*1300 The amount of certain advances made by petitioner in 1921 to its branch office in China, which it carried on its books as accounts receivable and charged off in 1923, held, upon the record, not to be shown to have represented a loss sustained in 1923.
*499 The Commissioner has determined a deficiency in the amount of $2,364.61 in this petitioner's income tax for the calendar year 1923. The petitioner alleges that the Commissioner erred in disallowing certain losses incurred as a result of doing business in China, as deductions for 1923, the year in which such losses were charged off petitioner's books.
The parties agree that the Commissioner properly disallowed certain deductions taken on the return for donations and depreciation. From the stipulation filed and the exhibits introduced at the hearing we make the following findings of fact.
FINDINGS OF FACT.
The petitioner is a New Jersey corporation, engaged in the business of fabricating and exporting pharmaceutical products. Prior to 1921 petitioner established a branch office*1301 at Shanghai, China, which carried on business in the name of China Ross Company, for the purpose of fabricating pharmaceutical products from raw materials and marketing them in China and for marketing in China products fabricated by petitioner in the United States.
During 1921 cash advances for general business purposes were made by petitioner to or on behalf of the China Ross Company by the acceptance of drafts and otherwise in the sum of $18,662.50. These advances were commingled with and considered a part of the general funds of the branch office from which the ordinary and necessary business expenses were paid. It is not known what portion of said *500 advances was expended in 1921 for general operating expenses of the China Ross Company. The operating expenses of the China Ross Company amounted to between $25,000 and $30,000 for the year 1921, exclusive of depreciation and bad debt reserve. The China Ross Company's total sales for 1921, converted on a basis of two to one United States money, amounted to approximately $17,000 ($35M,207) and the stock on hand on December 31, 1921, amounted to approximately $14,000 ($27M,326.10) including an amount of $4,000 which was*1302 included in the inventory of petitioner's United States office as the cost of goods shipped to the China Ross Company.
The balance sheet of China Ross Company for the year ended December 31, 1921, shows:
| ASSETS | ||
| Mex. Dollars | ||
| Furniture and fixtures | $1,000.00 | |
| Accounts receivable (consignment and sundry debtors) | 21,441.76 | |
| Cash on hand and at bank | 201.50 | |
| Working account: | ||
| Loss as at Dec. 31, 1920 | $81,694.60 | |
| Loss for year ending Dec. 31, 1921 | 73,125.59 | |
| 154,820.19 | ||
| 177,362.45 | ||
| LIABILITIES | ||
| New York Office: | ||
| Balance due as at Jan. 1, 1921 | $123,846.62 | |
| Add: Cash advanced by them | 26,876.36 | |
| Merchandise received from them | 3,019,08 | |
| Collected on their account | 833.42 | |
| 154,575.48 | ||
| Less balance of Shanghai stock transferred to them | 570.16 | |
| 154,005.32 | ||
| Accounts payable (Dodge & Seymour et als) | 4,602.59 | |
| Bank overdraft | 18,835.54 | |
| 177,443.45 |
In 1923 the operation of the China Ross Company was abandoned by petitioner, who then employed Gilbert, Hooper & Company of Shanghai as its agent to sell its products and to dispose of the remaining stock of the China Ross Company and collect its outstanding accounts receivable. For*1303 the seven-month period ending July 31, 1923, the sales of the China Ross Company had amounted to only $7M,165.91, its expenses to $7M,581.26, and its collections to $6M,657.50. The balance sheet of the China Ross Company as of December 31, 1923, showed losses carried, covering the entire period of its operation in the amount of $154M,740.60. On November 26, 1923, petitioner charged off of its books the items in a total of $18,662.50 here in controversy, these items representing the advances *501 made, having been carried as accounts receivable due petitioner from its Shanghai branch.
OPINION.
LEECH: The issue presented here is, Did petitioner sustain a deductible loss in 1923 under the provisions of section 234(a)(4) of the Revenue Act of 1921?
The "advances" claimed as the basis for the loss were commingled with the general funds of the China Ross Company from which its general operating expenses were paid in an amount exceeding $25,000 during 1921. If a definite amount of the funds so advanced was used in the purchase of capital assets or for any other purpose, which, upon proper proof would furnish a basis for the loss, the record does not disclose such fact. *1304 There is, therefore, no evidence before us of any basis upon which this deduction could be sustained as a loss, and this contention of the petitioner must fail. Cf. .
Petitioner suggests, in the alternative, the deduction of the amount in controversy as a bad debt or an ordinary and necessary business expense. Neither position is tenable. It is stipulated the advances were made by petitioner to its own branch, the China Ross Company, and were written off by petitioner in 1923 when the business of its branch was closed out. This fact contradicts conclusively the existence of a legally enforceable debt. ; ; . Under section 234(a)(1) of the Revenue Act of 1921, if the advances were ordinary and necessary business expenses and so established by the rocrd, their deduction should have been asserted in 1921 when paid or incurred.
Judgment will be entered for the respondent.