CTA Case No. 3757 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY HUSKY <PHILIPPINES> OIL, INC., <PHILIPPINE BRANCH>, Petitioner�� , �-- ve t~ s u s C.T.A. CASE NO. 3757 THE COMMISSIONER OF INTERNAL REVENUE, Hespor�.d er.t . x - -- -- - .--�---�- -x DE C B 0N lhis i s a s uit 1 '38'+ by have been er��r�oneous 1 y pa id to t~ espondent . Ir.itially, the clair11 fot~ r��eftmd filed a g ainst r~ espondent covet~ p e t i t i one t~ ' s tax p a yrner�.t s fo t~ the taxable ye a r�� s 1'37':3, 1 '~80 and 1'381. fhe facts show that after filing it s income tax f o:n~ pet i t i c�r� et~ to a mend this i r�.come t a >< r��et u r��n oh Augu st 3 , 1'381 w:ith t h e advent r:ri" Presidential Dect~ee No. 1582 as irn plernented by l�~even ue Hegulat ions No. 1-81. Sti l l another~ awendrner�t r:�f the said ir.cc�me tax t��et u r~ n was rnad e by petitioner�� C�Y"� Augu s t 1 , 1'383 tr::� reflect a mo re accur at e repo rt of its 1'379 i n co me tax liability. �rhe 1 '380 income tax ret urn filed on Apri l 325

DECISION CTA CASE NO. 3757 - 2- 15, 1'381 wa s also amended eon Septembet~ 14, 1'383 to t~ eflect the cot~t~ ected computation of depletion and inc 1 ude dt~y ho 1 e costs r�c�t i r.c 1 uded in the ot~ i g i r.a 1 I These r-.c�twithstar.ding, p etitior.et~ chose paid for the taxable years 1'37'3 and 1'380 on the tmdet~star.dirq:J t h a t the a c t i o n had pt~ escribed �.mdet~ Section 2'32 of National Internal Revenue Code of 1'377 as more than two years had elapsed since the date of paymer�t c�f the tax ft:tt~ the fi lir1g c�f a petitic:.r. fot~ review with the Court of Tax Appeals. The recovery of income tax paid for the taxable yeat~ 1'381 t~emair.ed as the object of this sui t of The 1'381 ot~igir�al income tax retm~n of petitioner where it paid P1, 2 '33,7'35.00 in income tax alst:t reflected the following: Revenue P2't, 11 '3, 342 Deductions: Dry Hole Expenses P 652,50'3 Intangible Drilling and Exploration Expenses Allocable Home Office E x p e r.s e s 1,036,418 Deplet ior� 18,173,304 Adn1i ni st t~ at i ve, Overhead and Mi scel- lar.eous Expenses 531' '38t Net Income p :?!.J25 , 130 / Tax Due and Paid p 1,2'33,7'35 3 2l,

DECISION CTA CASE NO. 3757 - 3- Petitioner alleges that this 1981 t a x return also had to be amended in order to include the deductior-� of dt~ y h�:�le c o sts and ir�.tangible dt~ illing ar-.d explot~ation exper-.ses in accr:n~ dar-.ce with S e ction E.<g>, (h) and (j) of Revenue Regulatior-.s No. 1-81, and to r~ estate the cot~ r~ected depletior-. �deductior-� and the deductible ratable share in horne office expenses. The arner-.ded 1 '381 tax r~ et ut~ r-. was f i 1ed on Sept ember 12, 1'383 showing a net loss as follow s : Rever-��Je P24,11'3,15'3 Deduct i c�ns: Dry Hole Expenses P1E.,202,'354 <i nct~ eased ft~om 15,761,021 PE.52,50'3 to) Intangible Drilling 1., 783, ggg Exploration Expenses 11,000,457 Rllocable Home Of fice Expens es (increas ed ft~c�r�l P 1., 036, '+ 18 to ) Depletion <reduced ft~ om P 18, 173, 3 0'+ to) Rdministrative, Over- head and Mi s cella - 4~ 5 - 28-0:.:..'L.4.-�2-1- Net Lerss <P21 , 151 , 262 > Thus, it is the amcrunt crf p 1, 2'33,7'35.00 it had paid wher. it fit~st filed its I r-.cc�me Tax Het ur��n few 1'381 that is SC��.tght to be t~ ecovet~ ed by pet i t i or-. et~. As i t i s the t~ule tha t the taxpayet~ must pt~c�ve that he i s entitled to the deduct i or-.s claimed , petitioner went on to present evidence s upporting its claim. Complimentar ily, the Me morandum of Revenue

