*4136 1. For failure to establish the salvage value of dismantled machinery claimed to be obsolete, allowance for obsolescence can not be made.
2. No evidence having been adduced as to the value of good will, invested capital as determined by the respondent is approved.
*293 This is a proceeding for the redetermination of a deficiency in income and profits taxes amounting to $2,738.35 for the calendar year 1921.
The allegations of error urged by the petitioner are:
(1) That the respondent erred in disallowing depreciation and obsolescence of $6,424.75 deducted by the petitioner in its return for the period in controversy; and
(2) That the respondent erred in disallowing good will of $10,000, paid for by the common stock of the petitioner, in the computation of invested capital for the year 1921.
FINDINGS OF FACT.
The petitioner is a corporation, organized and incorporated under the laws of the State of Utah, April 30, 1919.
*294 In 1920, petitioner acquired the following machinery at the prices set opposite each item:
| Bottle washing machine | $2,500.00 |
| Milk heater | 145.00 |
| 150 gallon Pasteurizer | 625.00 |
| Fittings and parts for 150 gallon Pasteurizer | 548.30 |
| Milk pump | 178.75 |
| Total | 3,997.05 |
*4137 All of the above items were charged to the machinery account in the books of the petitioner.
At some time between July and October, 1921, the petitioner's business having grown to such proportions that some of the above machinery was too small for further use, and some was found to be prohibited by local health regulations, it therefore became necessary to dismantle and replace those machines and the parts thereof with larger equipment to accommodate the increased business and to meet the requirements of the health regulations.
The machinery so dismantled was not charged out of the machinery account during the year 1921.
The books of account are very incomplete and there is no record to indicate what part of the dismantled machinery was sold or the prices obtained therefor.
The respondent in his deficiency notice has increased the petitioner's net income for 1921 by $6,424.75, representing "excessive depreciation." He has also eliminated from invested capital good will of $10,000, stating as his reason therefor, "since you have not furnished information sufficient to establish its value as provided by section 326 of the Revenue Act of 1921."
OPINION.
MORRIS: The*4138 proof offered at the hearing on the first allegation of error is based entirely upon the question of obsolescence of certain machinery purchased in 1920 which was replaced in 1921 by other machinery and equipment. Under the provisions of section 234(a)(7) of the Revenue Act of 1921, the petitioner is entitled to "A reasonable allowance for the exhaustion, wear and tear of property used in the trade or business, including a reasonable allowance for obsolescence." Although a taxpayer may be entitled to an obsolescence deduction under the above provisions, in order to determine the amount thereof it is necessary to know the salvage value of the asset upon which the deduction is claimed. The petitioner's books and records were in such an incomplete state that the president thereof was unable to testify as a fact that all of this machinery was only of scrap value when dismantled or that none of it was sold. *295 In fact he stated that some parts of all of the machinery may have been sold but he did not know how much was received for them. Therefore, for lack of definite evidence as to the salvage value when dismantled in 1921, we must sustain the findings of the respondent. The*4139 dismantled machinery was not charged out of the machinery account during the year 1921, and the petitioner has been given depreciation for that year in the computation of its net income.
The petitioner has offered no evidence whatsoever with respect to the second allegation of error and we, therefore, sustain the findings of the respondent.
Judgment will be entered for the respondent.