*2551 The amount deducted by the petitioner for exhaustion, wear and tear of property used in its business was reasonable in amount.
*963 The Commissioner determined deficiencies of $302.91 and $944.57 in the petitioner's income-tax liability for the calendar years 1922 and 1923 respectively. The petitioner alleges that the Commissioner erred in disallowing a part of the deduction claimed in each year for depreciation.
*964 FINDINGS OF FACT.
The petitioner was organized and incorporated in June, 1919, for the purpose of removing sand and gravel from a small property situated on Long Island, New York. Its principal office is at Pittsburgh, Pa.
In June, 1920, the construction of its plant was completed and it began operations. The plant consisted of a crushing and screening unit built on a trestle with elevators and screens; a pier about three hundred feet long extending into Manhasset Bay; dinky locomotives and cars, steam shovels, rails, ties, etc.; a tool-storage building; and a little office. Practically*2552 all of the above equipment was secondhand or was constructed from secondhand material. All of the machinery and equipment was exposed to the elements at all times.
The following table shows the cost of the plant as of June 30, 1920, and the cost of additions thereto as of the end of each year in which such additions were made:
| Date | Amount |
| June 30, 1920 | $81,424.62 |
| December 31, 1920 | 4,148.30 |
| December 31, 1921 | 2,453.48 |
| December 31, 1922 | 2,704.97 |
| December 31, 1923 | 1,367.60 |
| 92,098.97 |
The cost of the plant and additions thereto as shown in the above table corresponds to the amount charged to capital account on the petitioner's books, except as to an item of $650 for the year 1922 which it deducted as an expense representing the cost of a new boiler. The Commissioner in his determination has disallowed this item as an expense, on the ground that it was a capital expenditure and the petitioner does not contest his action in this connection.
The officers of the petitioner estimated that it would be able to remove between 750,000 and 800,000 tons of saleable material from the property. They also estimated that it would take three and one-half years to*2553 remove this material. They believed also that the salvage value of the plant and equipment, after the operations were completed, would not amount to more than several thousand dollars. The operations, which were begun in June, 1920, were completed in the early part of September, 1924. The petitioner's operations in 1924 included regrading the property and replacing the top soil in accordance with its lease. This lease also provided that the pier was to become the property of the lessor.
The following table shows the depreciation claimed by the petitioner, the amount allowed by the Commissioner, and the tonnage removed during each year:
| Year | Depreciation claimed | Depreciation allowed | Tonnage removed |
| 1920 | $14,000 | $21,123.06 | 91,754.8 |
| 1921 | 24,000 | 22,690.82 | 184,190.2 |
| 1922 | 25,320 | 23,329.52 | 201,115.0 |
| 1923 | 25,320 | 17,550.48 | 197,123.7 |
| 1924 | None. | (1) | 92,510.0 |
| 88,640 | 84,693.88 | 766,693.7 |
*965 In 1924 the petitioner disposed of its plant and equipment for $4,316.32. From this amount it deducted $2,231.52 as the undepreciated cost of its assets and reported the balance of $1,984.80 as a profit in its income-tax*2554 return for 1924.
For 1920 the petitioner had a loss after deducting the amount of depreciation which it claimed on its return.
Twenty-five thousand three hundred and twenty dollars was a reasonable allowance for the exhaustion, wear and tear of the petitioner's property used in its business for each of the taxable years involved herein.
OPINION.
MURDOCK: The respondent's principal contention seems to be that, if the amount of depreciation claimed for the taxable years is added to the amount which he has already allowed for the years 1920 and 1921, the total will exceed the cost of the assets in question. It is apparent, however, that the fault is not with the allowances for the years which are before us, but rather with the amount allowed for the year 1920, for which year the Commissioner allowed substantially as much as he did for other years, despite the fact that the petitioner's plant was only operated during one-half of that year and only removed about one-half of the tonnage which it removed in other years.
The petitioner contends that the amount which it deducted for each of the years 1922 and 1923 was not in excess of a reasonable allowance for the exhaustion, *2555 wear and tear of its property used in its business. We agree with this contention. An allowance for depreciation must, in most cases, be a mere estimate. The petitioner in the years before us did not know all the facts which we now know, but in lieu thereof it had to make estimates on which to base claim for the deductions in question. The method pursued by it arrived at reasonable allowances for depreciation in the light of the information then available. That pursued by the Commissioner did not. Under the circumstances, we approve the former.
Judgment will be entered under Rule 50.
Footnotes
1. Undisclosed. ↩