*135 Decision will be entered under Rule 50.
1. The proof made fails to establish earnings during the last base period year sufficient in amount to result, under reconstruction, in credits greater than the amounts allowed by the respondent under section 713, Internal Revenue Code of 1939.
2. The amount of excess profits tax deferred under section 710 (a) (5) is a part of the deficiency for imposition of an addition for fraud under section 293 (b).
3. Failure to file a timely excess profits tax return for 1945 not shown to have been due to reasonable cause.
*770 This proceeding involves deficiencies in declared value excess-profits and excess profits tax and additions to tax for the fiscal years ended January 31, 1943, 1944, 1945, and 1946, as follows:
| Declared value excess-profits tax | |||
| Additions under -- | |||
| Fiscal year ended January 31 | Deficiency | ||
| Sec. 293 (b) | Sec. 291 (a) | ||
| 1943 | $ 3,182.77 | $ 1,591.39 | |
| 1944 | 2,137.95 | 1,068.98 | |
| Excess profits tax | |||
| 1943 | $ 44,429.08 | $ 22,214.54 | |
| 1944 | 59,010.85 | 29,505.43 | |
| 1945 | 18,779.53 | $ 938.97 | |
| 1946 | 17,418.87 |
Respondent concedes that petitioner is entitled to certain deductions for the years 1943, 1944, and 1945. The amounts will be reflected in the recomputation under Rule 50. The remaining issues are (1) whether petitioner is entitled to excess profits tax relief under section 722 (b) (4) for the fiscal years ended January 31, 1941 to 1946, inclusive; (2) whether the addition for fraud applies to that part of the deficiency in excess profits tax for the years 1943 and 1944 attributable to the deferment of a portion of the taxes under section 710 (a) (5); and*137 (3) whether the addition for delinquency was properly imposed. An overpayment is claimed for each year.
*771 FINDINGS OF FACT.
The facts set forth in a stipulation of facts are so found.
Petitioner, a Georgia corporation, commenced business on February 11, 1937. Since then its business has consisted of fabricating and selling steel and ornamental iron. It kept its books and filed its returns on an accrual basis and on the basis of a fiscal year ending on January 31. Its income and excess profits tax returns for the taxable years were filed with the then collector of internal revenue for the district of Georgia.
Petitioner issued its original stock to stockholders and creditors of the Atlanta Iron Works, Inc., hereinafter referred to as the old corporation, in exchange for its net assets. It was organized to acquire additional working capital and to permit Ben J. Massell to obtain a controlling interest. The old corporation was formed in 1935 as the successor of a partnership formed in 1933 to conduct a business under the trade name of Atlanta Iron Works. R. A. Calvert, president of petitioner, was president of the old corporation and a member of the partnership.
Calvert, *138 a civil engineer, has been actively engaged in the structural steel and ornamental iron business since 1923, when he entered the service of the Austin Brothers Bridge Company, a corporation hereinafter referred to as Austin, as an apprentice draftsman. In 1925 he commenced to design work, at times as an assistant to architects, and to prepare estimates and submit bids for work. He has been for many years, including the base period, a member of various trade organizations and since 1925 has been known to the steel trade and building contractors.
The facilities of the partnership confined its business to the fabrication of light steel, such as stairs and store fronts. It did a limited amount of erection work. The partnership started with its 2 partners and 1 employee and by 1935 had about 25 employees. About 95 per cent of its work was done under subcontracts. Lack of working capital rather than business resulted in the organization of the old corporation. Ben J. Massell, a speculative builder, held no stock of the old corporation, but advanced money to it, when necessary.
Until October 1, 1937, petitioner conducted its business in a rented plant which had been used by the old*139 corporation at 770 Ashland Avenue, Atlanta, Georgia. The plant had an area of 40 x 100 feet and its equipment was capable of handling jobs requiring up to about 75 tons of steel. During that period petitioner was engaged in building small highway steel bridges and the fabrication of steel work for small buildings. It erected the steel work on small buildings when it could be done with the use of tent poles. It had no power erection equipment. Petitioner's equipment at that time consisted of 3 punches, *772 1 lathe, 1 threading machine, 2 cranes, railroad trackage for 1 railroad freight car, and other accessories used for the fabrication of steel.
