*250 Decision will be entered for the respondent.
Petitioner has failed to establish that any portion of its 1943 abnormal income was attributable to any other years, entitling it to relief under section 721 of the Internal Revenue Code.
*1490 Petitioner seeks a review of respondent's disallowance of its claim for refund of its excess profits tax for the taxable year ended June 30, 1943, in the amount of $ 14,117.91.
The sole issue is whether or not petitioner is entitled to any relief under section 721 of the Internal Revenue Code.
The case was submitted upon oral testimony and exhibits. The parties have stipulated that the record in Docket Nos. 8815*251 and 26653 may be considered to be part of the record in this proceeding.
FINDINGS OF FACT.
Petitioner is a Kentucky corporation organized in 1918. It is engaged in the wholesale grocery business with its principal office and place of business located at Hazard, Kentucky. Petitioner keeps its books and files its Federal income and excess profits tax returns on the accrual basis of accounting. The returns for the period here involved were filed with the collector of internal revenue for the district of Kentucky.
Prior to April 15, 1940, petitioner operated wholesale grocery houses at Hazard and Jackson, Kentucky. On April 15, 1940, it acquired and operated a wholesale house at Lawrenceburg, Kentucky. On December 6, 1943, the Lawrenceburg store was destroyed by fire and the business was discontinued at that location.
The Hazard and Jackson houses were in the coal area of Kentucky and the volume of sales was substantially dependent upon the prosperity of the coal mining industry in that area. The Lawrenceburg store was outside the coal area.
The wholesale grocery business is affected by general business conditions; when business is good the wholesale grocery business is good, and*252 when business is bad the wholesale grocery business is relatively bad.
In the war years 1942 and 1943 there was a brisk demand for the type of merchandise sold by petitioner. During the same period there was a scarcity of merchandise. Some products sold by petitioner were allocated. Petitioner experienced no difficulty in selling its merchandise during such period.
Certain physical assets, such as a building, fixtures and trucks, are necessary to operate a wholesale grocery business.
Petitioner's sales and net profits before Federal income and excess profits taxes for each of petitioner's three stores in the taxable years indicated were as follows: *1491
| Hazard House | Jackson House | |||
| Taxable year ended | ||||
| Sales | Net profit | Sales | Net profit | |
| 6-30-40 | $ 478,168.06 | $ 20,977.70 | $ 364,198.33 | $ 6,742.37 |
| 6-30-41 | 492,548.27 | 25,356.78 | 390,120.18 | 9,575.14 |
| 6-30-42 | 691,826.69 | 45,462.71 | 565,251.64 | 18,058.78 |
| 6-30-43 | 920,878.25 | 61,786.62 | 802,142.03 | 32,378.82 |
| LawrenceburgHouse | ||
| Taxable year ended | ||
| Sales | Net profit | |
| 6-30-40 | $ 52,173,19 | $ 392.28 |
| 6-30-41 | 332,556.40 | 10,501.50 |
| 6-30-42 | 438,707.47 | 19,119.80 |
| 6-30-43 | 477,327.03 | 23,634.25 |
In*253 its excess profits tax return for the taxable year ended June 30, 1943, petitioner did not claim any deduction as abnormal net income attributable to prior years under the provisions of section 721 of the Internal Revenue Code. However, on September 13, 1946, petitioner filed a claim for relief under section 721 of the Code with the collector of internal revenue for the district of Kentucky, which claim was disallowed by the respondent.
In its petition filed herein, petitioner claimed abnormal net income for the taxable year ended June 30, 1943, in the amount of $ 36,296.78, of which amount it allocates $ 7,259.36 to the year ended June 30, 1940, and the balance of $ 29,037.42 to the year ended June 30, 1941.
Petitioner had no abnormal net income for the taxable year ended June 30, 1943, attributable to any other taxable year under section 721 of the Internal Revenue Code.
OPINION.
The sole issue is whether petitioner is entitled to any relief under section 721 of the Internal Revenue Code.
