*720 Before JAMES, STERNHAGEN, TRAMMELL, and TRUSSELL.
This appeal was made by Harry and Kate Canaan, husband and wife, from a deficiency letter asserting an additional tax of $483.69 for the calendar year 1921.
The appeal first came on for hearing on December 8, 1924, at which time the taxpayer, Harry Canaan, appeared personally, with his bookkeeper and accountant, both of whom were sworn and testified. As the hearing progressed it became apparent to the board that prior to a final disposal of the case a reexamination and audit of the taxpayer's accounts should be made, and with that purpose in view the hearing was ordered continued to February 9, 1925, with the understanding that the Commissioner would immediately authorize a reexamination and audit of the taxpayer's books to be made by a revenue agent at New York, where the taxpayers reside.
On February 9, 1925, the appeal was again called and counsel for the Commissioner submitted the report of a revenue agent's examination of the taxpayer's books of account under*2818 date of January 6, 1925, and this report was received in evidence. From the oral testimony taken on December 8, 1924, and the documentary evidence received on February 9, 1925, the board makes the following
FINDINGS OF FACT.
Harry Canaan and Kate Canaan, the taxpayers, are and were during the calendar year 1921, husband and wife, residing in Brooklyn, N.Y. Harry Canaan was, during the year under consideration, engaged in the business of manufacturing ladies' and misses' dresses. For the calendar year 1921 he and his wife made one income-tax return, intended to include the income of the business and the income of both husband and wife from sources other than the business, and that report showed a total net income of both husband and wife in the sum of $3,072.81. On or about January 28, 1924, a field revenue agent, assigned to verify this return, visited the taxpayer's place of business and inquired for the books of account for the year 1921. The taxpayer at that time was unable to, or at least did not, produce any such books, and thereupon the examining agent, taking the gross sales as reported by the taxpayer in his income-tax return as a basis and using a table of percentages*2819 furnished by the Commissioner's office, made a theoretical computation of net income and reported that the net income of the taxpayer's business for that year was $9,678.03 and that the income of husband and wife from other sources was $228.89. Upon the basis of this report the Commissioner's deficiency letter was predicated and the taxpayers brought this appeal.
At the hearing on December 8, 1924, the taxpayer produced books of account for the year 1921 which appeared to show all the details of ordinary accounting methods for a business of the character of *721 that carried on by the taxpayer and properly identified said books, whereupon a re-audit and reexamination was advised by the board.
A reexamination and audit of these books was made by the revenue agent in New York between January 2 and January 5, 1925, and as a result of this reexamination the examining officer made his report to the Commissioner under date of January 6, 1925, and that report shows that the income-tax return of the two taxpayers, Harry and Kate Canaan, for the year 1921 should be, and is, in condensed form, as follows:
| Total sales | $204,699.22 | |
| Cost of goods sold | $150,487.19 | |
| Total allowable deductions | 53,599.61 | |
| 204,086.80 | ||
| Net income from business | 612.42 | |
| Income from interest | 228.89 | |
| Harry Canaan's salary drawn from and charged as an expense of his business | 1,820.00 | |
| Total net income | 2,661.31 | |
| Total of personal exemptions | 3,700.00 | |
| Amount of net income subject to tax | None. |
*2820 DECISION.
The deficiency determined by the Commissioner is disallowed.