CTA Case No. 3841 (Decision)

WUUBUC OF 1H� .-HIUPPIN:r'� \X>URT GF TAX 4J'P�AL.C? QUaoM arv PAPlR INDUSTRIES CORPORATION OF THE PHILIPPINES, Petitioner, - versus - C.T.A. CASE NO. 384 1 t' COMMIS3IONER OF INTERNAL REVENUE, Respondent. X- - - - - - - - - - - - - X DECISION This is a petition to review the decision of respondent Commissioner of Internal Revenue , hold- ing p~tjtioner Paper Industries Corporation of the Philippines liable for the amount of 87,619,381.24 re pr esenti ng deficiency forest charges, forestry information fund , and forpride fund, inclusive of surcharges for the taxable year 1975. Petitioner is a domestic corporation engaged in the business of producing logs and manufacturing wood products and pulp a nd paper products, all for local and export sales, and in connec tion therewith, sup- plies itself from its own f0rest concessions in Surigao del Sur augmented by purchases from surrounding tree- farms. (Petition for review, p. 1, CTA records.) \ 472

J DLCISION - CTA CASE NO. 384 1 - 2- By virtue of Letter of Authori ty No. 00944 NA dated September 3, 1976, respondent's exami.ners con- ,, ducted an examination of the income and business tax liabilities of petitioner for 1975. Based on the finding of said examiners that for purposes of com- puting forest charges, pe ti tioner di~ not manifest a gross volume of 446,557.14 cubic meters of logs, respondent assessed and demanded from petitioner on April 10, 1980 the sum of e7 , 619,381.24 as deficiency forest charges, inclusive of surcharges, computed as follows: (Exh. "D", p. 124, BIR records .) Regular forest charges on 446,557.14 cubic meters of 1st group timber at 83.50 per cubic meter � ��������� 81,562,950.00 300% surcharge for cut- ting withou t license �� �~,688,850.00 25% surcharge for trans- porting wit ho ut in- voice ��������������� 390,737.50 25% surcharge for dis- charging without permit 390,737.50 25% surcharge for late paym ent ��������� , ��� 390,737.50 - e7,424,Dl2.5o 55,819.64 Forestry information f und 44,655.71 139,549.10 25% surcharge for late payment ������������� 11,163.93 - Forpride fund ��������� 111,639.28 25% surcharge for late payment G ������������ 27,909.82 - Total Amount Due � e � � � � � � � � � � � � � � � � � � � � \

DECISION - CTA CASE NO. 3841 - 3- On Mny 23, 1980 1 petitioner prote s ted th e deficiency asBessment, which protest was de nied .. by respo nd ent in a letter rl s ted August 15, 1984. Hence, the present recourse. The sole issue posed for resolution is whether petitioner ie liable for payment of deficiency f or est charges amou ntin g to e7~619,38J . 24 I ased on the alleged 446,557.14 cubic meters of unmanifested .logs. The comp ut ation of respondent 1 s exa miners that there were 446 , 557.14 cu bic meter s of u nmanif e sted logs was arrived at as f ollow s: (p. 120, BIR records.) Lo g inventory, Dec. 31, 19 74 - 276 , 370 . 86 cu.m. Log produced/manifested _7_5_5_ 239.81 ..J-,:::~�--- II II Total logs han dled --------- l..-t.Q1J..zi.l 0 �.�]_ II II Logs exported -------------- Logs l ocally sold ---------- 7lfl,908 . 46 ,, " " 11 Logs processed ------------- 62,912 .0 6 Logs inventory, Dec. 31, 1975 - 282,. B62 .. 74 II If To t al .__ 2 93J..976.,35, U H Unacco un ted logs (net volume)- ..0 l...t.;::..z.~ ~) 9-~~ tt 11 Logs unmanifested (net) ------ _-__-� 2�-~- -~�~-:.-Q--~-Q-!- -2~��- " tt Add: Allowance for natural 325,04B. 9 4 n '' defects deducted (27.21%) II II 325 ,048 .94 ~ 72.79% = II II 446,557.14. 446,557 .14 325,048.94 - 1 21 ,5 08.20 Gross volume of unma nifested log s ubject to tax (Rev. Rego No. 3-72 dated April \ 17, 1972 , Sec .. 13)