Except for financing by Massell, the operations of the old corporation were the same as those of the partnership which it succeeded. The activities were conducted in Atlanta and within a radius of 25 or 30 miles thereof. Massell gave that corporation considerable work without competition. Most of its other jobs were obtained in competition with other bidders. Its overhead costs were very low and it was awarded the contract in about 25 per cent of the bids it submitted. The business of the old corporation was about evenly divided*140 between structural steel and ornamental iron work.
After petitioner acquired the assets of the old corporation it continued to do the same kind of work as its predecessors, but with additional capital it was able to do more and heavier work and extend slightly the area of its operations. Throughout the base period petitioner conducted its activities in Georgia, principally in Atlanta, and a few of the surrounding States. About 95 per cent of the total business transacted was within the State of Georgia.
About October 1, 1937, petitioner purchased the plant, buildings, improvements, machinery, and equipment of Austin and promptly transferred its operations to the plant of that corporation, which was located at 1195 Victory Drive, S. W., Atlanta. Austin had been specializing in the fabrication of steel for bridges and buildings and its equipment and machinery were adapted to the fabrication of heavier and longer beams than that of petitioner. The plant of Austin had about 10 acres of land and buildings for the production and storage of material, and for administrative offices. The main building was 107 x 175 feet. The equipment consisted of railroad trackage of a maximum capacity*141 of 30 cars, one 10-ton and one 4-ton overhead bridge crane, each having a span of 70 feet, a 10-ton stiff-leg derrick with a 100-foot boom extending over the railroad track to load or unload material, 5 Gantry cranes of 2 to 5 tons' capacity, 7 punches, 2 lathes, and various other machines and accessories necessary for the fabrication of steel. Austin experienced financial difficulties for some time prior to becoming a bankrupt in 1937.
The acquisition of the Austin plant increased by 400 to 500 per cent the capacity of petitioner to produce. The additional equipment and facilities placed petitioner in a position to bid on work requiring up to 1,000 tons of steel and to compete with larger fabricators over a much wider area. It did not have for some time thereafter trained personnel to handle contracts requiring that much steel. Throughout the base period it limited its work to contracts for which its personnel had the necessary "know-how" and made no effort to obtain contracts for the maximum capacity of its plant. Petitioner did *773 attempt to obtain contracts it was capable of handling at a profit. After October 1, 1937, petitioner's business consisted of about 20 per*142 cent ornamental iron work and the remainder structural steel.
The fabrication of steel by petitioner consisted of shaping of stock sizes, purchased from rolling mills, for a particular job. When petitioner purchased steel specially for an order, the steel manufacturer cut the material to the proper lengths at an additional cost of $ 2 a ton. The practice eliminated loss that would result from wastage of small lengths. Structural steel is not used in ordinary residential construction.
Petitioner's ornamental iron business consisted of fabrication of steel for stairs, filling stations, store fronts, fire escapes, and other light building construction. Lighter material is used for home construction than for commercial buildings. There is more competition among fabricators of ornamental iron than of fabricated steel. Petitioner obtained most of its ornamental iron business as the result of competitive bidding.
In April 1939 petitioner purchased at a cost of $ 2,250 a used 10-ton revolving crane mounted on a truck for use on a particular job requiring span trusses 100 feet in length. That contract was the first one petitioner had of that type. There were very few of such cranes*143 in operation in Atlanta at that time. The acquisition of the equipment enabled petitioner to use it for erection of steel in buildings up to 3 stories. Prior thereto petitioner could perform erection work only by hand. The additional equipment enabled petitioner to increase its erection work by one-third. Ownership of the crane also enabled petitioner to compete with larger firms.
In October 1939 petitioner installed floodlights in its shop at a cost of $ 1,375 in order to work a second shift of employees on a particular job. The number of employees on the second shift was about 40 per cent of the men employed on the first shift. No great amount of overtime work was done by petitioner prior thereto.
