of investigation on a tax case shall be submitted within one hundred twenty (120) days from the date of issuance of the letter of authority. In case the final report cannot be completed within the required period, a progress report shall be submitted and the letter of authority shall be returned for revalidation ." (Emphases and underscoring ours) HESIcT However, the foregoing provision regarding the revalidation of LOAs are already superseded by RMO No. 44-2010, 64 the pertinent portions of which read: "8. Beginning June 1, 2010 , the rule on the need for revalidation of LAs for failure of the revenue officials to complete the audit within the prescribed period shall be withdrawn . Accordingly, there is no need for revalidation of the LA even if the prescribed audit period has been exceeded . However, the failure of the RO to complete the audit within the prescribed period shall be subject to the applicable administrative sanctions." (Emphasis and underscoring ours) On the basis thereof, it is clear that the rule against the revalidation of LOAs "for failure of the revenue officials to complete the audit within the prescribed period" shall begin on June 1, 2010. Considering that in this case, the subject LOA was issued after the said date, i.e. , October 26, 2010, 65 the same need not be revalidated even when the above-stated 120-day period was not observed. Nevertheless, the subject tax assessments are void, for lack of valid authority of the ROs who conducted the tax audit and who recommended the issuance of the PAN. The ROs who conducted the investigation were not authorized validly authorized to examine petitioner's books of accounts and other accounting records. Thus, the subject tax assessments are void. The audit process in the BIR normally commences with the issuance by respondent or his duly authorized representative of an LOA. The LOA gives notice to the taxpayer that it is under investigation for possible deficiency tax assessment; at the same time, it authorizes or empowers a designated RO to examine, verify, and scrutinize a taxpayer's books and records, in relation to internal revenue tax liabilities for a particular period. 66 The power to issue an LOA by respondent or his/her duly authorized representative is derived from Section 6 (A) of the NIRC of 1997, which provides as follows: "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." (Emphasis and underscoring supplied.) Based on the foregoing provision, an authority emanating from respondent or his/her duly authorized representative is required before an examination and an assessment may be made against a taxpayer . Relative thereto, Section 13 of the NIRC of 1997 provides that the authority of an RO to examine or to recommend the assessment of any deficiency tax due must be exercised pursuant to an LOA, to wit: "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, 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." (Emphasis and underscoring supplied.) Thus, a grant of authority, through an LOA , must be made assigning an RO, to perform tax assessment functions, in order that such officer may examine taxpayers and collect the correct amount of tax, or to recommend the assessment of any deficiency tax due. In Medicard Philippines, Inc. vs. Commissioner of Internal Revenue , 67 the Supreme Court held 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 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. TAIaHE xxx xxx xxx (Emphasis and underlining Ours) Based on the afore-quoted provision, 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 In the case of Commissioner of Internal Revenue v. Sony Philippines, Inc. , 68 the Court said that: 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 . (Emphasis and underlining ours) xxx xxx xxx Contrary to the ruling of the CTA en banc , an LOA cannot be dispensed with just because none of the financial books or records being physically kept by MEDICARD was