CIR vs.

Sony Philippines
GR 178697, November 17, 2010
Mendoza, J.
TOPIC: Assessment; Coverage Period of a Letter of Authority ;

FACTS:
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 Letter of Authority 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:
1. WON the CIR is correct in upholding the validity of its assessment.

HELD:
1. NO. The Court denied the CIRs petition.

RATIO:
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 Letter Of Authority (LOA) issued is clear on which period is covered by the examination to be
conducted. Its 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
Letter of Authority.
3. A Letter of Authority should cover a taxable period not exceeding one taxable year. The
practice of issuing L/As covering audit of unverified prior years is hereby prohibited. If the
audit of a taxpayer shall include more than one taxable period, the other periods or years
shall be specifically indicated in the L/A.
Taxation is necessarily burdensome because, by its nature, it adversely affects property rights. The party
alleging the laws unconstitutionality has the burden to demonstrate the supposed violations in
understandable terms.