Petitioner filed applications for relief under the provisions of section 722 (b) (4), Internal Revenue Code of 1939, for its fiscal years 1941 to 1946, inclusive, because its business was commenced and changed during the base period due to a difference in the capacity for production or operation. Credits were claimed in the applications based upon a constructive average base period net income of $ 79,975.82. For the taxable years 1943 and 1944 petitioner deferred $ 19,885.27 and*144 $ 32,001.03, respectively, under the provisions of section 710 (a) (5).
In February 1946, Calvert was indicted on 5 counts for attempting to evade income, declared value excess-profits, and excess profits tax on the net income of petitioner for the fiscal years 1940 to 1944, inclusive, and on 2 counts for submitting to the United States Maritime Commission for renegotiation purposes on behalf of petitioner certain *774 false statements for the fiscal years 1943 and 1944, and also on 7 counts for submitting to that Commission for payment certain false bills and accounts. Calvert was convicted in June 1946 on all counts charged in the indictments and was sentenced to prison for 2 years on each of the 5 counts charging evasion of taxes, the sentences to run concurrently, and was fined a total of $ 5,000 on the other counts.
Petitioner's sales, net income, and excess profits net income for the taxable years shown, as finally determined by the respondent, after giving effect to reductions in sales resulting from renegotiation of certain contracts, were as follows:
| Fiscal year ended January 31 | Sales | Net income | Excess profits |
| net income | |||
| 1941 | $ 780,504.64 | $ 54,388.37 | $ 39,640.93 |
| 1942 | 1,056,625.10 | 177,407.23 | 167,189.48 |
| 1943 | 1,370,760.80 | 195,780.62 | 188,134.10 |
| 1944 | 1,329,685.50 | 177,284.28 | 170,680.19 |
| 1945 | 2,048,087.27 | 223,240.03 | 220,056.19 |
| 1946 | 1,956,309.02 | 236,299.44 | 236,299.44 |
*145 Petitioner is entitled to use the excess profits tax credit based on income pursuant to section 713.
Petitioner's average base period net income (ABPNI) computed under section 713 (f) without regard to section 722, and the excess profits credit based thereon, adjusted under section 713 (g) for each of the taxable years, were as follows:
| Fiscal year ended | ABPNI | 95 per cent of | Adjustment | Excess profits |
| January 31 | (sec. 713(f)) | ABPNI | (sec. 713(g)) | credit |
| 1941 | $ 21,802.49 | $ 20,712.37 | ($ 73.23) | $ 20,639.14 |
| 1942 | 26,019.20 | 24,718.24 | (486.00) | 24,232.24 |
| 1943 | 26,019.20 | 24,718.24 | (477.78) | 24,240.46 |
| 1944 | 26,019.20 | 24,718.24 | 3,352.00 | 28,070.24 |
| 1945 | 26,019.20 | 24,718.24 | 3,352.00 | 28,070.24 |
| 1946 | 26,019.20 | 24,718.24 | 3,352.00 | 28,070.24 |
Petitioner's sales, expenses, and net income for the periods ended January 31, 1938, 1939, and 1940, were as follows:
| Fiscal years ended January 31 | |||
| 1938 | 1939 | 1940 | |
| Sales | $ 307,018.99 | $ 467,531.32 | $ 581,351.17 |
| Cost of sales | 251,545.48 | 376,402.93 | 463,283.46 |
| Gross profit | 55,473.51 | 91,128.39 | 118,067.71 |
| Rental income | 597.12 | ||
| Total income | 55,473.51 | 91,128.39 | 118,664.83 |
| Expenses | 48,651.46 | 76,352.48 | 91,951.79 |
