G.R. No. L-33172 - Cease vs. Court of Appeals

The Paper Industries Corporation of the Philippines (PICOP) is a BOI-registered preferred pioneer enterprise for its integrated pulp and paper mill and a preferred non-pioneer for its plywood and veneer mills.
On 31 March 1983, the Commissioner of Internal Revenue (CIR) issued two letters of assessment against PICOP for:

Deficiency 35% transaction tax on interest payments (P45,771,849 interest; P16,020,147 tax; plus surcharge and interest).
Documentary and science stamp tax on P100 million debentures (P300,000).
Deficiency income tax for 1977 (P34,654,201 plus interest).

PICOP protested both assessments; CIR issued warrants of distraint and levy and denied protests.
PICOP appealed to the Court of Tax Appeals (CTA), which on 15 August 1989 reduced liability to P20,133,762.53.
PICOP and CIR separately petitioned the Supreme Court; cases were referred to the Court of Appeals (CA).
On 31 August 1992, the CA denied CIR’s appeal, further reduced PICOP’s liability to P6,338,354.70 (35% tax of P3,578,543.51; exempted stamp tax; deficiency income tax P1,481,579.15 with interest/surcharge).
Both parties sought review before the Supreme Court; cases were consolidated and submitted on memoranda.

Are interest payments on machinery-purchase loans deductible?
Can PICOP carry over Rustan Pulp & Paper Mills, Inc. (RPPM)’s pre-merger net operating losses?
Are “financial guarantee” registration expenses deductible?
Should PICOP’s understatement of sales (P2,391,644) and overstatement of cost of sales (P604,018) be added back?
Is PICOP liable for the 5% corporate development tax on 1977 net income?