CTA Case No. 4028 (Decision)

REPUBLIC OF THE PH!LIP ~I NRB COURT OF TAX APPEALS QUEZON CITY ATLAS CONSOLIDATED MINING & DEVELOPMENT CORPORATION, F'et.i tione l~, C.T . A. CASE NO. 4028 COMMISSIONER OF I I"TERNAL REVENUE, !�{ ..... �-� ...- -- "'''' R ..O - -� .. ... ,_., .. _, >~ DEC I s I 0 N This l.. <_::, a p? t .it. i o n t o r� ~:::> v :i.ew the dec:.i.~; ion of n ?spond e n t cl c:~tec l Decl~ m ber 1 1, 1985 denying p!:!ti t.ion e r� ' �� p r� o t f.~ ~; t c::\ q i:\ i n ~; t th E?. cl e �f :i.e ienc:y ~ comF.~ t .:o : a sses srn e~ n t in thr.~~ amclLirl t of F'49,603,025.15 .in c: ludinq int. e r��e s t, yea rs 1975 and 197 6. The plF.?e:\ding s of thE? pc:u�- ties and records of this case s how that petitioner is a domestic: cor�por� ation engaged in thf?~ bu s iness of mi ning and selling coppe r� c:c.mc::entr�ates d�;!rived therefrom in the lo c al and f o l'.. l:::?i q n m;,,-,r-kf?t s . Pe t.i tioner is a BOI - reg is t. e r e d e nt er pri se und e r Republic Ac t 5186, otherwi se known a s the In ve s tme nt Incentive Act. 136

DECISION CTA CASE NO. " J28 -- 2 - For the ye.:H��s .1 9 75 and 1976 ,, petition er� "filed on time its income tax return s as we l l as the quarterly income tax r etL r ns (E:-:hs. B, B-1 to B-6-a ; C, C-1 to C-8; pp . 4-33 , Folder II, BIR Upon verific a t i on of its income tax returns for those years~ respondent's examiners reported the "following discrep~ncies~ among others, to wit: 1. Pddi.tion<::\1 P.:~id ��� :i.n --c',.3p:L tal F'.1.2,961.~999.00 2. Dcx..tblr:? DE:~::h..tc:t:.i.c~-1 crf Sh.i.ppino O:)~::; t: .1.4,4.1.6~678.00 12~ .135. 00 .1. Cn.ts h.i.n<;J Plant C:'Dst P 169 ~ oo7. ;~o t�1ining L,c~;t.s 1 ~054~EI.25.10 Dri 11 ing Cc:Jsts _____ _!_,.!:I::Z~.~,f::!.?..9..!!..U. (4) l.hrec:onied/L.hder-recorded f:"'":\le p 6~~-Y.)6.00 o �f F'C(.4.1E!r F'6l~:282~137.1.00 ( 5) Lhrec:or�ded ott-er .incorne F' 952~.14.1.93 ( C):mniss.ir~ls) 407,7::::0.00 (6) Loss m Dis r.u.:.:;a l o �f Ass-.eb;

DECISION CTA CASE NO. 4028 Also allegedly disc losed in the i nvestigation are: a) the failu re to withhold the 15% tax- at-source on interest on loans from Mits ubishi Metal Corporation, a non - resident foreign corpora tion and b) 15% d e fi cienc y interest on quarterly basis on the income tax due for the fir st 3 quarters of 1975. (E:�:h. E, pp � .l.l.B��-1.:28, Folde r II, BIR n ::'<::ords ). On the basis th e reof, a deficiency assessment 1et ter- with asse~;smen t notices for 1975 and 1976 dated December 1.9, 1980 was issued against petitioner as foll o ws : 1975 De!"f iciency Incon�:? Tm: F'13, 6.13 , 233. :?B 1976 DE>ficiency Inc011e Ta:-: 32,694,406.1::1.) 1975 J!l. J976 De��f icier1c y W.i. t.ht-olding 2,.1.69,252.68 1st , 2nd J!~. Deficiency Corporate 3 rd quar-t er !1.tater�l y IncD~n�:? Ta:-: TOT~- DEFICIENCY of 1975 (E:-:h. D, pp. 168- 180, Folder II, BIR r�ecor�ds) On Februar y 11, 1981, petitioner protested the assessment (E>:h. H, pp. 203-214), Folder II, BIR records) but the sa me was denied by respondent in a 1 38

DECISION CTA CASE NO. 4028 - 4 -� letter dated December 11~ 1985 (E:-:h. I-1, pp. 227-230~ Folder II, BIR record s ) . Hence, this appeal. The question raised is whether or not the defi ciency l iabi l ity in the amo unt of F'49,603,025.l.5 assessed by against petitioner is proper. Set forth are the i terns in controversy and accordingly discussed. Admit1 8 dly, petition e r wa s f ormed as a result of the m e 1"� ge1~ of three original mining corporations, namely, IXL, Antamok and Masbate Gold Mines whose sharehol ders were required to exchange their old s hare s for- equivalf?nt s hares in the neN corpor�a tion. It appears, how ever~ that not all the stockholder surrendered their certificates. These / Llnsurrendered or unconverted shares were then put up for sale by pet itioner and as of 1975, the proceed s thereof as well as the cash dividends earned amounted to P12,961,999.00 which petitioner treated as non - ta:-:ab 1e add i tiona 1 paid-in c;a pi ta 1 139 . .....