| Net profit | 6,822.05 | 14,775.91 | 26,713.04 |
*146 A summary of petitioner's sales to its principal accounts, during the fiscal years ended January 31, 1938 to 1941, inclusive, is as follows: *775
| Number | |||||
| of | Fiscal years ended January 31 | ||||
| accounts | 1938 | 1939 | 1940 | 1941 | |
| Sales in only 1 | |||||
| year: | |||||
| Fiscal year | |||||
| ended | |||||
| January 31: | |||||
| 1938 | 13 | $ 49,176.02 | |||
| 1939 | 11 | $ 112,980.99 | |||
| 1940 | 9 | $ 49,505.16 | |||
| 1941 | 13 | $ 187,550.65 | |||
| Sales in only 2 | |||||
| years: | |||||
| Fiscal years | |||||
| 1938 and 1939 | 3 | 14,920.14 | 20,714.48 | ||
| Fiscal years | |||||
| 1938 and 1940 | 1 | 2,737.00 | 14,213.50 | ||
| Fiscal years | |||||
| 1938 and 1941 | 2 | 8,237.00 | 5,494.00 | ||
| Fiscal years | |||||
| 1939 and 1940 | 2 | 15,146.40 | 17,346.78 | ||
| Fiscal years | |||||
| 1939 and 1941 | 1 | 14,079.00 | 2,500.00 | ||
| Fiscal years | |||||
| 1940 and 1941 | 2 | 12,130.77 | 3,614.96 | ||
| Sales in 3 years: | |||||
| Fiscal years | |||||
| 1938, 1939, | |||||
| and 1940 | 5 | 55,420.00 | 53,159.28 | 44,276.29 | |
| Fiscal years | |||||
| 1938, 1940, | |||||
| and 1941 | 2 | 12,147.54 | 11,598.62 | 6,060.58 | |
| Fiscal years | |||||
| 1939, 1940, | |||||
| and 1941 | 3 | 7,356.00 | 37,196.74 | 75,847.89 | |
| Sales in all 4 | |||||
| years | 6 | 35,315.13 | 68,157.42 | 135,452.87 | 65,900.18 |
| Total sales to | |||||
| principal | |||||
| accounts | 73 | $ 177,952.83 | $ 291,593.57 | $ 321,720.73 | $ 346,968.26 |
| 1 Other sales | 129,066.16 | 177,724.75 | 259,630.44 | 423,448.99 | |
| Total sales | $ 307,018.99 | $ 469,318.32 | $ 581,351.17 | $ 770,417.25 | |
| Number of | |||||
| principal | |||||
| accounts | 32 | 31 | 30 | 29 |
The number of employees of petitioner, including executive officers, as at the payroll date nearest the end of each quarterly period between October 27, 1937, and January 31, 1940, was as follows:
| Number of | |
| Payroll date | employees |
| Oct. 27, 1937 | 66 |
| Jan. 26, 1938 | 73 |
| Apr. 27, 1938 | 72 |
| July 27, 1938 | 69 |
| Oct. 26, 1938 | 71 |
| Feb. 1, 1939 | 77 |
| May 3, 1939 | 73 |
| Aug. 2, 1939 | 79 |
| Nov. 1, 1939 | 118 |
| Jan. 31, 1940 | 127 |
The employees at October 27, 1937, included 16 employees who were employed by Austin on October 1, 1937. Only 4 of the employees remained with petitioner.
The shop payroll, power, and oxygen and acetylene gas expenses of petitioner during the fiscal years ended January 31, 1938, 1939, and 1940, were as follows:
| Fiscal years ended January 31 | |||
| 1938 | 1939 | 1940 | |
| Payroll | $ 42,509.80 | $ 52,995.60 | $ 74,869.54 |
| Power | 2,237.41 | 2,638.22 | 3,465.82 |
| Oxygen and gas | 2,941.72 | 2,594.14 | 4,234.34 |
Petitioner's purchases*148 of steel, aluminum, fabricated steel sections, and miscellaneous metal, including freight, during the fiscal years ended January 31, 1938, 1939, and 1940, were $ 202,952.05, $ 254,423.42, and $ 365,476.54, respectively.
Petitioner's inventory of steel at January 31, 1938, 1939, and 1940, was $ 39,904.18, $ 32,849, and $ 67,435, respectively.
*776 The sales of the old corporation for the last 8 months of 1935, the year 1936, and the first 2 months of 1937, were $ 36,958.36, $ 174,713.16, and $ 28,631.51, respectively.
