Husky Oil, Inc. vs. Cc. T.A. Case No. 3757 the Commissioner Gf Internal Revenue, et al.

DECISION

- 2 - 15, 1'381 was 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 that the action 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 Deductions:

Dry Hole Expenses P Intangible Drilling and Exploration Expenses Allocable Home Office Exper.ses Deplet ior• Adn1i ni st t~ at i ve, Overhead and Mi scel- lar.eous Expenses Net Income Tax Due and Paid 652,50'3 1,036,418 18,173,304 531' '38t 32l, P2't, 11 '3, 342 p :?!.J25 , 130 p 1,2'33,7'35 /

- 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 osts 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 1 ed on Sept ember 12, 1'383 showing a net loss as follow s : Thus, wher.

that that Rever-••Je Deduct i c•ns:

Dry Hole Expenses < i nct~ eased ft~om PE.52,50'3 to) P1E.,202,'354 Intangible Drilling Exploration Expenses 15,761,021 Rllocable Home Of fice Expens es (increas ed ft~c•r•l P 1., 036, '+ 18 to ) 1., 783, ggg Depletion <reduced ft~ om P 18, 173, 3 0'+ to) 11,000,457 Rdministrative, Over- head and Mi s cella- Net Lerss P24,11'3,15'3 45 280 421 ~--:.:..'L..-·-- < P21 , 151 , 262 > it is the amcrunt crf p 1, 2'33,7'35.00 it had paid it fit~st filed its I r-.cc•me Tax Het ur··n few 1'381 is SC••.tght to be t~ ecovet~ ed by pet it i or-. et~. As it i s the t~ule that the taxpayet~ must pt~c•ve 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

- 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 is 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:

X X X

"Sr.tbject taxpayet' tht~ u its 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 was h c•wever· negated by the followirrg disallowances:

a. Dept•eciat iorr

b. Deplet iorr

c. Expenses charged to operation where the cc•rnparry is rrc•t a p 13' 11 '3. 54 24 , 28'3 , 440.'3'3 t•everrue part i c i parrt 23, 97:_~ 899._~_J T o t 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 fo:::oll ows :

1979 1980 1981 Total RECOMMENDATION:

a s sessmer.t s at~e as p 329,390.18 3,822 .00 13,099, 588.40 P13, 432, 8~)0. ~8

X X X

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~ , Hus ky h ave a pt~oposed assessment 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 P1,293,795.00 fot~ calendar 1981, applying the principl e of "eq u it ab 1 e t~eco upment" would 1 eave a balance of deficiency assessment in the amc•ur.t c•f P1 2 , 13':3, 005.58." We note that respondent cannot seem to reco ncile the implications o f t he me morandum of Examiner Cangco wi th h is case.

While h e argues that the Commi ssioner has tht~oug h the issuance of the assessments 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 Tadeo M.

Cangco relative to his fir1ding that the net l oss allegedly incurred by petitioner were offset by d i sa 1 1 •:•wed was by the t··espor.der.t Cc!Olrll iss i or. e t~ of Rever.ue" ( p.

289, CTA

- 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 BRANT ED.

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 .

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