DECISION CTA CASE NO. 4028 - 5- on the ground that said amount is nothing more than the participation or equity of numerous unknown stockholders, up to the year in quest ion. Respondent, on the other hand, determined that the amount i s part of pet.i tioner' s gross income taxable under the l aw. We agree with re s pondent. / wh i l1e pE>t.i. t.Lon er� ;:.~r- q u E! cl th,::\t ~; aid amount is merely the par ti c ipation or equity of unknown stockholders, ye t , it cannot be denied that cash flow from the disposition of those unconverted shares which benef i t!?d petitioner-. It mu st be noted that th e gr �o ss in co me which is required to be repor-ted is income in th E~ br-oad sense le ss income which is by s t atutory definition or otherwise e>:empt fr-or. ta:�: imposed by l a ~-.! (S ee Sec. 36 , Rev. Regs � No . 2 ) � Mor-eover , "gross income" as defined in Section 29 (a) of the Na tiona 1 In ter-n a 1 Revenue Code inc 1udes g ai ns, pr..o �f .its, and income derived from salaries, wages , or c ompensation for personal services of whatever kind and in whatever form paid, or fr-om professions, vocations, trades, businesses , co mmerce, sales, or dealings in .. 140

DECISION CTA CASE NO. 4028 - 6 -- property, whether real or pe r sonal, growing out of the ownership or use of or interest in s uch property; also from interests~ rents, dividends, securities, or transactions or any business carried on for gain or profits~ and income derived from any sour c:e whatever . The a mount of P1 2 ,961, 999.00 s hould therefore be taxable as part of petitioner's gros s inc:ome. (bJ Do u_~l.~___s!..e gy._<:;_t i.!l.R~__Qf_~.!Jj,_p_p_i..rul.. ~-qst_~. - P14,416,678.00 Petitioner claimed cos t s as special deduction under- f\epub 1 ic Act No. 5186 in re 1a tion to F'. D. No. 667. Res pondent, however , di sallowed the amount allegE!d 1y �f or l ack of sufficient justification. On the basis of the unrefuted testimony of petitioner's wi tnt?ss dur-ing the hearing of September 17, 1986 (t.s.n., pp. 17-21) and the evidence presented (Exhs. 0 to 0 - 4 & Q) which indicate that petitioner tr-ansported its products on board vessels of Philippine registry, we are convinced that it has adequately justified the deduction. As cc.~n be gleaned from the records, 141

DECISION CTA CASE NO. 4028 - 7 -- petitioner is a registered e nterpr i se , and a s s uch, i.t i.s allowed doubl e de du ct ion f o r�� ~; hipp i ng co s t i.nct.n-recl in c onrH.c�c: t .ion w :i. t. h 8: : poi~ t ;:~ t ion of it. s product s ~ when s hipme nt s ar e ma de on board ve s sels of Philippine r e gi s t ry und e r Sect ion 9 (a), Re public Ac:t No. 5186; S e ct i on 3, P.D. No. 667. Th f~' amount o�f F'14~4J6,678.00 s hould ther��e �for� e be allowed as special d e duction. business ex p e n s e but was disallo\I'Jed by r�� e�;; p f) nd t-! nt. tr�� e ,:~ t: i nq t:h f:? sarn F.! as pre - operating expense which should be capitalized. To our mind~ the �fa c t th a t . Si::\id amount was charged und e r rn .i. n f.'? t"a l c l i:'~.i rn �::; is of n o cn n�:;e qu e nce, becaus e a s a gen e r a l rul e , a ll ta x e s are deductible except thos e wi th r e s pec t to whi c h the law does not dedu : t :i.on. i t. has been e s tabli s hed by ~:? v id e n cE~ t.h ,:':\ t durin<J the year .in question, pet:.i. t:ioner- \I'Jas no at its e:-: p 1o r a tor� y d e velopme nt but already e:dsting (SE'? e t. s .n., p . ~~6, Sept. 1.7, 19B6; E:-:hs. J to J - 1 ~{ H-- 2) � Th e amount of P1 2 ,135.00 should 14 2 .