examined. To begin with, Section 6 of the NIRC requires an authority from the CIR or from his duly authorized representatives before an examination 'of a taxpayer' may be made . The requirement of authorization is therefore not dependent on whether the taxpayer may be required to physically open his books and financial records but only on whether a taxpayer is being subject to examination . ICHDca 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 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 ." (Emphases and underscoring supplied) An LOA is, in essence, a contract of agency. Article 1868 of the Civil Code defines agency as a contract where "a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter." In the case of Spouses Fernando and Lourdes Viloria v. Continental Airlines, Inc. , 69 the Supreme Court had the occasion to expound on the elements of agency, to wit: "The elements of agency are: (1) consent, express or implied, of the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts as a representative and not for him/herself; and (4) the agent acts within the scope of his/her authority. As the basis of agency is representation, there must be, on the part of the principal, an actual intention to appoint, an intention naturally inferable from the principal's words or actions. In the same manner, there must be an intention on the part of the agent to accept the appointment and act upon it . Absent such mutual intent, there is generally no agency. It is likewise a settled rule that persons dealing with an assumed agent are bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to establish it." 70 In an LOA, the CIR is the principal as he is the one mandated by the law to make assessments and the Regional Director, his agent. Now, may the Regional Director, the CIR's agent, appoint a sub-agent, in this case, the Revenue Officer named in the LOA? Article 1892 of the Civil Code says that he can. The said provision states: "Art. 1892. The agent may appoint a substitute if the principal has not prohibited him from doing so ; but he shall be responsible for the acts of the substitute: (1) When he was not given the power to appoint one; (2) When he was given such power, but without designating the person, and the person appointed was notoriously incompetent or insolvent. All acts of the substitute appointed against the prohibition of the principal shall be void. (1721)" 71 This power to appoint a sub-agent necessarily includes the power to revoke the same. Thus, the authority given to ROs Reynoso Bravo, Daniella Gabaon, Maribel Serafica, and Olivia Sison, and GS Erlinda Ulgado, who were originally named in the LOA may be revoked, transferred and reassigned to a new RO for continuance of audit. Said document where such authority is transferred may be equivalent to an LOA. Several reasons support this. First , the only directive under Section 13 of the NIRC of 1997, as amended, 72 which requires that assessment be done by ROs pursuant to an LOA, is that the grant of authority be done in waiting . In fact, an "[a]gency may be oral, unless the law requires a specific form." 73 Second , although the document may not be entitled "Letter of Authority" but otherwise, it can contain all the elements necessary to establish a contract of agency between the CIR and the new Revenue Officer. The primary consideration in determining the true nature of a contract is the intention of the parties. If the words of a contract appear to contravene the evident intention of the parties, the latter shall prevail. Such intention is determined not only from the express terms of their agreement, but also from the contemporaneous and subsequent acts of the parties. 74 The title of the contract does not necessarily determine its true nature. 