DECISION - CTA CASE NO. 38 41 - 4- Petitioner takes the po s ition that the contested deficiency assessment is illegnl and not supported by facts, since the above computation on.which it is based' has already been revised in the reinvestigation con- ducted in connection witl1 a companion deficiency assess- ment for income tax issued against petitioner. As a consequence of the revision, the original deficiency income tax assessment was cancelle d and a new assessment issued which is the subject of the appeal in C.T.A. Case No. 3458, involving the same parties and the same year, now pend ing before the Court. It is aver red that al- though the foregoing circumstances have rendered obsol ete and moot the finding that there existed an unmanifested volume of 446,557.14 cubic meters of logs. respondent di d not r evis e the deficiency assessment in the present case. Petitioner's stand is meritorious. The record of C.T.A. Case No. 3458 shows that as a result of the same examination conducted by respon- dent's examiners on the bu sines s tax aspect of petitioner for the year 1975, a deficiency asse s sment fo r income tax for the same year was also issue d on February 27, 1981 against petitioner in the amount of el3,53 9,504 . 00, \ 475

DLCJSION - - - ,- CTA CASE NO. 3841 ) J� which is reprodu c ed below: (Exh. "D", p. 112, BIR records, CTA Case No. 3458.) l 975 Net loss per return (839 ,856,525.00) Add: Unallowable Deductions & Add'l Income: Income from unmanifested logs cut in 1975 es5,840,157.40 Interest expense 1,936,747.36 Prior year expenses 1,826,232.89 Other disallowed exp. claimed 430,031.60 60,033,169.25 Net Income per investigation e20,l76,644.25 Income tax due thereon 7,051,025 . 00 A d d : 5 0 ?~ s u r c h a r g e 3 , 525,912.50 14% int. p.a. (42% mox.) __1,9Gl,766.50 AMOUNT DUE & COLLECTIBLE ~-1-2-.~-_-2-2~-.-~.-2-Q-~!-.-Q-Q The determination of respondent that there was es5,840,157.40 undeclared income from unmanifesled logs, stemmed from the same finding of the revenue examiners in the case at bor, that petjtioner did not manifest a gross volume of 446,557.14 cubic meters of logs. Petitioner contested the above assessment so that a reinvestigation was conduc ed. In his report of reinvest1gation to respondent Commissioner of Internal Revenue (Exh. "M", p. 134, BIR records, CTA Case No. 3458), th e revenue examiner assigned to the income tax aspect of the ex8mination cohceded some errors pointed out by petitioner in the computation of the 446,557.14 cubic meters of unmani- \ 4?o

DECISION - - 6- CTA CASE NO. 3841 I' fested logs and , accordingly, he mnde the following recomputati on: (p. 130, BIR records, CTA Cnse No . 3458.) UNACCOU NTE D LOGS Log inventory, beg. (gross) 276,370.86 cu. m. Log production (gross) 1 2422 2 411.00 II II Logs handled (gros s) Logs inventory, end (gross) 1,698,781.86 II " Logs disposed (gross) 293 2976.35 " " 1,404,805.51 " II Log s actually disposed - Export sales of logs (gross) 716,908.46 tl tl Domestic sale of logs (gross) 62,912.07 91 II 1,062 2 683.26 " ,, Process logs (gross)282,862.74 Unaccounted logs (gross) 342,122.25 c u. m. DEDUCT: Al lowance for natura l defects of logs (27.91%) 93,091.46 Unaccounted logs - Net (72.91%) ----~-~-~.-t-Q-2-Q!-.-?-.-2 To conform to the recomputation, respondent can- celled the deficiency income tax assessme nt for El3,539,504.00 and issued on April 15, 1982 a new one for E4,763,750.40 itemized hereunder, wh1ch petitioner appealed to this Court in C,T.A. Case No . 3458 : (Exh. "F", p. 150, BIR recor ds, C1.A Case 1No. 3458�) Net income loss per return (E39 ,B".i 6,525.00) Add: Unallowable Deductions/ Additi onal Income: Income derived from unmanifested logs cut in 1975 E42,780,999.41 Interest expense 1,936,747.36 \ 4 t' ( t- ' .....

