Court Opinion

ID: 4500397
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:16:54.788895+00
Date Added: 2024-06-11T15:04:17.327869
License: Public Domain

*51OPINION.
MaRqttette :
The petitioner contends that the goods shipped in the year 1918 and returned as set forth in the findings of fact, should be included in its closing inventory for 1918; that the amounts credited to sales on account of these goods should be eliminated therefrom and that its income for the year 1918, as determined by the respondent, should be reduced by the difference between the amount so charged to sales and the inventory value of the goods returned, and also by the amount of the allowance made to Donnerstag & Co.
We agree with the contention of the petitioner as to the goods shipped and returned. The shipments of goods were made with knowledge that they Avere not in accordance with the contracts, or on approval; and the customers Avere under no obligations to accept and did not accept them. The goods, therefore, remained the property of the petitioner and AAdien they were returned the effect was as if the shipments had not been made, regardless of the fact that they had been entered on the petitioner’s books as sales. Mere bookkeeping entries can not make sales from transactions which were in fact not sales, or income from something which is in fact not income. The goods returned to the petitioner belonged to it on December 81, 1918; were a part of its stock, and should have been included in its inventory as of that date, and the alleged sales price should have been eliminated from the sales account. The result is that the petitioner’s net income for the year 1918, as determined by the respondent, is overstated by the difference between the amounts included in sales on account of the goods in question and their inventory value, which difference we find to be $2,692.41, and it should therefore be reduced by that amount.
With respect to the allowance made by the petitioner to Donnerstag & Co., we can not agree that it was a proper deduction from gross income for the year 1918. There is nothing in the record to show that the shipments made to that company were not made in accordance with the sales contracts, or that they were on approval. On *52the other hand it appears that on account of a falling market Don-nerstag & Co. breached, or threatened to breach their contract, and that in 1919, after- correspondence and negotiations, the petitioner adjusted the controversy by making Donnerstag & Co. an allowance of $1,181.19. In other words, the petitioner compromised what appears to have been, so far as the record discloses, a valid and subsisting claim against Donnerstag & Co., and accepted in full settlement of the claim an amount less than the face value thereof. The amount in question may be a proper deduction in computing the petitioner’s net income for 1919, but is not a proper deduction for the year 1918. Appeal of Manville Jenckes Co., 4 B. T. A. 765.
Judgment will he entered on 15 days’ notice, wider Rule 50.
Considered by Phillips, VaN FossaN, and Milliken.