In Producers Crop Improvement Association, 7 T. C. 562, we outlined the three steps necessary to establish the right to relief under section 721 of the Code: (1) *254 a showing of the amount of abnormal income in the taxable year; (2) the abnormal net income derived therefrom; and (3) the portion of abnormal net income attributable to other taxable years.
The respondent contends that petitioner has failed to establish any of the three aforementioned steps. What petitioner considers the class of its income constituting abnormal income is, we think, somewhat obscure. Petitioner, on brief, states that its claim for relief is based on the development of the Lawrenceburg house, acquired April 15, 1940. Since petitioner relies upon the case of Morrisdale Coal Mining Co., 13 T. C. 448, it would seem that it is seeking to establish as its class of abnormal income, income resulting from the "development of tangible property," under section 721 (a) (2) (C) of the Code. We are in doubt whether the acquisition and operation of a going wholesale mercantile house would come within the intendment of the phrase "development of tangible property" as used in that section. However, we think, in the light of the record, it is unnecessary to decide that question.
*1492 Assuming that petitioner has shown a class of abnormal income*255 and its abnormal net income derived therefrom, under section 721, we are convinced that petitioner has not established what part, if any, of such abnormal net income is attributable to other years, as required by section 721 (b) of the Code. Primas Groves, Inc., 15 T. C. 396, and authorities therein cited.
In its petition filed in this proceeding petitioner claimed a total abnormal net income for 1943 of $ 36,296.78, obviously based on the theory that all of its income from its three wholesale houses was a separate class of income. Of such amount petitioner claimed that $ 7,259.36 was attributable to 1940 and $ 29,037.42 to 1941. Since the net profits of the Lawrenceburg house in 1943 were only $ 23,634.25, the amount which petitioner claimed to be attributable to other years is in excess of the profits derived from the Lawrenceburg house.
On brief, petitioner, apparently changing its position, requests a finding that its abnormal net income for the year ended June 30, 1943, is the amount of $ 19,474.48, which it contends should be attributable to the period April 15, 1940, to June 30, 1942.
Except for its income and excess profits tax returns offered*256 in evidence, petitioner introduced no schedules or other evidence which could be used as a basis for attributing any of its assumed abnormal net income to prior years. Petitioner has not even requested a finding of fact as to which other years and in what proportion its assumed abnormal net income for 1943 should be attributed.
Furthermore, petitioner has made no attempt to show what portion of its assumed abnormal net income from the Lawrenceburg house resulted from activities in prior years and what portion resulted from activities and circumstances in the taxable year ended June 30, 1943.
The respondent's regulations, which have been sustained as valid, provide that items of abnormal net income can not be attributed to another year if they are the result, inter alia, of increased demand, higher prices and improvement in business conditions. Regulations 112, section 35.721-3; Soabar Co., 7 T. C. 89, 96; Primas Groves, Inc., supra.
The taxable year here in question was entirely within the war years, when there was an increased demand for consumer goods due to the war economy. Petitioner has not offered any proof*257 with respect to the effect of the improvement in business conditions on its income in the taxable year.
Petitioner's gross sales and net profits from all three of its wholesale houses during the fiscal years ended June 30, 1940, to June 30, 1943, inclusive, as set forth in our findings of fact, disclose that petitioner's sales and net profits from all three of the wholesale grocery houses were materially increasing. The gross sales and net profits from its two long-established houses located at Hazard and Jackson, *1493 Kentucky, increased in greater ratio than the gross sales and net profits of its Lawrenceburg house. Thus, we think, this record clearly establishes that petitioner's increased income in 1943 was due largely to improved business conditions and the increased demand for the type of merchandise sold by petitioner. It was the general intent of Congress that income resulting from improvement in business conditions was to be subject to excess profits tax.
We hold that petitioner has failed to establish that it had any abnormal net income in the taxable year ended June 30, 1943, attributable to any other years, and, therefore, petitioner is not entitled to any relief*258 under section 721 of the Code. Its claim for relief is denied.
Decision will be entered for the respondent.