DECISION CTA CASE NO. 4028 be allowed as deduc tible ex pense. It ap pe ars that petition~r c harged this a mount to costs ce nt er-s ~-; ~t .ich con ~:; .ist of: Cru s hing pla n t co s ts F' .169 ~ 007 . ~X> Mininq costs 1 ~054- ~ 8 2 ~).10 Drillinq costs ...J:..~.3.Z.Q..!. �>Z~. !...l.:.l TOTAL . .. F'2 ~ 694 ~ 511.. 41 Res pondent di sallowed the total amount claimed on the ground that petitioner's entries resulted in a dou ble take - up of the item~ i.e.~ first~ a c harg e to pr.:\ r��t i. c: u 1 a F� cost c: F~ rt t.<::! F.~,, ~ r.~ n d �;;e c: on d ~ "" c h arge to fre.i.qht a . nd l.i.nq a c count . In assailing s aid disallowance~ petitioner� presented a ser ies of entries mad e i n the following journal vouchers to s how that there was no double deduc tion - JV 12--294 (E:-:h. P) Vc:~r-ious cos t c:enb-:.~n; -- F'2 ,694,:'..'i11.41 t"'hb?.rialn and supplies P"2~694, 511.41 To char :.Jf'! f?nd-��useF�s f or c ustoms duties dec:l.im-?d by tt-x::~ Ea:JI � JV 12- 295 Cost. of ::,.::\ l e , copper - F'2, 694,511. 4.1. Copper� concentrates - cost F'2~694~ 511.41 14 3

DECISION CTA CASE NO. 402 8 ��-� 9 -� To take up ,;;~djus.;tnl("2nt en cost of sa l es~ copper� Dec . '76 ..JV .1.2�-�31.3 (F:-:h. P-��l) Mc:Yt.f.?d.al s 1!.( Supplies Irwf.:�~��1tury F2 ~f.:6'4, ~:ill" 4.1 Cost of s.::~ l es ��� copper� F"2~ 694,5.l.1..4.1. ,JV .12-:::)14 Co ppc~r�� cu �l c . <-::ntr �.::~ tc�~ �- ��� r�.�.? ,f.:t'i' 1.1., ~:� l.l , iLl co!:;d: F? ~ 694, ~:'Ill. 4.1 Fn?:!iqht and h::~ndling -- P:02 ,694,5.1L4.1 F? , 694, 5.1. .1. � 41. Mi:\te t���.ie:' l ~;:; 1!:( !3upp l ies I n vf?rl b::~ t~y To tr,::\nsfet� � l':.o cL.wr-E~Tt ,;-~c: C::(X.\nt allc::catic:n of r.:ust.cll1~5 c:lut.i.es �fn::ll'n :i.nVf.''�ntory account ~tJ hcn i t s ho .Jlcl h<:1VE' t:ll:?en to fn?iq ht and hc~nd ling t . .,,,c:cc~ . u�1 co n sider JV .1 2-3 .13 a s part of the investigation. We disagn�? e. While pf:;."t:. i. t.ioner h as ~Wf.~S?n t .e d the for�eqoing series of entries made in the jou r nal vouchers, a careful examination thereof, particularly Exh. P-l, however, disc 1 o~;ed so me material alterations, apparently made in different handwriting, thus: a) On the uppf.�?r � 1 �-? f t ��- hand c or�ner- of E:�: h . P - .1., th1?:! ot"� iqinal f..?ntry Fr� ei~}ht 8.( Hi:l.ncll i nq" wa s cance lled and s ub s tituted w.i t h ''1"1 ater� ial /!.( Supply In ventory" and 14�1