75 In fact, this Court has, time and again, declared certain documents emanating from the CIR as his "Final Decision" on a Disputed Assessment based on the tenor of the words therein despite the absence of the words "Final Decision" in the title of the document. In interpreting what a "Letter of Authority" is, as mentioned in Section 13 of the NIRC of 1997, as amended, the laws on contracts and agency embodied in the Civil Code simply cannot be ignored. Every effort must be exerted to avoid a conflict between statutes; so that if reasonable construction is possible, the laws must be reconciled in that manner. 76 Similarly, every new statute should be construed in connection with those already existing and all should be made to harmonize and stand together, if they can be done by any fair and reasonable interpretation. Interpretare et concordare leges legibus, est optimus interpretandi modus , which means that the best method of interpretation is that which makes laws consistent with other laws. Tax laws do not exist in a vacuum, and must be appreciated and applied with other laws such as the Civil Code. 77 ASEcHI ROs Reynante P. Martinez, Rosario A. Arriola, Carolyn V. Mendoza, and Shella C. Samaniego 78 who conducted the examination of petitioner's records may be deemed authorized to do so without need for a new LOA, only if a letter or notice or memorandum was signed by the Assistant Commissioner/Head Revenue Executive Assistant of the Large Taxpayers Service . Under RMO No. 29-07, 79 the equivalent of a Regional Director in the Large Taxpayers Service is the Assistant Commissioner/Head Revenue Executive Assistants, for they are the ones authorized to issue an LOA, to wit: "II. AUDIT POLICIES AND GUIDELINES 1. The Chief, Large Taxpayers Audit & Investigation Divisions/LTDOs shall draw a list of taxpayers selected for audit under its current selection criteria. The list shall state the name of taxpayer selected for audit, the nature of business, the amount of gross sales/receipts, the selection code, the PSIC code, and the corresponding amount of tax paid for the period. The said list shall be submitted to the Assistant Commissioner/Head Revenue Executive Assistant, Large Taxpayers Service for approval, copy furnished the Commissioner of Internal Revenue. 2. All Letters of Authority (LOAs) shall be issued and approved by the Assistant Commissioner/Head Revenue Executive Assistants ." 80 Records show that there are two Memorandum of Assignments (MOA) issued. The first MOA dated April 26, 2012 81 was issued to RO Reynoso C. Bravo and GS Wilfredo S. Reyes. It was signed by Edralin M. Silario, OIC-Chief, LT Regular Audit Division 1. The other MOA dated January 23, 2014 82 was issued to RO Reynante DP. Martirez and GS Rolando M. Balbido. It was signed by Cesar D. Escalada, Chief, Regular LT Audit Division 1. Both MOAs were denied admission by the Court since they were not properly identified by a competent witness. cTDaEH Assuming that both MOAs were admitted by the Court, still the Court will not consider the MOAs valid since they were not issued and approved by the Assistant Commissioner or Head Revenue Executive Assistant. The subject LOA particularly named or specifically authorized ROs Reynoso Bravo, Daniella Gabaon, Maribel Serafica, and Olivia Sison, and GS Erlinda Ulgado to examine petitioner's books of account and other accounting records for all internal revenue taxes for the period from April 1, 2009 to March 31, 2010. 83 However, it was shown that the ones of who actually conducted the said examination and recommended the issuance of the subject undated PAN against petitioner were ROs Reynante P. Martirez, Rosario A. Arriola, Carolyn V. Mendoza, and Shella C. Samaniego. 84 Note that only RO Reynante P. Martirez was named in the January 23, 2014 MOA. Thus, the issuance of the subject tax assessments was a result of the investigation conducted by ROs that have no valid authority to conduct tax audit/investigation against petitioner. Not having the authority to examine petitioner in the first place, the subject tax assessments are void. It must be emphasized that a void assessment bears no valid fruit. 