
    Colorado Bedding Co., Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 13742.
    Promulgated November 13, 1928.
    
      Moses Phillips, Esq., Robert Ash, Esq., and T. J. Reilly, Esq., for the petitioner.
    
      Joseph B. Harlaeher, Esq., for the respondent.
   OPINION.

Marquette:

The sole question in this proceeding is one of fact, namely, should the petitioner’s “ cost of goods purchased ” account for 1920 be charged with $553,580.56, or only $533,580.56? If the latter is the correct figure, as the respondent claims, then the deficiency as determined should stand, otherwise, not.

In addition to the facts set forth above, a comparison of the petitioner’s tax return for 1919 with the return for 1920 shows:

The only possible explanation why, with gross sales in 1920 exceeding those in 1919 by $173,000, and with a net worth of goods sold in 1920, of $41,000 more than in 1919, there was a drop of 66 per cent in net income, is offered by Levey, secretary of the petitioner. He testified in chief:

Q. Mr. Levey, please state as to what in your opinion, was the best of what is known as the war years for business, and when in your opinion did business begin to go down after the war stopped, as far as the furniture and jobbing business was concerned.
A. 1920 was the receding year.
Q. When in your opinion was the peak?
A. 1919.
Q. Do you remember about what the net income was for the year 1919 on which a tax was paid?
A. I don’t remember.
Q. Do you remember whether business was better for the year 1919 than for the year 1920?
A. I think it was.

And on cross-examination:

Q. Mr. Levey, as a business man keenly observant of business conditions in the years 1919 and 1920 is it not true that according to all statistics that the peak of high prices prevailing throughout the country was in the early part oi the year 1920?
A. Not to my knowledge.
Q. Is it not true that the year 1921 marked the first decline of prices during the post-war period?
A. I don’t remember.
Q. Is it not true that the Government took cognizance of such a decline in the year 1921 and issued a ruling that all dealers in goods, wares, and merchandise were permitted to prepare their closing inventories upon the basis of cost or market, whichever was lower?
A. I don’t remember.
Q. Is it not true that due to the prevailing prosperity of business conditions, in 1920 that the profits from all business in general was about the same in 1920 as in the year 1919?
A. I don’t remember.

There is nothing in the record to indicate that the furniture business in which the petitioner was engaged, suffered any earlier or sharper decline in prices in 1920 than did any other business. Opposed to Levey’s testimony as given above, we have the statement of Reid, a revenue agent. Upon cross-examination, he testifies:

Q. Do you know personally when furniture prices began to drop after the end of the world war?
A. My remembrances from different cases which I have examined causes me to state that, prices not only in furniture but merchandise in general began to drop in the summer and fall of 1920 and continued for a year or two years.
Q. In view of your last answer, Mr. Reid, isn’t it possible as in this case before us that a corporation having larger sales for the year 1920 with even a larger inventory and larger purchases, might have made less due to other causes than you gave in the previous answer?
A. Not necessarily, from my remembrances is that business was good in all lines for at least the first ¾ of 1920 and that any slump in the latter part of the year was not particularly serious enough to hurt business, such as it did in 1921.
Q. How do you know it hurt business to such a great extent in 1921?
A. This is difficult to state. The general drop in selling prices of most mercantile commodities in the United States, which took place in 1921, affected practically all lines of business because the difference between such selling prices and cost was made much less, in other words, the profits reduced.
Q. Mr. Reid, do you claim to have any better knowledge of business conditions that the average citizen?
A. Yes, sir, because it is my business to investigate a great number of corporation eases in the Bureau of Internal Revenue, and I have access to records therefrom so that I can draw possibly more correct conclusions than an ordinary citizen.
Q. Mr. Reid, you state in answer to a previous question that in your opinion prices began to drop during the latter part of the year 1920. Isn’t it true that even such be the ease the earnings of any corporation or of this corporation in particular would be less for the year 1920 than in previous years even though sales might be greater?
A. Not necessarily. The general business conditions in 1919 through the country were excellent and the momentum of the same carried far into 1920.

It is unfortunate that the petitioner’s books of account were destroyed; they might have cleared up some apparent discrepancies. But the evidence before us, after careful examination, is not sufficient to show the respondent to be in error.

Judgment will he entered for the respondent.  