The permit valuations of building construction in Atlanta, Georgia, during the years 1933 to 1941, inclusive, were as follows:
| All classes of | |||
| building | |||
| Year | (including | nonresidential | residential |
| additions, | building | building | |
| alterations, | |||
| and repairs) | |||
| 1933 | $ 946,345 | $ 255,712 | $ 315,530 |
| 1934 | 2,508,463 | 850,225 | 250,248 |
| 1935 | 6,643,038 | 597,291 | 4,967,461 |
| 1936 | 4,789,162 | 1,418,860 | 1,376,878 |
| 1937 | 4,675,334 | 1,324,943 | 1,658,745 |
| 1938 | 3,956,342 | 829,425 | 1,983,651 |
| 1939 | 14,967,552 | 3,702,945 | 9,979,330 |
| 1940 | 9,818,837 | 2,767,577 | 5,909,438 |
| 1941 | 6,674,546 | 2,172,756 | 3,458,400 |
The estimated tonnage of structural steel fabricated for*149 shipment into the States of Alabama, Florida, Georgia, North Carolina, South Carolina, and Tennessee for the years 1936 to 1942, inclusive, was as follows:
| 1936 | 1937 | 1938 | 1939 | 1940 | 1941 | 1942 | |
| Alabama | 15,757 | 19,250 | 16,651 | 24,268 | 34,334 | 57,939 | 27,324 |
| Florida | 9,735 | 19,640 | 7,351 | 15,995 | 39,078 | 18,408 | 10,792 |
| Georgia | 9,242 | 5,524 | 9,142 | 13,819 | 17,220 | 50,709 | 43,786 |
| North Carolina | 20,081 | 23,717 | 11,361 | 23,233 | 22,998 | 37,422 | 25,509 |
| South Carolina | 4,237 | 5,918 | 8,220 | 11,897 | 6,352 | 17,372 | 4,325 |
| Tennessee | 25,286 | 32,735 | 18,309 | 15,814 | 41,929 | 68,406 | 37,017 |
| 84,338 | 106,784 | 71,034 | 105,026 | 161,911 | 250,255 | 148,753 |
The estimated tonnage shipments of structural steel by the entire industry during the years 1936 to 1941, inclusive, were as follows:
| Estimated | |
| Year | shipments |
| 1936 | 1,548,205 |
| 1937 | 1,660,570 |
| 1938 | 1,158,763 |
| 1939 | 1,440,054 |
| 1940 | 1,515,543 |
| 1941 | 2,251,089 |
The total engineering construction contracts for the entire United States and for the States of Virginia, West Virginia, North Carolina, South Carolina, Alabama, Georgia, Florida, Mississippi, and Louisiana, as reported by the Engineering News Record, for the*150 years 1936 to 1941, inclusive, were as follows: *777
| Year | Total for United States | Total for nine States |
| 1936 | $ 2,386,845,000 | $ 308,735,000 |
| 1937 | 2,437,623,000 | 242,379,000 |
| 1938 | 2,791,931,000 | 300,399,000 |
| 1939 | 3,002,856,000 | 454,256,000 |
| 1940 | 3,987,243,000 | 853,254,000 |
| 1941 | 5,868,699,000 | 1,245,275,000 |
Petitioner's liability for excess profits tax, as determined by respondent, without additions and without the application of section 722, for each of the taxable years, is as follows:
| Fiscal year | |
| ended January 31 | Liability |
| 1941 | $ 3,500.45 |
| 1942 | 60,478.62 |
| 1943 | 155,236.19 |
| 1944 | 151,039.72 |
| 1945 | 162,163.64 |
| 1946 | 144,603.84 |
Respondent denied the applications filed by the petitioner for relief under section 722. In his determination of the deficiencies in excess profits tax for 1943 and 1944 respondent imposed the additions under section 293 (b) on the entire amounts, which reflected liability for taxes deferred by petitioner under section 710 (a) (5), and imposed the provisions of section 291 (a) for the year 1945 for failure to file a timely excess profits tax return.