DECISION CTA CASE NO. 4028 ..... .l.O -- b) t ' ll?. Ol'" i.q.i.nal ncd:.at.ion -�"To relocatE~ a , : oun t. c h a n:Je ~s o �f ~JV .L:~-294 per in s truction of Mr. P.T. Tacondong t.hr� u Mr�. Cajo l es" wa!5 cancelle d and sub s t ..i. t.u t.ed with "To r.. everse JV 12 -� :,?94. 01 Since no explanation wa s offered by petitioner on the mater� ia 1 a 1 ter� a tion~:; ~ we t ind the evidence ineffective a s a reversing entry. H~:mce~ i t s hould be disn?gar-cjed c:\nd the disallowance of the amount of P2~694~511.41 sustained. ( b J T.~.X..~. .. ~.... L.l...<::.E!'IJ...~..f!. ..i:!TI .9.. ..f.~g;?. _ - P6 ~ .506 .. 00 Considering that:. di!::. al.l.o\1-Jance was premi s ed on the s a me qr�m .md a s; that. for� <:; .i.milar item for 1975 whi c h the Court i s allowing~ we like\.'Ji s e t- ulE? th.:d: thl;? .:.\ lll ClLmt of F'6 ~506.00 s hould be allowed as a d ed u ctib l e e x pense for 1976. (c) IJ<::<::. e.l~.r. -:~,te.. <:J. .. 9...e.P.rf!<::.J~. ti.9...TJ.. - P61 ~ 282, 871.00 Re s pondent di s allowed th .i.s i t .em c on t. r:~ nd inq that petitioner failed to notif y the Bureau of In ter�na 1 nevenue i'='nd �fur.. n ish .i. t w.i. th the l.i.st of depr.. ec: i<~b 1 e t.o be dE?pn�?c.iat.e d. This content i on was , belied by petitioner's pv .i.cl f:>n c:: E�~ ~o>J hi c: !1 !::; h DvJ F-~ cl th a t .in d 1e. t. l:r-: r.. c:l '"' t .E� ,:J ,3 1'1\..l c:\ I'" Y 6, .1f1 7~5 , I'" (;?CE~ ipt n �f \.'Jh.i. c h lo'Jt':\ <:; <o\C kl -l O Wl E:~ d~jt:~d b y the In ves tm E'n t Inc e nti v e Group, Internal .. 113 t

DECISION CTA CASE NO. 4028 .l J.. Revenue~ petitionr:?r- in �for -mE�d the sai d office that beginning the calendar year 1975, it will avail of the <'"-cce 1 e ra t:.E~d clepr�ec:: .i. '" t:. ion .i.nc:f?nt.ive benefit under� Section 7(h) of R E-~pu blic Act. No. 5.1.86 by depreciating its fixed assets twice as much as the n o r�ma 1 r �a t e:> o �f d E! p r�� e c i. a t .i. on ( E :-: h � n ) . In s hor� t ~ petitioner� e>:E~r� ci<:;e c:l i t s o pt io n for� allowance of accelerated depreciation under Section 7(b) of Republic: Act No . 5 1El6 compl ied with the requirement thereo f. The a mount o f P61, 282 ,871.00 s hould therefore be allowed. ( d ) !...1J..~.c.J.. JI!.fg ______f.r...f.LTIL ..?:..?!J.. fg___ q_f_J!.J>..~.f!._[ . - P9 52, 1 41 � 9 3 In its 1976 income tax return, pet itioner reported the amount of P43, 458 . 00 f rom the sale of power (E :-: h. F~ --- ~~:; , p. 5~ Fold E' I'- I I, BIIi r�ec:ords). In explaining how th is was ar r ived at ~ pE-:~ti t :i.Dner presented t h f:? E? nt r�.i.es in t hf? tl�- i ,:~ l balancr.: pr��int out alle(Jedly takt:!n �fr�orn .i. t.s, CE~I::Ju o �ffice to s how that �from o i' power in the sum of P4~952,218.~58~ thE! co ~:; t of power� in the-? <~ mount of P4~548~760.9 3 i s deducted and the difference~ whic:h is P4 3~ 457.65~ is the amount it. r�e�flec:ted in the 146

DECISION CTA CASE NO. 4 028 -- 12 - Re s pcmdE!n t. c:n thl'? otht:> t' ' h .3.nd ~ i.n sd.s t s that thl? thr2 tot ." 1 ,:;~. mount of P995~599.58 wa s realized~ h ence~ the unr eported income. He mai n t a i n s thc::\t a~:; <:\SCE-~t" ta.i.ned by the exa min ers~ th e cost of po we r was P3,696~619.00~ and since petitioner c laim s th e sum of P 4~ 548,760.93 a mu r.: h biqg r:> r.. .:3 mnu r1 t w.i thou t pr.. es�~ n t .i.ng s aid c osts wrong, the pt�-es umpt: ion cor rectness of the assess me nt applies. We agree with respond e nt. The nJle is well s ettled that the Commi ssioner's assess me nt is presumptively correct and the burden of proof i s on t he part of the taxpayer to s how the con tra ry. Thus, it has been r-e peatE?dly ~:;t.�::\ t.Pd that thE~ but"d!? n of proo �f is on the taxpayer contesting the validity o r cor rectness of an p rove not o nly that the Commi ssi oner i ~:;; 1-'Jn:mq but hF.? ( ta:�: P�" yer) .i. s r i<;J h t ( Lino Gutierrez v s . Collector of Internal Revenue , C.T.A. Case No. 504, Ja n uary 28, 1962 ; Ta n Guan vs. Court of Tax Appeal s, L-23676 , Apri l 27 , 1967, 1 '.'9 SCRA '.'90.3). I n o t. h E? r- wo n:t s, the t. .3. :�:payer" .i s required to do mor e t han come forward wit h the best ' 147