DECISION - "7 ClA CASE NO . 3841 ... I �- .. Prior year 's �-~-0...t2.2!:!.~._0 11 � ~ 6_ expenses _g_.2JJL2.t..~:!l 6 � 2 6 Other disallo,tJed 2,4�-ll, l2D.OO nxp. claimnd l' 21+(1 '560 .. oo Net income per investigation _____ ll...9_t:..?J_Q...~~2. Income tax du e tt1ereon 1\ d d : 5 0 ~~ s u r c h a r g e z � - ~ l. � ~ ! ?. 2Q!. ~- Q 14% int. p.a . (42% maximum) TOTAL AHOUNT DUE. AND CULLEC:TIBl.E It is indisputable th3t respondent's concella ion of the o~iginal deficiency income tax assessment and his issuance of a revlsAd assessment duo to the recom- putation ls an admissi~n that the oriqinol finding t.hat the re wao an unmanifested uross volume of 446,557.14 cubic meters of lay s it:: erroneouf; , hence 1 it. has ceasC'd to be a valid basis for he deficiencv�' assessment in the in sta nt case. Furthermore, a cureful comparison of the afore- stated original ancJ revised computations for unmanj fested 1 o g s prepare cJ by reG p on cJ en t 1 s ex a nli n ~~ r c> will s h o 1<1 t h ;J t the 11 lo9s produced/manifnstecl" in the origina l compuhltio n in the amo unt of 755,219 .81 cu bic meters was corrected t o 1 s 4 2 2 , 4 1 l c u b i c me t e r ~J i. n t h e r e v i s e d c o rn p u t a t. i o n , a n inc:reB!3e of 667,171.19 cu 1- ic meters. The figures for the logs diQposed of and the inventories in both com- pytations remained the same. Under the revised compu- tYtion therefore, the incrensc of 667,171 . 19 cubic meters \ 41'8

1 c s !) [ I I 0 i I � � Cl A CASC NO . 384l - 8 -� in the logs produced more than mrde up for the 446,557 .14 cubic met ers of logs whirh were alle9edly '� not ma nife s t ed by petitioner jn the oriqinRl rompu- tatio n , th us it app ears that no logs were unmanlfes t e d for purposes of comru tin g t he fo r es l charges . In t he ligh t of the forelJoing , it i.s quite clear that resp o de nt has i n effec t rever"ecl hjs cri9inRl fin dlng that petitioner did not manifest 446,557.J4 cu bi c rm' t e r s o f l og B for fore ~; 1- c h :1 r q e s r u r po s r~ r; � Con- se qu e ntly , his det e rmin a t io n holdintJ petitioner liAble for the amount of 87,619, 38 1. 24, representi ng forest charges, forest ry inf o rmation fun d a nd forpride funrl for 1975 , i nclu sive of s urchar ges 9 invo ved in this case , cannot be susta in ed. 1tl HU\ [ F 0 RE , t h e j u _rJ mo n t u n de r 1� e v i e 11 s h o u l r! b e a s it is hereby rev ersed . SO ORDCRCD . Quez~n City, Metro Mani l a , August 26 , 1987 . I G?./}t/1;~>'-~~~ 1~ M~\NT E/ F ILL ER Presiding .Judge 475