On April 9, 1945, petitioner's comptroller, with the knowledge of its president, *151 requested the then collector of internal revenue in Atlanta to grant petitioner an extension of 90 days within which to file completed income, declared value excess-profits, and excess profits tax returns for the taxable year ended January 31, 1945. An extension to July 15, 1945, was granted on April 11, 1945. Petitioner's comptroller and president knew on or about that date that the extension had been granted.
The petitioner filed tentative income tax returns for the year ended January 31, 1945, on April 21, 1945, with the then collector for the district of Georgia. The completed returns for that year were prepared by an accounting firm in Atlanta, and on June 20, 1945, it executed the returns as having been prepared by it. The accounting firm transmitted the completed returns to petitioner as enclosures of a letter bearing the date of July 6, 1945, and containing a notation that the returns should be filed with the proper authorities by July 15.
At that time the petitioner's comptroller and attorney were devoting a considerable part of their time to Federal and State income tax problems, financial matters, and investigations of petitioner's tax liability, and other matters. *152 The services of the attorney were not engaged to prepare or file petitioner's income tax returns. He requested petitioner to send its State income tax returns to him for *778 examination. No such request was made for Federal income tax returns.
Promptly after the receipt of the returns from the accounting firm, petitioner sent them to the office of the attorney. At or about the same time, amended returns for the years 1941 to 1944, inclusive, were transmitted to the attorney.
On July 16, 1945, or a few days thereafter, the attorney, upon inquiry, ascertained for the first time that income tax returns of petitioner for the fiscal year ended January 31, 1945, were in his office. The returns were notarized and filed with the then collector for the district of Georgia on July 20, 1945. The seal of petitioner was affixed to the returns after they were notarized. On the same day petitioner filed with the same collector amended income tax returns for the years 1941 to 1944, inclusive.
OPINION.
The parties agree that commencement of business and a change of its character in 1937 meet the qualifying factors of section 722 (b) (4) and entitle petitioner to further consideration for*153 relief.
The fact that petitioner meets the initial requirement is important only if the factor "directly results in an increase of normal earnings which is not adequately reflected by its average base period net income computed under section 713." Wisconsin Farmer Co., 1021">14 T. C. 1021; M. W. Zack Metal Co., 22 T.C. 349">22 T. C. 349.
Petitioner is entitled to excess profits tax credits based upon income pursuant to section 713. It had net income of $ 6,822.05 in 1937, $ 14,489.36 in 1938, and $ 26,310.26 in 1939. Net income of $ 11,149.56 was computed under section 713 (d) (2) for 1936. The base period income, after reflecting adjustments under section 713 (f) and for back taxes, resulted in average base period net income (ABPNI) of $ 21,802.49 for 1941 and $ 26,019.20 for each of the remaining taxable years.
Petitioner claimed in its applications for relief under section 722 (b) (4) credits based upon CABPNI of $ 79,975.82. It contends here that sufficient evidence has been submitted to establish CABPNI of not less than $ 78,984.48, the amount computed in one of the four methods of reconstruction advanced for consideration.
The contention*154 of petitioner is primarily based upon the theory that between 3 and 4 years were required within which to adequately train personnel to use the increased facilities with competitive maturity. No argument is made of lack of "know-how" to conduct the kind of business carried on before the assets of Austin were acquired. The capacity of the plant acquired in October 1937 is not a decisive *779 factor. The question is the amount of earnings petitioner would have had in the fiscal year ended January 31, 1940, under base period conditions if it had acquired the facilities 2 years earlier.
In contending that it had not passed through its stage of development by the close of the base period, petitioner points to increases in sales, purchases of steel, and shop expense during the fiscal year ended January 31, 1940, over the previous year and during quarterly and semiannual periods in the fiscal year 1940, and testimony of its president.
The business commenced by petitioner in February 1937 was not a new one. It was a continuation of the activity of the Atlanta Iron Works, Inc., a corporation which, in 1935, became the successor of a partnership carrying on a like business. Massell*155 financed the predecessor corporation and petitioner was organized to obtain capital from him and to give him a controlling interest. There is no proof that sales or income during or at the end of the base period would have been greater if the change from the predecessor to the petitioner had been made 2 years earlier.
