*2935 The inventories shown by the petitioner's books of account at the beginning and close of the year 1920 held to be its true inventories.
*13 In this proceeding the petitioner alleges error on the part of the respondent in his adjustment of inventories for the taxable year *14 1920. Of the total deficiency of $11,453.90 approximately $7,000 is in controversy.
FINDINGS OF FACT.
Petitioner is a New York corporation with its principal office at Avenue B and 18th Street, New York City. During the taxable year 1920 and for several prior years it was engaged in the contracting business, specializing in shoring and foundation work. Its work consisted principally of shoring and bracing buildings under alteration or adjacent to excavations, constructing temporary sidewalks and overhead bridges, and putting in sheet piling for excavations and cement work.
In the course of its business the petitioner was required to use large quantities of lumber of widely varying dimensions. Upon completion of a job it would salvage as much as possible of*2936 the lumber which it would return to its own yards for further use. Generally the same lumber could be used on similar jobs until it became damaged or deteriorated beyond its point of usefulness. There was a considerable loss of lumber each year, however, due to its hard usage and to the further fact that much of the lumber once used could never be recovered profitably.
Practically all of petitioner's work was done in the vicinity of greater New York.
The gross receipts of petitioner's business during the years 1914 to 1922 were as follows:
| 1914 | $172,533.74 |
| 1915 | 155,055.98 |
| 1916 | 192,970.96 |
| 1917 | 197,323.32 |
| 1918 | 217,458.78 |
| 1919 | $273,299.79 |
| 1920 | 762,740.13 |
| 1921 | 397,792.21 |
| 1922 | 419,152.53 |
At the close of the year 1920 the petitioner took a physical inventory of the lumber on hand. In taking the inventory an officer of the company who was familiar with the different grades and values of lumber used inspected the salvaged lumber in its own yards, where it was assorted according to dimensions and stacked, and estimated the quantity and value of each stack. He also visited the jobs then under construction and made an estimate of the quantity and value*2937 of the lumber that would be salvaged upon completion of the job. The difference between the opening inventory, plus purchases during the year, less sales during the year, and closing inventory was charged off to depreciation. The petitioner had taken inventories in this manner since it began operation in 1914. The opening inventories, purchases during the year, sales during the year, and closing inventories for the years 1914 to 1920, inclusive, were as follows:
| Opening inventory | Purchases | Sales | Closing inventory | |
| 1914 | $25,000.00 | $21,849.77 | $3,818.13 | $30,000.00 |
| 1915 | 30,000.00 | 19,381.63 | 9,350.28 | 25,000.00 |
| 1916 | 25,000.00 | 23,598.44 | 7,872.83 | 20,983.22 |
| 1917 | 20,983.22 | 41,614.70 | 21,513.94 | 29,184.22 |
| 1918 | 29,184.22 | 26,957.75 | None. | 30,184.22 |
| 1919 | 30,184.22 | 34,141.17 | None. | 30,423.27 |
| 1920 | 30,423.27 | 109,877.81 | None. | 35,985.31 |
*15 About 40 per cent of the lumber purchased during the year 1920 was secondhand lumber.
During the year 1920 petitioner also purchased a hoist for $1,200 and a derrick for $1,400, which amounts are included in the closing inventory.
OPINION.
SMITH: In computing petitioner's tax liability*2938 for the year 1920 the Commissioner increased net income by adding to the closing lumber inventory an arbitrary amount based upon the ratio of purchases to amounts charged off to depreciation over several preceding and subsequent years.
Upon consideration of the entire record we are of the opinion that petitioner's inventory for the taxable year 1920 clearly reflected its income and that the Commissioner's adjustment thereof was error.
Judgment will be entered under Rule 50.