Commissioner of Internal Revenue v. Court of Tax Appeals

THIRD DIVISION [G.R. No. 89428. August 7, 1991.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . THE HONORABLE COURT OF APPEALS and PAPER INDUSTRIES CORPORATION OF THE PHILIPPINES , respondents . NOTICE Gentlemen: Quoted hereunder, for your information, is a resolution of the Third Division of this Court dated August 7, 1991 : The issue in this case is whether or not respondent Court of Appeals committed reversible error when, in C.A.-G.R. SP 15823, entitled Commissioner of Internal Revenue versus the Paper Industries Corporation of the Philippine and the Court of Tax Appeals (CTA), it affirmed, on 25 July 1989, the decision of the CTA of 26 August 1987 in C.T.A. Case No. 3841 absolving PIC from the assessed liability for deficiency forest charges for 1975 in the amount of P7,619,381.24. The factual and procedural antecedents of this case are follows: Based on the alleged findings of the BIR examiners the private respondent did not manifest a gross volume of 446,557.14 cubic meters of logs in 1975; petitioner assessed and demanded from private respondent on April 10, 1980 the sum P7,619,381.24 as deficiency forest charges, inclusive surcharges. Private respondent protested the deficiency assessment the ground of alleged lack of factual basis which, however, denied by petitioner in a letter dated 15 August 1984. On 26 September 1984, private respondent filed a petition for review with the CTA, docketed therein as C.T.A. case No. 3841, seeking the reversal of the above decision petitioner. Private respondent contended before the CTA that the questioned deficiency assessment is illegal and not supported by facts since the computation on which it is based had already been revised in the reinvestigation conducted in connection with a companion deficiency assessment for income tax issued against petitioner. As revised, the original deficiency income tax assessment was the subject matter of another case before the CTA, C.T.A. case No. 3458, which was then pending in said court. The CTA found the appeal of private respondent meritorious on the basis of the following findings and conclusions: The record of C.T.A. case No. 3458 shows that as a result of the same examination conducted by respondent's examiners on the business tax aspect of petitioner for the year 1975, a deficiency assessment for income tax for the same year was last issued on February 27, 1981 against petitioner in the amount of P13,539,504.00, which is reproduced below: (Exh. "D", p. 112, BIR records, CTA Case No. 3458.) 1975 Net loss per return (P39,856,525.00) Add: Unallowable Deductions & Add'l. Income: Income from unmanifested logs cut in 1975 P55,840,157.40 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 20,176,644.25 Income tax due thereon 7,051,825.00 Add: 50% surcharge 3,525,912.50 14% int. p.a. (42% max.) 2,961,766.50 AMOUNT DUE & COLLECTIBLE P13,539,504.00 =========== The determination of respondent that there was P55,840,157.40 undeclared income from unmanifested logs, stemmed from the same finding of the revenue examiners in the case at bar, that petitioner did not manifest a gross volume of 446,557,14 cubic meters of logs. Petitioner contested that the above assessment so that a reinvestigation was conducted. In his report of reinvestigation to respondent Commissioner of Internal Revenue (Exh. "M", p. 134, BIR records, CTA Case No. 3458), the revenue examiner assigned to the income tax aspect of the examination conceded some errors pointed out by petitioner in the computation of the 446,557.14 cubic meters of unmanifested logs and, accordingly, he made the following recomputation: (p. 130, BIR records, CTA case No. 3458.) UNACCOUNTED LOGS Log inventory, beg. (gross) 276,370.86 cu. m. Log production (gross) 1,422,411.00 " " Logs handled (gross) 1,698,781.86 " " Logs inventory, end (gross) 293,976.35 " " Logs disposed (gross) 1,404,805.51 " " Logs actually disposed Export sales of logs (gross) - 716,908.46 Domestic sale of logs (gross) - 62,912.07 Process logs (gross) 282,862.74 1,062,683.26 Unaccounted logs (gross) 342,122.25 cu. m. DEDUCT: Allowance for natural defects of logs (27.91%) 93,091.26 Unaccounted logs - Net (72.91%) 249,030.79 ========= To conform to the recomputation, respondent canceled the deficiency income tax assessment for P13,539,504.00 and issued on April 15, 1982 a new one for P4,763,750.40 itemized hereunder, which petitioner appealed to this Court in C.T.A. case No. 3458: (Exh. "F", p. 150 BIR records, CTA Case No. 3458.) cdt Net income loss per return (P39,856,525.00) Add: Unallowable Deductions/Additional Income: Income derived from unmanifested logs cut in 1975 P42,780,999.41 Interest