Wuubuc of 1h£.-Hiuppin:R' \X>Urt Gf Tax 4j'P£AL.C? Quaom Arv Paplr Industries Corporation of the Philippines vs. Commis3ioner of Internal Revenue

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- t' 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 • ••••••••• 300% surcharge for cut- ting withou t license •• 25% surcharge for trans- porting wit ho ut in- voice ••••••••••••••• 25% surcharge for dis- charging without permit 25% surcharge for late 81,562,950.00 £~,688,850.00 390,737.50 390,737.50 ,, payment ••••••••• , ••• Forestry information f und 25% surcharge for late 390,737.50 - e7,424,Dl2.5o 44,655.71 payment ••••••••••••• Forpride fund ••••••••• 25% surcharge for late payment

G ••••••••••••

11,163.93 - 111,639.28 27,909.82 - Total Amount Due • e • • • • • • • • • • • • • • • • • • • • \ 55,819.64 139,549.10

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 orest 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 cubic 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 - Log produced/manifested Total logs han dled --------- Logs Logs Logs Logs To t al exported -------------- l ocally sold ---------- processed ------------- inventory, Dec. 31, 1975 - Unacco un ted logs (net volume)- Logs unmanifested (net) ------ Add: Allowance for natural defects deducted (27.21%) 325 ,048 .94 ~ 72.79% = 446,557.14.

446,557 .14 325,048.94 - 121 ,508.20 Gross volume of unma nifested log s ubject to tax (Rev. Rego No. 3-72 dated April \ 17, 1972 , Sec .. 13) 276 , 370 . 86 755 239.81 ____ ..J-,:::~·--- l..-t.Q1J . .zi.l 0 • .§]_ 7lfl,908 . 46 62,912 .0 6 282,. B62 .. 74 . __ 293J..976.,35, l...t.;::..z.~ . .0 ~) 9 -~~­ ___ 2~ ~~:.Q~Q!2~ - -· ·- - -· ----- -- - ··- 325,04B. 9 4 cu.m.

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DECISION -

CTA CASE NO. 3841 - 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 pending 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 ced below: (Exh. "D", p. 112, BIR records, CTA Case No. 3458.) l 9 7 5 Net loss per return 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 Net Income per investigation Income tax due thereon A d d : 5 0 ?~ s u r c h a r g e 14% int. p.a. (42% mox.)

AMOUNT DUE & COLLECTIBLE

(839 ,856,525.00) 60,033,169.25 e20,l76,644.25 7,051,025 . 00 3 , 525,912.50 __1,9Gl,766.50 ~12.~_22~.~.2Q~!.QQ -------------- 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 -

CTA CASE NO. 3841 - 6 - I' fested logs and , accordingly, he mnde the following recomputati on:

(p. 130, BIR records, CTA Cnse No . 3458.)

UNACCOU NTED LOGS

Log inventory, beg. (gross) Log production (gross) Logs handled (gros s) Logs inventory, end (gross) Logs disposed (gross) Log s actually disposed - Export sales of logs (gross) 716,908.46 Domestic sale of logs (gross) 62,912.07 Process logs (gross)282,862.74 Unaccounted logs (gross) DEDUCT:

Al lowance for natura l defects of logs (27.91%) Unaccounted logs - Net (72.91%) 276,370.86 1 2422 2411.00 1,698,781.86 293 2976.35 1,404,805.51 1,062 2683.26 342,122.25 93,091.46 --~~~.tQ2Q!.?.2 ------------ cu. m.

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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 d C1.A C N 3458) recor s, ase 1 o.

• Net income loss per return Add:

Unallowable Deductions/ Additi onal Income:

(E39 ,B".i 6,525.00) \ Income derived from unmanifested logs cut in 1975 E42,780,999.41 Interest expense 1,936,747.36 4 t- ' .....

t' ( Prior year's expenses PyBbeuy kee eo Uther disallowed Neb inecame per investigation Income tax due therean Addi SO% surcharge a% fot. pease (42% maxinam) FOTAL AMOUNT DUE AND COOL EC? POUE YES Pe oan dodisputeabile bhokh rospuncent’s cuopeetbatian of the original defichency isecoame tay ossecamert’ and = = he hese 6 co read rn bh _ a] or a rs ‘on ~— a % oo = nee pufabion is an adpissidean that the artainal PTindiag that there wus ano unmanifested sross volume af 445,057.14 eubie meters of loys io erroneous, Peace “ ms Lo fe ns valid basis for tne cefinioenos an the dnetant case.

Furbkhbermore, 8 careful cemparison of the afore.

atated original ane » Par urmeainidPested revised eampubat logs grepared by recpondent’s examiners will show that ags oroduced/manifes a the ~e in the orpi@inal comparet ion purebian, an to 1,422,411 cubis meters in the revised increase of 667,471.49 cubs ne ~ tn h Nae a —, the lugs disposed of and the daventoecies in bath come putations remained the same. Under the revised camnou- hLation therefore, fhe aacceage af BEL, iTL Lie cs Ode mebhoeps im the fogs oroduced more than fade ain Far the yy Ob 2a cubae meters of Togs whirn wore ablleeedly nat manifested by netitiorer gn the ortginal compue- brabion, thus it appears that ona Lane were unmanifested ¢ q ~ or purpos tn othe light of the Foregoing, #% ts quite elear Laat resecndent has in efiect reversed his oriutaal aes Pinding that petitioner did not munifes am ia cubio mokere of loge for Forest ehorgqes purposes. Pate suqguentiy, bis determination halding poatibianer ituble for the amount of 87,619,281 .,24, rep charges, Pures information fund and Poarpeide fund For AS 75, Anelusive af surcharg Cause, Cunhat we astadnec Lh is Pereby reversed, URDERED, Quezan City, Metro Manila, August 76, L987, Co sere oo eo y, f eae ge t3 rey 4 aod v4 eon i %, » RUAQUIN pee