The tonnage of steel fabricated by the industry for shipment into Georgia increased from 5,524 tons in 1937 to 9,142 tons in 1938; to 13,819 tons in 1939; and to 17,220 tons in 1940. The increases were in excess of the increases of all shipments by the entire industry during the same periods. The total engineering construction contracts for nine southern States, including Georgia, increased about 50 per cent in 1939 over 1938, and about 85 per cent in 1940 over 1939. The estimated valuation of building construction in Atlanta, based upon building permits, showed some decline in the calendar year 1938 over 1937, but an increase of about 280 per cent in 1939 over 1938.
Petitioner endeavored to obtain contracts which it would be able to perform at a profit, and nothing appearing in the evidence to the contrary, it may be assumed that it shared in this general improvement*156 of business, thereby accounting for a substantial part of its increase in sales and profits in its fiscal years 1939 and 1940, rather than solely to the acquisition of assets of Austin or additional experience. No proof was made by petitioner of inability to obtain more business in its new field due to lack of experience or otherwise.
Calvert testified that with 2 additional years of experience under the push-back rule petitioner would have had sales of from $ 1,000,000 to $ 1,250,000, and earnings of at least $ 75,000 during its last base period year. His opinion of sales was based upon the business done by Austin in 1924, and sales volume of petitioner after the base period. The witness admitted that the type of Austin's business differed from petitioner's. Moreover, sales of Austin during the period 1932 to 1936, inclusive, did not exceed in any year one-third *780 of the witness's figure, and sales of over $ 1 million were not reached by petitioner until its fiscal year ended January 31, 1942, a year influenced by the war effort and which may not be taken into account. Industrial Supplies, Inc., 18 T.C. 1067">18 T. C. 1067.
The number of petitioner's*157 employees, including executive officers, fluctuated between 66 and 79 from October 27, 1937, to November 1, 1939, when the number was 118. The number on January 31, 1940, was 127. The increase of employees after October 27, 1937, was required for a second shift to complete a particular contract having a time limit, rather than normal growth of the business. To illustrate its growth during a period of development, petitioner also refers us to increases in purchases of steel in 1937, 1938, and 1939 in excess of alleged competitors having plants in nearby States. Without any evidence or assertion to the contrary, we must assume that the businesses of the competitors were fully developed. Increased sales, in spite of such competition, disclose that petitioner's ability to utilize its increased facilities had not only reached normal, but exceeded that of its competitors.
An increased earning level during the last base period year would not benefit petitioner unless, under reconstruction, the amount was sufficient to give it greater excess profits credits than allowed it under the income method. The credits allowed are based upon an ABPNI substantially equal to actual earnings during*158 the last base period year. The proof made by petitioner fails to establish that the earnings on which the credits were allowed are an inadequate standard of normal earnings for the purposes of the excess profits tax.
Petitioner concedes liability for the additions for fraud except to the extent that they include amounts imposed on the excess profits tax deferred under section 710 (a) (5) for the years 1943 and 1944. It admits that pursuant to the provisions of section 293 (b) the addition applies to the entire deficiency if any part thereof is due to fraud with intent to evade tax and concedes that the deferred tax constitutes a deficiency. The contention is made, without more than a bare statement, that section 710 (a) (5) had the effect of modifying section 293 (b) so as not to embrace the tax deferred. We find no such modification.
The "total deficiency" for the imposition of an addition for fraud under section 293 (b) is the difference between the tax liability and the amount shown on the original return. George M. Still, Inc., 1072">19 T. C. 1072. That provision is made applicable to excess profits tax by section 729 (a). The purpose of section *159 710 (a) (5) is to defer imposition of a portion of the excess profits tax until a determination has been made under section 722. California Vegetable Concentrates, Inc., 10 T. C. 1158; Hardaway Motor Co., 18 T. C. 824. The amount so deferred may not be included in a deficiency prior to a determination *781 under the application for relief under section 722, California Vegetable Concentrates, Inc., supra, and upon rejection of the claim the amount deferred becomes a liability, which alone could constitute a deficiency, Tribune Publishing Co., 1228">17 T. C. 1228; or be part of a greater deficiency, as here. Green Spring Dairy, Inc., 18 T.C. 929">18 T. C. 929.
