G.R. No. 96262 - Commissioner of Internal Revenue vs. Embroidery and Garments Industries , Inc.

On September 22, 1964, based on a sworn report from an informer, the Courts of First Instance of Manila and Bulacan issued search warrants.
These warrants led agents of the Anti-Technical Smuggling Unit, Bureau of Internal Revenue (BIR), to seize business records and documents from the respondent’s offices in Manila and Valenzuela, Bulacan.

On January 4, 1966, the petitioner assessed the respondent a sum of P436,846.44 as advance sales tax for the years 1959 to 1961, which included a 75% surcharge and penalty.
On March 23, 1966, a further assessment of deficiency income tax amounting to P4,799,641.95 was issued for 1960 and 1961, incorporating a 50% surcharge and 12% monthly interest.

Following a protest by the respondent, on December 9, 1970, the petitioner revised the assessment, requiring P2,756,241.68 as deficiency income tax (with a 50% surcharge and 12% monthly interest) for 1959 to 1961.
On December 22, 1970, the petitioner then required an additional payment of P3,500,798.47 as advance sales tax (with a 75% surcharge) for the same years.
The respondent filed a protest with the BIR on January 7, 1971, disputing both assessments and requesting further investigation.
The initial protest was denied on January 7, 1971, and although the respondent later requested reconsideration (which was granted on January 29, 1971 upon executing a waiver of the statute of limitations), the protest was ultimately denied on September 14, 1971.

On October 14, 1971, the respondent filed a petition for review of the disputed assessments with the Court of Tax Appeals.
The respondent filed an answer to the petition on March 29, 1972, praying for the dismissal of the assessments.
On January 15, 1990, the Court of Tax Appeals rendered a decision reversing the BIR assessments, absolving the respondent of both deficiency income tax and advance sales tax.

The petitioner, dissatisfied with the decision, filed a petition for review with the Court of Appeals on June 13, 1990.
The Court of Appeals affirmed the Court of Tax Appeals’ decision on November 9, 1990.
A motion for reconsideration was filed by the petitioner on December 4, 1990, which was denied on February 7, 1991.
Subsequently, on March 18, 1991, the petitioner elevated the case to the Supreme Court on certiorari.

The assessments relied primarily on the uncorroborated sworn statement of a former disgruntled general manager and an informer’s report alleging that respondent sold its dollar quotas at a significant premium (70% to 80%).
In contrast, the respondent produced evidence from official Bureau of Customs records showing that its tax-free importations had been re-exported in line with the provisions of the Embroidery Law (R.A. No. 3137).
The Court of Tax Appeals emphasized that tax assessments must be based on actual facts proven by competent evidence, not on dubious information or disputed presumptions.

Failing to rule that the respondent was liable for deficiency income tax and advance sales tax based on its alleged failure to declare income from the premium sales of allocated dollar quotas.
Not upholding the imposition of a 50% surcharge for fraud.

The petitioner also implied that the extended duration of the tax court proceedings (which even saw the death of a key witness and loss of original documentary evidence) affected the evidentiary foundation of the case.
Moreover, it was noted that an appeal via certiorari to the Supreme Court may only raise distinct questions of law, not questions based on findings of fact from lower courts.

Whether the tax assessments, premised on an informant’s report and the sworn statement of a former manager, constituted competent evidence to impose deficiency income tax and advance sales tax on the respondent.
Whether the evidence adduced by the respondent, including official Bureau of Customs records, sufficiently rebutted the claims of overpricing in the sale of dollar quotas.

Whether the 50% surcharge for alleged fraud, as well as the 75% surcharge applied to the advance sales tax, was legally justified under the applicable tax laws.

Whether the Supreme Court’s review of the case should be limited exclusively to issues of law given the well-settled rule that findings of fact by the Court of Appeals are generally conclusive.
Whether any alleged error in the appellate court’s findings of fact could be re-examined upon petition for review via certiorari, considering the exceptions to the finality rule.