85 Such being the case, the subject tax assessments cannot be validly enforced against petitioner. It then becomes unnecessary to address the issue or arguments raised by the parties. WHEREFORE , in light of the foregoing considerations, the instant Petition for Review is GRANTED . Accordingly, FDDA dated September 22, 2014 and the Assessments made by respondent against petitioner for deficiency taxes of P228,909,376.19, inclusive of interest and penalties, for fiscal year ending March 2010, are hereby CANCELLED and SET ASIDE . SO ORDERED. (SGD.) MA. BELEN M. RINGPIS-LIBAN Associate Justice Erlinda P. Uy and Maria Rowena Modesto-San Pedro, JJ. , concur. Footnotes 1. Summary of the Case, Pre-Trial Order dated June 23, 2015, Docket Vol. 8, p. 3878. 2. Par, 1, Joint Stipulation of Facts and Issues (JSFI), Docket Vol. 8, p. 3834; and Exhibit "P-2", Docket Vol. 8, p. 4177. 3. Par. 2, JSFI, Docket Vol. 8, p. 3834. 4. Par. 6, Petition for Review , Docket Vol. 1, p. 8, vis--vis Par. 1, Answer (Re Petition for Review dated 21 October 2014 , Docket Vol. 1, p. 401. 5. Exhibit "P-64", Docket Vol. 9, p. 4307; Exhibit "R-1", BIR Records, p. 392. 6. Exhibit "R-2", BIR Records, p. 390. 7. Exhibit "R-3", BIR Records, p. 391. 8. Exhibit "R-4", BIR Records, p. 669. 9. Par. 3, JSFI, Docket Vol. 8, p. 3834; Exhibit "R-9", BIR Records, pp. 530 to 534; and Exhibit "P-65", Docket Vol. 8, pp. 4331 to 4330. 10. Exhibit "R-10", BIR Records, pp. 536 to 555. 11. Par. 4, JSFI, Docket Vol. 8, p. 3834, Exhibit "R-11", BIR Records, pp. 556 to 562. 12. Exhibit "R-11", BIR Records, pp. 556 to 562; Exhibit "P-66", Docket Vol. 8, pp. 4331 to 4337. 13. Exhibit "P-67", Docket Vol. 8, pp. 4339 to 4359. 14. Exhibit "R-12", BIR Records, pp. 670 to 682; Exhibit "P-68", Docket Vol. 8, pp. 4367 to 4373. 15. Id. 16. Exhibit "P-69", Docket Vol. 8, pp. 4374 to 4394. 17. Exhibit "P-70", Docket Vol. 8, pp. 4399 to 4433. 18. Par. 5, JSFI, Docket, Vol. 8, p. 3834; Exhibit "P-71", Docket Vol. 8, pp. 4434 to 4440. 19. Docket Vol. 1, pp. 6 to 48. 20. Docket Vol. 1, pp. 401 to 410. 21. Notice of Pre-Trial Conference dated January 20, 2015, Docket Vol. 1, p. 416. 22. Docket Vol. 1, pp. 418 to 421. 23. Resolution dated March 9, 2015, Docket Vol. 1, pp. 426; Minutes of the hearing held on April 28, 2015, Docket Vol. 8, p. 3809; Resolution dated May 5, 2015, Docket Vol. 8, pp. 3812 to 3813. 24. Resolution dated March 11, 2015, Docket Vol. 1, p. 423. 25. Docket Vol. 1, pp. 429 to 445. 26. Docket Vol. 1, pp. 3806 to 3808. 27. Docket Vol. 8, pp. 3834 to 3851. 28. Docket Vol. 8, pp. 3878 to 3891. 29. Judicial Affidavit of Ms. Maridel M. Paredes (Exhibit "P-111"), Docket Vol. 2, pp. 449 to 458; Minutes of the hearing held on June 25, 2015, Docket Vol. 8, p. 3895; Resolution dated July 7, 2015, Docket Vol. 8, pp. 3901 to 3902. 30. Exhibit "P-110" (re-marked as Exhibit "P-141"), Docket Vol. 8, pp. 3972 to 3982; Minutes of the hearing held on August 18, 2015, and Resolution dated September 2, 2015, Docket Vol. 8, pp. 3992, and 3995 to 3996, respectively. 31. Exhibit "P-115" (re-marked as Exhibit "P-143"), Docket Vol. 9, pp. 4598 to 4602; Minutes of the hearing held on September 13, 2015, and Resolution dated September 23, 2015, Docket Vol. 8, pp. 3997, and 4003 to 4004, respectively. 32. Exhibit "P-112" (re-marked as Exhibit "P-142"), Docket Vol. 8, pp. 3966 to 3971; Minutes of the hearing held on February 15, 2016, and Resolution dated February 29, 2016, Docket Vol. 8, pp. 4011, and 4014 to 4015, respectively. 33. Exhibit "P-109" (re-marked as Exhibit "P-140"), Docket Vol. 9, pp. 4505 to 4562; Exhibit "P-135", Docket Vol. 9, pp. 4603 to 4613; Minutes of the hearing held on May 3, 2016 and Resolution dated May 10, 2016, Docket Vol. 8, pp. 4125, and 4128 to 4129, respectively. 34. Exhibit "P-113", Docket, Vol. 9, pp. 4569 to 4597; Minutes of the hearing held on May 3, 2016, and Resolution dated May 10, 2016, Docket Vol. 8, pp. 4125, and 4128 to 4129, respectively. 