DECISION CTA CASE NO. 3757 - 4- Examinet~ Ramorr Tadeo:o CaY.rg co:o f o t~ the Commissioner of Internal Revenue appears teo reinforce the contention of petitioner as the recommendat ion includes the opinion that petitioner i s entitled to the refund of P1, 2'33. 7'35. 00 r::�rrly that "Husky have (sic) a pt~c.posed assessmerrt fc�t~ the yeat~ s 1'37'3, 1'380 and 1'381 irr the amc�unt of P13,432,800.58" <Exhibits "1" arrd "1 - a"). t~ecornmerrdat ion i s mispl aced corrs i det~ i rrg that the same is subject to the approval o:of the Co rom iss i orret� of Revenue, the C.:.mm iss i orrer has t�ej ect ed the recommendation by the issuance of the assessments against petitionet� . Hespondent cites the t~ epot�t of Examirret� Cangcc� which states , irr pat� t : XXX "Sr.tbject taxpayet' tht~ u i t s counsel SGV ir-1 its lettet" dated Octc�bet~ ~~ 5, 1'383 stated that Husky filed its 1'381 income tax ret urn on Rpril 15, 1'392 paying income tax of P1 , 2'33.7'35.00. On September 12, 1'385 it filed an amended return for the taxable year 1981 incurring a net los s of P21, 151, 252. 00. The rret 1 oss i rrcut� t~ed by Husj.(.y wa s h c� wever� negated by the followirrg disallowances: a. Dept�eciat iorr p 13' 11 '3. 54 b. Deplet iorr c. Expenses charged to 24 , 28'3 , 440.'3'3 operation where the 23 , 97:_~ 899._~_J cc�rnparry is rrc�t a t�everrue part i c i parrt Tot a 1 P48, 2 ? /3 � ~~~0 . ~8 32u

DECISION CTA CASE NO~ 3757 - 5- The above disallowances t~ esult e d ir� a deficiency income tax including interes t in the amount of P13,099,588.40. The recommended a s sessmer.t s at~e as fo:::oll ows : 1979 p 329,390.18 1980 3,822 .00 1981 13,099, 588.40 Total P13, 432, 8~)0. ~ 8 XXX RECOMM ENDATION: In view of the f�:�t~ egoir.g, HUSKY <PHILS.) OIL, INC. is entitled to:� be refunded in the amount o f P1, 293.795.00 which i s the amount claimed for refund, for calendat~/taxable yeat~ 1981. Howevet~ , Hu s ky h ave a pt~oposed as sess men t few the yeat~ s . 1979 , 1980 ar.d 1981 in the amour.t of P13,432,800. 58 which if charged against the claim fc�r t~efund c�f P1,293 ,79 5.00 fot~ calendar 1981, applying the principl e of "eq u it ab 1e t~eco upment" would 1eave a balance of deficiency assessment in the amc�ur.t c�f P1 2 , 13':3, 005.58." We note that respondent ca nnot seem to rec o ncile the implications o f t he me mora ndum of Examiner Can gco wi th h is case. While h e argues that the Commi ssio ner ha s tht~oug h the issuance of the asse ssments der.ied the claim fo t~ t~ efur�d of he would, h o wever, ir1fet~ that "the t~ ec o mmendat ion by Revern.te ~ x a miner Ramon Tade o M. Cangco relative to his fir1ding that the net l oss allegedly incurred by petitioner were offset by d i sa 1 1�:�wed wa s by the t�� espor.der.t Cc!Olrll iss i or. e t~ of Rever.ue" ( p. 28 9, CTA

DECISION CTA CASE NO. 3757 - 6- of Respondent, To the implication of the report of Examir.et' Cangco is that he agt'ees to the t'efund of the amount being claimed except that it is negated by taxes he found to be due from petitioner and this he propc�sed to be the subject of an assessment. The manner by which Examiner Cangco arrived at his proposed assessments, hc�wevet' , adequately . supported by evidence. The case for respondent relies only on the ev ider.ce of the assessments dated Febt'Uat' Y 15, 1988 issued agair.st petitior.et~ <Exhibits "2" and "2:- A"> without adequate proof on how these assessments were det'ived. Needless say, it is basic that assessments must be based on facts. the face C�f the evidence the side of petitioner's claim shoul d be favored. WHEREFORE, the claim for refund of pat it ioY�er is BRANTED. The Commissioner of Intarn�l Revenue is hereby ordered to refund or credit to petitioner the amount of P1,293,795.00 ~~epresenting erroneously paid income tax for the taxable year 1981. Without pronouncement �� to co�ts. 330

.. - �\ I . ..., f DECISION CTA CASE NO. 3757 - 7- SO ORDERED. Quezon City, Metro Manila, WE CONCURa ~~Q.. ~ ERNESTO D. ACOSTA .' Presiding Judge S~ DADIVAB-FARR EB Acting Associate CERTIFICATION I hereby certify that this decision was reached after due consul tat ion among the rnernbers of the Court of Tax Appeals in accordance with Sect ion 13, Article VIII of the Constitution. <(~~Q.G'~ ERNESTO D. ACOSTA Presiding Judge Court of Tax Appeals 33i