DECISION CTA CASE NO. 4 028 ..... l ::::. ..... ev.i.ciG>ncE~ nbt.r.~.i.n,;,1ble tn over�c::c:Hm�~ thf? pr� psumpt.ion. Con �f D nn<:l b 1 y to the doc t .r�� ine U n I'" f.�? p o 1'.. t �. E' d n :i C C� fllf: � �f I'' Ofll t . i� l f? 'oi.:�:1 J. f:" C:> f p Cl ~�J F' 1'". .i. l"l t. hf.�? (e) QJ._I]_g.r.______j _n _<;f'..JI!..I?.. (unreported) - P407,730.00 As a result of t h e wa.i.vE>r by Ho ngkong Shanghai 8,-:~n k .i nq Cor�� po1��� r.~ t i. on CJ f t .h e c c:>mm :i. ~::;~,; .i. on .i r1 the su m of F'LJ-07 ~ 7 :~;;o � 00 clu E~ i t. f I'"�om p ~:.-~ t. :i. t i. on 12 r. �fo r� t h ��? pel'"�.i. od 1.<1 7 .1. -���.1.97:::;. r.~nd o n t �. hp t�. h �::;~OI'.. Y t h c:~t ~sr.:\ .id cclmrn.i.ssi.on yJas pr�� r.~v.:i.ou �� J. y hookr.:-~cl as t.:->>(p~;? n se re s. poncl ent ass er�ts that .it s hould be crecl:i.te d back to income and returned for tax purposes in 1.976 . Howe Yio! r- ~ a cr.:~r � e �ful r.-:;t udy <Yf thE? evi dence on r� E" co r.. cl �f a i. 1 e d was d ed ucted c)� i mputatio n o f th.i.s .i n co me would �for� m par� t of the asse s~5 11l~7?nt Yl h .i.c::h w i l l c:I E" t e l'"�mi.ne thE~ ta>( l.i ,:~b.i lity elf t h e ta:-(p,~yE~r�, i t rnus-,t bE~ b.~~;; ed on act u al facts and not on mer�e a~;~:;e r� ti.o n, tl�1nuqh loqi.c.~ l i t . maybe. The amount of P407,730.00 s h ould n ot therefore be considered as unreported :i.ncome. 148

DECISION CTA CASE NO. 4028 .... 14 (f.J l,g$_ _~ <?TJ..... <:!..!...!:EP..f:..l.S.:~}. - P439,752.13 Re s pono :. nt di sa llowed this deduction mainly for the reason that it arose from the demolition of the main office~ bodega or building to give way for the erection of another structure, so that the expense s hould be capita li zed . As explained by petitioner's witness during the hearing of this case on September 17, 1986: Q. Th:~ lo":\~;;t item in .1976 i s lo ss on dispos al. Please e x plain to the Court what i s thi s amount? This rle-?cluc:t.ion in d .i s pos .:J\ l of f i :-:e d ass et s w.=:\s d .i. s;a J. J. ow e-? d by thl:> E:�:~:~miner. Acc:ording to the m whe n these old buildings were to be demolished to give w ~y to new c:o n s truct.i.i.m, that cost s hould be taken up as part of the new In t h i s cas~;:!, thE?SE! uld building~;.; ,:-.ncl bodE~gas Wf'?r.. e df:~ mol. ishE~d a fte1�� t.he const.r�uction of ne1--1 buildings which were not intended to gi ve way to new ~s tructures. Q. Ynu d :i.d not. co n stn..1c t a new off ice building and bodgega? A. Th a t .i~:; r� i.. LJilt. , ~ ;:i. r � . ll. vJh a t . .iS t h E? re aso n for the d e mo l itio n o �f t.hF.! old building ,3.nd bodecJa ";' 149

DECISION CTA CASE NO. 4 028 -- 15 -- A. Yes. Th f~ old of�ficE? building an d bodega we r e d e mol is he d because of deafening noise from Dasscon Ba l J. t1 i 1 1 s s i t u at. e d nearby � They decided to vacate this and transfer to so me oth er place. 0. What. i~.;:, thr~ activity co nducted in this Dasscon? A. They are crus hing ores. Q. Crushing ores? A. Yes , s ir. 0. Wh at machineries are they using? A� C n . l s; h .i. n q b a 1 1 s � � � Q, Wh at o t her item s constitu te this loss on di s pos al? A. a l so have aggreg a te plant of original v a lue of F' l ., 0 2:2, 498. :.? ~'i. The i r-�c:m r� E?C: o �-� V f.~ I -�E~ cl i'l'�� orn t hJ s;, w e c::ut and v alued at fair ma r ket valu e which were ~redited to the department which made u se of th is scrap iron. D. ~3n t h.i. s old pl t.\nt. ~'I a<::; not r�eplo::\C::E~cl wi t h a new plant? A. No, s .i r� .. o. How abo u t. e quipm ent, pi.ck -� up. This itRm 955. What is that? A. Net. book vr.~ lu e of pic k - �up due to WE~<~r-� an d te .:H- . 100