35. Oath of Commission dated August 18, 2016, Docket, Vol. 8, p. 3993; Minutes of the hearing held on August 18, 2016, and Resolution dated September 2, 2015, Docket Vol. 8, pp. 3992, and 3995 to 3996, respectively. 36. Transmittal Letter dated October 5, 2015, Docket Vol. 8, pp. 4007; Exhibit "P-94" (ICPA Report), Docket Vol. 8, pp. 4052 to 4104. 37. Docket Vol. 8, pp. 4130 to 4173. 38. Docket Vol. 9, pp. 4611 to 4613. 39. Docket Vol. 9, pp. 4616 to 4617. 40. Docket Vol. 9, pp. 4633 to 4634. 41. Minutes of the hearing held on, and Order dated, November 21, 2016, Docket Vol. 10, pp. 4605 to 4606. 42. Docket Vol. 10, pp. 4637 to 4640. 43. Docket Vol. 10, pp. 4642 to 4645. 44. Docket Vol. 10, pp. 4648 to 4656. 45. Docket Vol. 9, pp. 4686 to 4689. 46. Docket Vol. 10, pp. 4698 to 4702. 47. Docket Vol. 10, pp. 4711 to 4759. 48. Docket Vol. 10, pp. 4766 to 4767. 49. Docket Vol. 10, p. 4770. 50. Docket Vol. 10, pp. 4771 to 4778. 51. Docket Vol. 10, pp. 4783 to 4793. 52. Docket Vol. 10, pp. 4783 to 4793. 53. Docket Vol. 10, pp. 4796 to 4798. 54. Docket Vol. 10, p. 4875. 55. Exhibit "R-13", Docket Vol. 10, pp. 4821 to 4825; Minutes of the hearing held on, and Order dated, December 6, 2018, Docket Vol. 10, pp. 4875 to 4877. 56. Docket Vol. 10, pp. 4880 to 4884. 57. Docket Vol. 10, pp. 4886 to 4891. 58. Docket Vol. 10, pp. 4893 to 4894. 59. Docket Vol. 10, pp. 4895 to 4917. 60. Docket Vol. 10, pp. 4922 to 4947. 61. Resolution dated May 2, 2019, Docket Vol. 10, p. 4950. 62. Par. 6, JSFI, Docket Vol. 8, p. 3835. 63. SUBJECT: Prescribing the Use of the Revised Letter of Authority Form (BIR Form 19.65) and the Issuance of a Termination Letter in Lieu of the Letter of Confirmation. 64. SUBJECT: Electronic Issuance of Letters of Authority. 65. Exhibit "P-64", Docket Vol 8, p. 4307; Exhibit "R-1", BIR Records, p. 392. 66. Commissioner of Internal Revenue vs. Lancaster Philippines, Inc. , G.R. No. 183408, July 12, 2017. 67. G.R. No. 222743, April 5, 2017. 68. 649 Phil. 519 (2010). 69. G.R. No. 188288, January 16, 2012. 70. Emphasis supplied . 71. Emphasis supplied . 72. SEC. 13. Authority of a Revenue Officers. 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, 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." (Emphasis supplied). 73. Civil Code of the Philippines, Article 1869. 74. Heirs of Dr. Mario S. Intac and Angelina Mendoza Intac v. Court of Appeals and Spouses Marcelo Roy, Jr. and Josefina Mendoza-Roy and Spouses Dominador Lozada and Martina Mendoza-Lozada , G.R. No. 173211, October 11, 2012 citing Spouses Villaceran v. De Guzman , G.R. No. 169055, February 22, 2012; Ramos v. Heirs of Honorio Ramos, Sr. , G.R. No. 140848, April 25, 2002, 381 SCRA 594, 601; Heirs of Policronio M. Ureta, Sr. vs. Heirs of Liberato M. Ureta , G.R. Nos. 165748 & 165930, September 14, 2011 citing Lopez v. Lopez , G.R. No. 161925, November 25, 2009, 605 SCRA 358, 36. 75. Adelfa Properties, Inc. v. Court of Appeals , G.R. No. 111238, January 25, 1995. 76. Philippine Amusement and Gaming Corporation (PAGCOR) v. The Bureau of Internal Revenue, represented by Jose Mario Bunag, in his capacity as Commissioner of the Bureau of Internal Revenue, and John Doe and Jane Doe, who are persons acting for, in behalf or under the authority of Respondent , G.R. No. 215427, December 10, 2014, citing Lopez v. The Civil Service Commission , 273 Phil. 147, 152 (1991). 77. Philippine International Trading Corporation v. Commission on Audit , G.R. No. 183517, June 22, 2010. 78. Exhibit "R-10", BIR Records, pp. 536 to 555. 79. Issued September 26, 2007. 80. Emphasis and underscoring supplied . 81. Exhibit "R-5". 82. Exhibit "R-7". 83. Exhibit "P-64", Docket Vol. 9, p. 4307; Exhibit "R-1", BIR Records, p. 392. 84. Exhibit "R-10", BIR Records, pp. 536 to 555. 85. Commissioner of Internal Revenue vs. Azucena T. Reyes, et seq. , G.R. Nos. 159694 and 163581, January 27, 2006.