The deferred tax being an integral part of the deficiency determined for each of the years involved in the question, and since some part of the total deficiency is admittedly due to fraud with intent to evade tax, section 293 (b) requires that the addition be imposed on the entire deficiency.
Petitioner asserts upon brief that if section 710 (a) (5) does not modify section 293 (b) as contended*160 by it, it would be denied due process of law in violation of the Fifth Amendment. That question was not raised by the pleadings and for that reason is not before us for consideration. Frederick N. Dillon, 20 B. T. A. 690; Coca-Cola Bottling Co., 22 B. T. A. 686.
The addition imposed by section 291 (a), Internal Revenue Code of 1939, for failure to file a timely return is mandatory "unless such failure is due to reasonable cause and not due to willful neglect."
Reasonable cause has been construed to mean the exercise of ordinary business care and prudence. Haywood Lumber & Mining Co. v. Commissioner, 178 F. 2d 769; Orient Investment & Finance Co. v. Commissioner, 166 F. 2d 601; Southeastern Finance Co. v. Commissioner, 153 F.2d 205">153 F. 2d 205; In re Fisk's Estate, 203 F.2d 358">203 F. 2d 358. Reliance upon an attorney has been found in cases to constitute reasonable cause for failure to file a return within the prescribed statutory time. See In re Fisk's Estate, supra.Petitioner*161 argues that it relied upon its attorney to file the return for 1945 within the statutory period, as extended, and therefore has established reasonable cause within the meaning of the statute.
The weight of the evidence here is that the attorney, whose integrity and truthfulness is admitted by petitioner to be unimpeachable, not only never requested that the returns be sent to him but he was not engaged to prepare or file the returns. The returns were not prepared for filing when they were sent to the attorney. This is shown by the fact that the returns were signed by petitioner's president and comptroller and the corporate seal affixed thereto on July 20, 1945, the date of filing. Whether the attorney was aware of the final date for timely filing of the returns is not shown. Petitioner's president and comptroller, who signed the returns, were aware of the final date for filing, and there was never any necessity for seeking advice of counsel about the matter.
There is no explanation in the evidence for the failure of the attorney to discover the returns in his office until his attention was called to *782 the matter, or of petitioner's failure to obtain possession of the returns*162 from the attorney before the final date of filing. Absence of proof of the cause for the delay indicates that the officers of petitioner charged with the responsibility overlooked or forgot to file the returns in time. Neither of such reasons constitutes reasonable cause. Gus V. Winston, 22 B. T. A. 1194; Rogers Hornsby, 26 B. T. A. 591; Plunkett v. Commissioner, 118 F. 2d 644, affirming 41 B. T. A. 700.
There is some suggestion in the evidence that the failure was due to confusion existing from investigations being conducted in the office of petitioner and other abnormal conditions. The purpose of the provision for an addition to tax is to assure punctual compliance of the statutory requirement for timely filing of returns. Spies v. United States, 317 U.S. 492">317 U.S. 492. The filing of returns on time was as important as other business matters. Ned Wayburn, 32 B. T. A. 813. The comptroller testified that he, as well as the president of petitioner and the attorney, was giving close attention to petitioner's*163 tax liabilities. If so, he was negligent in not attending to the rendering of a timely return of petitioner's income tax liability for 1945.
We find no evidence to justify a finding that the untimely filing was due to "reasonable cause," and therefore we need not inquire whether the failure was not due to willful neglect. Accordingly, no reason appears for disturbing the respondent's imposition of the addition to tax.
Reviewed as to section 722 issue by the Special Division.
Decision will be entered under Rule 50.
Footnotes
1. ↩
"Other Sales" include sales to vendees of sundry properties owned or controlled by Ben J. Massell, vice president of petitioner during the foregoing years, in the estimated amounts of $ 9,900.00 $ 61,200.00 $ 17,400.00 $ 27,700.00