DECISION CTA CASE NO. 402 8 1. 6 Q. How d id you treat it? A� T h ~?. n e 1: v a 1 u e '"~ .~ r:;; w r��:i. t. t. en o f f � Gl. How .~ bout t.h:i. s rn Hc:: h.ine s h op a nd foundr-y equi pm e nt.? A. T l..l t:-'S<~' WE?I'"E' E?qu .ip mEmt no lcmqer� on n~tf.:! rat.ion or e>:istent. Thi s w~ s report e d by the department whi c h u sed these mac hineries. (t. s. n., pp . 44 �- 47' hearing of September 1 7, .1.9 86 ) � Considerinq that t hE~ te sti mony wa s not contradicted by respondent, the amount of P439,752. 13 s hould be allowed as losses . Re : ~. ~.~ . H.(:{b./Jfll.9..i..n9.... T..rJ -~ .....J.:I.t . . ~.!l.Y..r...t;.rt.. ,....J.. ?...Z.~....~Jl..!!.. t'?..Z~. - P2" 169,252.68 The qu <~�:;t:i.on invn 1 VE'd r� eqard i.ng thi.s parti.cular i.tern, i.s whether or not i nte r est i n come der�ived J. ::~o n e ~�:tend eel to pet.i. t.i.on<:-~ 1'" by Mit s ubi s h i 1'1 eta L Cor-pDr�a tion i. e:; e:�:empt withh o ld ing ta>: pur�su..::mt to Secti.cm 29 (b) (7) (a) of the Natio nal Internal Revenue Code. As sa id questiDn i s the same as that re s olve d in Hitsubishi !'fetal Corporation and Atlas 151

DECISION CTA CASE NO. 4028 - 1 7 -- Consolidated Hining & DevelopMent Corporation vs. Coa�i ss ioner of Internal Revenue~ CTA Case No. .t s .� 2801 .� Apr .i.l .r�.:.~so~ whE~ t'" F.' th.i.s; Co ur-t h e ld that in t:f.? t��es t p aym t'? n t!:;; madE? b y Atl as Min inc;~ Development Corpor�a tion on t he loan s obtai n ed from Mit: sub.i.shi Cor� po r� at .ion e:�: f.~rn p t fr� orn withholding tax a t sou rce since t he actua l and ultimat e creditor _, .1. <:" the Export - I mport Bank of ,1 a pan ~ on the S<='l fllf~ VE' il"l ~ we r� u l e t.ha t: t .he .i.nter�est incom E~ i n t hf.~ ,3rn ou n t of F'~.? ~ .16 9 ~ ::~ ~:.\ ::~ " b8 in th f.? c:a~>e at ~; h o u 1d likewise be e:�:ernpt thf:'? withho ld i n g tax at source. Re : !..?..Zg.. .P.f!.tJ..t::..ff! TJ.~.Y....f;c.~.r.:.p CJ...r.:...~.J f! _. 9.Y..<!,.r. tt?..r..J. Y . !.. n.~P'!!..t?.... Te!..l( - P 1, 126, 132. 59 Thi s d e ficienc y f or t h e f irst~ s econd c":\n d clue to th e c h <,.ng E? .in th E? E' >: p,-;,n !::; ion t�-e i n VE?s t rn e n t. a llow ance grant e d to petitioner und e r Re public Act No . 5186 from a p io n eer s t a tu s whi ch i s a ll o wed 75% deduction to a non-pioneer s tatus whic h i s allowed 37 1 ' 2 % deduction. Sine f.? peti tio nt:> r- ~ ,:~cconHnq to r espondent~ availed of the full 75% rate in s tead of 37 1 ' 2 %~ i t over s ho t th e a l lowab l e deduction~ hence~ the de �f.i.c.i e r ��:'/ � 152

