Republic Of The Philippines v. Gonzales

REGALA, J.:

This is an appeal from the decision of the Court of First Instance of Manila under Civil Case No. 42912 the dispositive portion of which provided: IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the plaintiff and against the defendant, ordering said defendant to pay plaintiff the sums of P106,226.75 and P37,849.58 as deficiency income taxes for the years 1946 and 1947, respectively, (each inclusive of the 50% surcharge) plus the 50% surcharge and 1% monthly interest on the aforesaid amount from June 15, 1957 until the whole amount is fully paid, and costs of this suit. The records of this case disclose that since 1946, the defendant-appellant, Blas Gonzales, has been a private concessionaire in the U.S. Military Base at Clark Field, Angeles City: He was engaged in the manufacture of furniture and, per agreement with base authorities, supplied them with his manufactured articles.

On March 1, 1947 and March 1, 1948, the appellant filed his income tax returns for the years 1946 and 1947, respectively, with the then Municipal Treasurer of Angeles, Pampanga. In the return for 1946, he declared a net income of P9,352.84 and income tax liability of P111.17 while for the year 1947, he declared as net income the amount of P16,829.10 and a tax liability therefor in the sum of P1,395.95. In the above two returns, he declared the sums of P80,459.75 and P1,707,355.57 as his total sales for the said two years, respectively, or an aggregate sales of P1,787,848.32 for both years.

Upon investigation, however, the Bureau of Internal Revenue discovered that for the years 1946 and 1947, the appellant had been paid a total of P2,199,920.50 for furniture delivered by him to the base authorities. The appellant do not deny the above amount which, for the record, was furnished by the Purchasing Officer of the Clark Field Air Base on the Bureau of Internal Revenue's representation. Compared against the sales figure provided by the base authorities, therefore, the amount of P1,787,848.32 declared by the appellant as his total sales for the two tax years in question was short or underdeclared by some P412,072.18.

Accordingly, the appellee considered this last mentioned amount as unreported item of income of the appellant for 1946. Further investigation into the appellant's 1946 profit and loss statement disclosed "local sales," that is, sales to persons other than the United States Army, in the amount of P124,510.43.

As a result, the appellee likewise considered the said amount as unreported income for the said year. The full amount of P124,510.43 was considered as taxable income because the appellant could not produce the books of account on the same upon which any deduction could be based. Adding up the above two items considered as unreported income the appellee assessed the appellant the total sum of P340,179.84, broken down as follows: Net income as per return P9,352.84 Add: Sales, US Army P492,531.93 Local Sales 124,510.43 536,582.61 Net income as per investigation