expense 1,936,747.36 Prior year's expenses 1,826,232.89 Other disallowed exp. claimed 430,031.60 46,974,011.26 Net Income per investigation 7,117,486.26 Income tax due thereon 2,481,120.00 Add: 50% surcharge 1,240,560.00 14% int., p.a. (42% maximum) 1,042,070.00 TOTAL AMOUNT DUE AND COLLECTIBLE 4,763,750.40 =========== It is indisputable that respondent's cancellation of the original deficiency income tax assessment and his issuance of a revised assessment due to the recomputation is an admission that the original finding that there was unmanifested gross volume of P446,557.14 cubic meters of logs is erroneous, hence, it has ceased to be valid basis for the deficiency assessment in the instant case. Furthermore, a careful comparison of the aforestated original and revised computations for unmanifested logs prepared by respondent's examiners will show that the 'logs produce/manifested' in the original computation in the amount of 755,239.81 cubic meters was corrected to 1,422,411 cubic meters in the revised computation, an increase of 667,171.19 cubic meters. The figures for the logs disposed of and the inventories in both computation therefore, the increase of 667,171.19 cubic meters in the logs produced more than made up for the 446,557.14 cubic meters of logs which were allegedly not manifested by petitioner in the original computation, thus it appears that no logs were unmanifested for purposes of computing the forest charges. In the light of the foregoing, it is quite clear that respondent has in effect reversed his original finding that petitioner did not manifest 446,557.14 cubic meters of logs for forest charges purposes. Consequently, his determination holding petitioner liable for the amount of P7,619,381.24, representing forest charges, forestry information fund and for pride fund for 1975, inclusive of surcharges, involved in this case, cannot be sustained. 1 Accordingly, it reversed the decision of herein petitioner. The latter went to the Court of Appeals on petition for review on certiorari (C.A.-G.R. SP No. 15823) As adverted to above, the Court of Appeals, in its decision of 25 July 1989, affirmed the above decision of the CTA. Unable to accept the decision of the Court Of Appeals, petitioner filed this petition on 18 September 1989 urging us to set aside the said decision because both the CTA and the Court of Appeals erred in (a) holding that there were no unmanifested logs; (b) basing their decisions on the result of a reinvestigation that petitioner had earlier conducted for purposes of determining liability for 1975 for deficiency income tax of private respondent and not for deficiency forest charges: income and the tax due thereon are different from logs and the charges thereon; and, assuming that there were errors in the computation of the unmanifested logs for purposes of computing the income tax, it does not necessarily follow that there were no unmanifested logs to speak of; and (c) making the facts obtaining in C.T.A. case No. 3458 on the deficiency income tax assessment, which was then pending before the CTA, the basis of the decision in C.T.A. case No. 3841. Petitioner admits that the issue raised in the petition is purely factual: however, it submits that this case falls under the exceptions to the settled rule that only questions of law may be raised in a petition for certiorari . After due deliberation, We find no substantial merit in this petition: The findings and conclusions of both the CTA and herein public respondent are supported by substantial evidence and they may not be disturbed. (La Suerte Cigar and Cigarettes Factory, et al. vs. CTA, et al., 134 SCRA 29; Po Sy vs. CTA, et al., 164 SCRA 524). Private respondent was able to establish by preponderance of evidence that it is not liable for an unmanifested logs. Upon the other hand, petitioner failed to itemize the components of the total volume that private respondent produced. We further observe that the facts involve in CTA Case No. 3458 on deficiency income tax, then pending before the CTA, are intertwined with those in CTA Case No. 3481. As a matter of fact, the claimed deficiency in income tax is primarily due to alleged unmanifested logs. The CTA then did not commit any procedural error in taking cognizance of the former in resolving the latter. A court can take judicial notice of other cases before it which have close connection with the matter in controversy. (Figueras vs. Serrano, 52 Phil. 28) ACCORDINGLY, for lack of merit the instant petition is dismissed. SO ORDERED. Very truly yours JULIETA Y. CARREON Clerk of Court By: ALFREDO P. MARASIGAN, JR. Asst. Div. Clerk of Court Footnotes 1. Decision of Court of Tax Appeals (Annex "A" of Petition); Rollo , 30 34.