- --- - - DECISION CTA CASE NO. 4028 �- 18 ..... Fr�� orn it ~::; qu a r�� t:.er l y F.\nd fin a l in c ome return s for .1(17!3 and the e vid e n c e pr�� el5 Emt.��? d~ i t appears tha t p e titioner d e duc t e d the amount of P.146~887~470.00 a s expan sio n r e inv es tment allowan c e v1h ic h is f::' qu i v alent to 7 5 /. o f .i..h-:; in veE", tm e nt o f pl'� o je c:t ~ kn o l��Jn p ion e 1�2 r pr �o j ec: t. Somehow~ sai d rw oj e ct d i~:;c:: ont. .i. nued ~ and petitioner s hifted its in ves tment to the Carmen proj ec t~ n nn -- p i. on l?.e ,,.. CJrH?. . Thu s ~ upon i.nvE�~; tiq a ti o n ~ r� E�?~:; p o n cl f?. l..l t:. ' S E~ >( c?\ fll in E' r ~-:; cl .i. S c::\ 1. l D~�J e d the d e du c tion o f th e full 7 5% . Wh i l E~ p f?. �r:..i. t ..i.o nE' r a sser t s tha t the r� ~::e comm E' rlcl r:~ 1 i.n n w .~s n o t �""' lp pr� ov r: d by re s pond e nt. a nd the F i~;; c: r:d. In c m1t.i. v e Revi ew Bo ,::\r�d (FIRB), the record s how e ver~ showed otherwi s e. I t appears that the Bo,?\r-cj o f Inv e~:d: m e nt (BOI) n ?du c:e d p e titioner 's reinve s tment:. allow a n ce for 1 975 to P7 3 ,443~7 3 5.00~ equival!?.nt t o 37 .t.,., ::.?. f. of i t s; .i.n ve ~:; tment 111hich was shifted to the Carmen project (pp. 89 & 90, Folder Th!;? r�e duc t ion was a 1 so passed upon b y thP F .i.~; c:3l In c c~ nt .i. VE! F~:r:, v.i ew Bo a rd (E:�:h. 2~ p. 148, Fold er I I B l f-~ r� E~c: o l'.. d s ) � 153

DECISION CTA CASE NO. 4028 - 1.9 - th e reco mpu tatio n of p e t i t i o n er ' s qua r t e rly i n co me t.a :-: �f o r- t h e f i r s t , sec:cm d a nd t hir d qu a r- tr.:? r-s cJ"f 19 75 is i n order a nd th e deficienc y a ss e ss men t o f Ac c c:lr"din<;J1 y , p et i t i o n er ' s d e f i c iency incom e t.a:-: f or .1.9 7 5 a nd 1976, '" s wr::!l l. as t h e d e f i c ien c y c: or.. p o r� a t e qu a r.. te r� 1. y .i n co rn f:? ta:-: f or the f i n ; t, s ec nnd c:\ n d t h .i r� d q ua r te r� s o f .1 9 7 ~5 .:~ r~ e c o rn p u t<:~ d as �f ol l u ~>~ ~:; : l ''l7".'.i Net i m :cxTlf? per- n:.~ �b..lt"n F' 7 , 7 2 0, CC:~:::;; . 00 Add : f'..'dcl .i. t iclf�li':l 1 i n c C)I'TE : . J.~.~-.?~J.,.9.9.?.~. ~=-~~~. Additi ol"'c:\ l paid in Ci:\p.i t.a l 1\let .i.n c:oHE pe r�- d ec i s ion F' 20,682,022 .00 Inc oTE t,::\ ~�: due i::J1er�eor, r=� 7 ,2::!.8, 70!3.00 L P.".;s : Anx :ILuTt. pa id Ba 1a n ce o f t a :-: clue �����z,S:.'~.!.<:.~~I� .~.9Q Add: 1 4!. i n t. f r- . f.J.-... l ~'i--76 F' 4 , ~;1.).6 '700. 00 t o 4 ..... 1. ~5-�-7'?> . . . J -..~.'.?<.=.19. ~f:J. t1 .~. <:.~.=) TOTAL ~VO..NT IX..F 8( C(LL..ECTI Et . F f;: ,''",[,>,,.,,1,~ ~ ;;+,1,,~-S~,:~ Ne t incc:XTif:~ I~*"'''" I'T-? t:u rTI p 99' ~521. ' 51.6. 00 ~kl: D.i s.::\ ll. c~an c e-::; /Add.i tio1 a l t::: . ... ~~ ~{:>:':':{?. ~-9.~~;~ �~::.1 f.':1,9~.!1.9.9.f.~.~- +.~cz..~. ;:!.1 Inc 011e p :::!6' ,0::!.8,859. 2 7 Vr.;1.r-.iou s cost s P2, 694, 5 .1..1. . 41 "'..:::~?..~:?. !1_~;:-:~.~.!. ~~~Q Inc ol'l! �fn:m ~:x-::\l e f=' 1. , :286 , 3 29 � (X) of rx:)t,t,l<:?r" E'.......9!:,i?,J.4J . cz:;.; Ne t inc one per�- d EC i.sio�, Inc c:xne t.a:-: due tt-�er~ean L e-ss : ATo...mt pa i d Balance o f ta:-: due 154

