G.R. No. L-46644 - Commissioner of Internal Revenue vs. Island Garment Manufacturing Corp.

The petitioner is the Commissioner of Internal Revenue, who initiated tax assessments against the respondent.
The respondent, Island Garment Manufacturing Corporation, is a corporation organized under Philippine law, operating under Republic Act No. 3137 (the Embroidery Law).
Under RA No. 3137, the respondent is authorized to import raw materials (e.g., textile fabrics and cotton piece goods) to manufacture finished garments that are subsequently re‑exported to its foreign suppliers.
While importations of textile fabrics are exempt from duties and special import taxes, the respondent’s net income derived from such re‑exportations is subject to income tax.

During investigations on 21 October 1964 and 24 February 1965 for the years 1962 and 1963, the respondent was found liable for deficiency income tax and advance sales tax.
The assessments amounted to P335,787.93 for deficiency income tax and P291,402.01 for advance sales tax, totaling P627,189.94.
Demand letters were issued on 25 October 1965 and 27 October 1965, followed by the respondent’s protest in letters dated 11 November 1965 and 27 September 1966.
The Appellate Division of the Bureau of Internal Revenue conducted hearings and recommended the cancellation of the assessments, but the petitioner persisted in demanding payment (reiterated in a letter dated 8 August 1969).

The respondent corporation received the petitioner's letter of 8 August 1969 on 23 September 1969.
On the same day, the respondent filed a letter raising substantial issues regarding the petitioner’s use of “mathematical computation” to determine the quantity of finished products, which was an implicit request for reconsideration.
Further communications included a letter from the respondent on 9 October 1969 disputing the petitioner’s August 8 letter, and on 18 February 1970 the respondent received a Final Notice Before Seizure (dated 20 November 1969).
On 26 February 1970, the respondent filed its petition for review with the Court of Tax Appeals, contesting the assessments.

The petitioner’s assessment was primarily based on the contention that the respondent overdeclared its re‑exportations, using “mathematical computations” to conclude that it was physically impossible for the number of cartons reported to contain the alleged volume of finished garments.
Specific discrepancies were alleged:

In 1962, overdeclared exportations of 657,076.66 yards.
In 1963, overdeclared exportations of 227,140.76 yards plus an additional 494,223.40 yards considered unsupported.
The cumulative discrepancy totaled 1,378,440.82 yards.

The petitioner’s computations were derived from approximations based on physical inspections (e.g., counting cartons, measuring carton volume) rather than actual documented export figures.

The respondent contended that its letter dated 23 September 1969 was a valid request for reconsideration since it raised new issues regarding the petitioner’s reliance on presumptive “mathematical computations.”
Such a request, the respondent argued, paused the running of the thirty‑day appeal period as provided under Section 11 of Republic Act No. 1125.
The Court of Tax Appeals ultimately reversed the petitioner’s decision and absolved the respondent from the tax deficiencies, leading to the present petition for review.

Whether the respondent corporation’s filing of its request for reconsideration (the letter dated 23 September 1969) validly interrupted and suspended the running of the thirty‑day appeal period as prescribed by Section 11 of Republic Act No. 1125.
Whether the subsequent petition for review, filed on 26 February 1970, was filed within the allowable time when accounting for the period that elapsed in which the appeal was suspended.

Whether the respondent corporation should be held liable for the deficiency income tax and advance sales tax (totalling P627,189.94) based on the petitioner’s assessments that were derived from “mathematical computation” techniques instead of actual physical or documentary evidence of re‑exportations.
Whether the reliance on presumptive inferences and approximations by the Bureau of Internal Revenue, which suggested that it was physically impossible for the respondent to have re‑exported the stated quantities, is sufficient to impose tax liabilities and surcharges without conclusive evidence of fraud.