InTAX: December 2021 Issue 2 | Volume 1

Court of Tax Appeals

The First Division of the Court of Tax Appeals (CTA) held that procedural due process is not satisfied with the mere issuance of a Preliminary Assessment Notice (PAN) without any intention on the part of the Bureau of Internal Revenue (BIR) to actually consider the taxpayer’s reply to the PAN.

In this case, the BIR issued the Formal Letter of Demand (FLD) to the taxpayer which: (1) merely repeated the contents of the PAN differing only in the computation of interest, (2) neither referred to nor addressed the taxpayer’s arguments in reply to the PAN, and (3) is not accompanied by a computation sheet. The CTA held that this constitutes a violation of the due process requirements in the issuance of the tax assessment. The Final Decision on Disputed Assessment (FDDA) was likewise issued which only repeated the contents of the PAN and FLD. The CTA referred to this as a transgression of the BIR’s duty to inform the taxpayer of the reasons for the rejection of its arguments in the protest to the FLD. As held by the CTA, it is not sufficient that the reasons for rejection of the taxpayer’s arguments were only known to the BIR in their internal memoranda. Failure to communicate such reasons for rejection in the FLD and FDDA is a wanton disregard of the due process which renders the assessment void and without legal significance. (Bac-Man Geothermal, Inc. vs Commissioner of Internal Revenue, CTA Case No. 9728 dated 18 November 2021)

Attached is the full text of the decision.

Bac-Man Geothermal, Inc. vs Commissioner of Internal Revenue