DECISION CTA CASE NO. 4 028 -- 20 -- f.~dd: 141.. .i.nt... �fr- . 4-��{ll~:'t����n ..... -�--��- ~q' ~~'8. - .J~~ t o 4���- .1. ~:':1�� -fl(l f~~ ,,=~�, ~ El:~8 ~ ~~7� H~ TDTAL.. r~���10.J\IT J"){ ~: ~ 8~ C:D . I...ECTI H. F Ta:-:able .i.nc:anE~ pe r- dec:isia1 Coqx:w-ate qu.::~rter�� l y incc:ome ta:-: clue then::.'Cll�1 10, 574 ~ ~.:KX:l. (X) LE~s : Arncx..t.nt. pc�d.d p::~:,B49,61 2 .00 ::~01.. a 1 1c:J~.<,I<m c: ~? "for erro1��c.; - ~~ ,lJ.4 , !}{>l)~ (~_) .... �-� <) !1.. C..!.'.6...--4� �� ' 4 ]''',1 (')(') ,,_'::.. -����-���:(-::.:'! ..":.. .."':. 8.::\l a nc: e F' 4, U'f.'] , B2B. 00 Add : l5~i. in t. . "f ,.- � ~�-��::)J�-7~:~ to 4 - .1. 5-��-76 ........ ........ f::!.:.lf? ! ~~~�~::~ ~ r.{Q To t a 1 F' 5, 2 1.6,051.95 t Lf~.55 : Arnc:on a l. r�-e ::~ely ac.;::;f.:~s�:::�E'IJ ..........4.~HlJ.>.1.?:01. ~ (::.~=! PJYDJ\IT STI L. ' _ DlJ::: 8~ CCU..ECTIE~ _.E.:: ~=-~:::::::~:::::ft.=~~:;#:::~~, <~~ Ta:-:able inc:one per� d ecision Ccw-por�at.e qu.:\d:E>rl y inc:c:l!Tlf:? ta :�: due-? tJerecn P 4 ~ o::.'9 ,9:z::r �oo L ess: {-'wnc~.ln t pa.i.d P 0 ----�--�-�-;~~x;.!..'l.Z.Q1_~.J.~ 3)/. allc:wance F' 3 ~ 524~697 .13 B a 1 a n c: e _,...... .~1!\.Z?~~!\~4.:::::.~. QQ Add: .1.5% int. fr�. n-::::o-�-7~5 E:,. "'=''""'~;,~;~~,~~z,~~J~ to 4--�15��-76 4 ~ 90.1. ~ 4:~4. (X) To t a 1 Less: A'l1oun t a 1re,:\dy ass essed . ...... ?~;>' ~~?7.~ (.:~;) Pl'D...NT STILL.. Dl.E 8.~ CG..LECT I R.E p :::; , ':.?21., 1.47. (l(l Ta:�:able .i.nc:aTe per� d ec:i.si c:n L,.rJrTX::lr�a t(�:~ qL\~":\t'.. tf?.r-1 y i.ncc:>me tc~>{ clue tl�1<;:-!n?.cn Less: Anx:;:...nt P�.?.id P -- 0 20/. allc:wanc:e fo1~ e r TCJ I~s Ba 1a n c e 155

DECISION CTA CASE NO. 4 028 -- ? l {-'!<:ld : l~:i:l.. 'nl�.. . fr- , .1.1. �-<X>-�-? ~i to � 1 ... l ~5..�-76 Tnt a 1 Less : f.~lc::>LU'l t a l n~ady asse<.::iSf.?<::l Pt-r.J...NT E1T I L.L. DLE 1!.( CCLL.ECT I H ...E WHEREFORE, petitioner Atlas Consolidated Mining & Developme nt Corporation, is hereby ordered to pay to respondent Commissioner of Internal Revenue the aggregate amount of P9,409,033. 77 as deficiency income tax for the years 1975 and 1976 deficiency corporate quarter! y income tax for the first, second and third quar ters of 1975, plus surcharges and interest incident to delinquency pursu ant to the pr�ovisions of Section 51 (e)(2)( 3 ) of the Nati on al Internal Revenue Code , as amended. S O ORDERED. Quezon City, Me t ro Ma nil a, April 28, 1989. ~~ A s~-:;oc ia te Judqe WE CONCUR: AMANTE ILLER F�r-e<:; .i.d:i. 1q ,Ju. c:l c! t�:-~ (on l E?,:~v P) CONSTANTE C. ROAQUIN A!ssoc.i.,::\t�? Ju.c:ltJf:? 156

-- DECISION CTA CASE NO. 4 0 28 CR I ~TIFICATIO N I c t f:? t'" ,;_ �f y W c\S reach ed after du e con s ultation among the me mb ers of the Court of Ta >: in accordance with SE:.>ction .t :.::.~ Al-- ti c::tE~ VIII of thP Cor l ~:; titutiCJn. AMANTE ILLER F'r� !~ s .i. ding ,Jud !.;J e CCJurt CJf T ax Appea l s 157