5 T.C. 1298">*1299 This proceeding involves a deficiency in excess profits tax of $ 14,438.83 for the year 1941. The issues are: (1) Whether respondent erred in disallowing a claimed deduction of $ 26,900, representing the loss sustained from the sale of certain shares of the capital stock of the Standard Banner Coal Co., acquired in 1937; and (2) whether, in determining petitioner's invested capital and average invested capital for the taxable year, respondent erred in reducing its average invested capital by the amount of $ 27,460.36 on account of inadmissible assets. The case was submitted upon a stipulation of certain facts, depositions, and exhibits. The facts stipulated are so found. Other facts not stipulated are found from the evidence. Petitioner's assignment of error contained in paragraph 4 (c) of the petition1945 U.S. Tax Ct. LEXIS 15">*17 has been abandoned by stipulation.

FINDINGS OF FACT.

Petitioner is an Ohio corporation, with its principal office at Cincinnati, Ohio. It maintains branch offices in Norfolk and Chicago. Its income and declared value excess profits tax return and excess profits tax return for the period involved were filed with the collector of internal revenue for the first district of Ohio at Cincinnati, Ohio. Petitioner is engaged only in selling coal. It sells for its own account and as broker, receiving a commission of from 7 to 8 percent on such coal sold. Petitioner's customers are located throughout the country where bituminous coal is used. The mining companies from which petitioner purchases coal, or on whose behalf it acts as broker, are located in the States of Virginia, West Virginia, Kentucky, and Tennessee. Petitioner's customers include utilities, railroads, lake shippers, byproduct plants, and retail dealers. To meet their demands, petitioner must have available sources of supply of various sizes and grades of coal. From time to time petitioner has found it necessary and advantageous to the conduct of its business to make advances to some of the mining companies which supply1945 U.S. Tax Ct. LEXIS 15">*18 it with coal. The advances were, in some instances, made on open account and in notes. In other instances, for the primary purpose of maintaining favorable relations, petitioner has acquired stock or other securities of mining companies with which it does business. During the period 1937 to 5 T.C. 1298">*1300 1941, inclusive, petitioner made advances on open accounts, notes, and securities to its vendor mining companies as follows:

Except for the years 1938 and 1939, when petitioner sold fewer tons of coal than in 1937, its sales increased from 1,582,100 tons in 1937 to 2,511,400 tons in 1941. During the war years its sales tonnage increased to the amount of 4,040,100 tons in 1944.

On December 10, 1937, petitioner acquired from John Flanagan 300 of the 1,000 outstanding shares of the common stock of the Standard Banner Coal Co. at a cost of $ 27,500. At the time of the purchase of such shares, petitioner was acting as broker for some part of the production of1945 U.S. Tax Ct. LEXIS 15">*19 that company. Flanagan objected to the arrangement. The majority stockholders advised petitioner that if it purchased Flanagan's shares it could market the entire output of the Standard Banner Coal Co. After the purchase of the 300 shares the tonnage of Standard Banner Coal Co. sold by petitioner increased from 21,805 tons in 1936 to 91,277 in 1941. The Standard Banner Coal Co. went into receivership and on December 22, 1941, petitioner sold the 300 shares of stock for $ 600, resulting in a loss of $ 26,900. In its 1941 tax return the petitioner reported an excess profits net income of $ 121,136.63. Among the deductions claimed in arriving at such amount is the above loss item of $ 26,900. In its return petitioner explained the deduction as follows:

Standard Banner Coal Company Investment was acquired and held under circumstances that indicate its inclusion under the classification of capital assets would be erroneous. The property classifies as an asset related to the regular business of the corporation, and the loss arising from disposition has therefore been given effect in the determination of income subject to Excess Profits Tax.

The respondent, in his deficiency notice, 1945 U.S. Tax Ct. LEXIS 15">*20 explained the disallowance of the deduction as follows:

It is held that 300 shares of Standard Banner Coal Company common stock sold in 1941 constituted capital assets as defined by section 117 of the Internal Revenue Code. The loss sustained from the sale of said stock of $ 26,900.00 represents a long-term capital loss, and does not, therefore, constitute an allowable deduction for the purpose of computing excess profits net income under the provisions of section 711 (a) (2) (D) of the Internal Revenue Code.

In its excess profits tax return for the year 1941, petitioner reported an average invested capital of $ 391,095.40 and an invested capital 5 T.C. 1298">*1301 of $ 384,251.23. The difference of $ 6,844.17 represents the amount of the reduction of the former, on account of inadmissible assets, as reported on that return. In his determination of the excess profits tax deficiency, the respondent increased the "reduction on account of inadmissible assets" by the amount of $ 27,460.36, and in explanation of this adjustment the deficiency notice stated:

Average invested capital for the year 1941 has been reduced to [sic] $ 27,460.36 to effect the exclusion of additional inadmissible1945 U.S. Tax Ct. LEXIS 15">*21 assets as required by section 720 of the Internal Revenue Code.

The word "to" in the foregoing quotation should be "by."

The above stated amount of $ 27,460.36 was computed or determined by respondent as follows:

Petitioner's excess profits tax return disclosed its total admissible and inadmissible assets to be $ 914,031.54, its total inadmissible assets to be $ 16,006.84, the ratio of inadmissibles to total assets to be 1.75 percent, and the amount of the reduction on account of inadmissible assets to be $ 6,844.17. The respondent accepted as correct the reported figure of $ 914,031.54 as the total of petitioner's admissible and inadmissible assets, but he determined its average total inadmissible assets to be $ 80,237.44, and the percentage of that amount to the total of admissible and inadmissible assets ($ 914,031.54) to be 8.77841 percent. By an adjustment to correct a mathematical error, as to which there is here no controversy, the respondent changed petitioner's reported average invested capital of $ 391,095.40 to $ 390,782.94. He then determined the statutory amount of the reduction for inadmissible assets to be $ 34,304.53, representing 8.77841 percent of $ 390,782.94. 1945 U.S. Tax Ct. LEXIS 15">*22 The amount of $ 27,460.36, by which respondent increased the reduction on account of inadmissible assets, as above stated, represents the excess of $ 34,304.53 over $ 6,844.17.

Included in petitioner's inadmissible assets, as determined by respondent, is the cost to petitioner of the common stock of the following domestic corporations:

The Ames Mining Co. produced a smokeless coal for which there was a heavy demand at all times. The Diamond Coal Mining Co. produces one of the finest grades of coal on the market. Because of its location, freight rates to consumers in the south were very favorable. The River Transportation Co. operates a river dock located some 5 T.C. 1298">*1302 8 miles below Cincinnati. This dock unloaded and prepared coal that is shipped by river transportation from the West Virginia mines, from which petitioner obtains coal. Petitioner's primary purpose in acquiring the stock of these companies, as in the case of the Standard Banner1945 U.S. Tax Ct. LEXIS 15">*23 Coal Co. was to improve its relations with those companies as an available source of supply of various grades of coal and to facilitate the handling thereof, which it required in the conduct of its wholesale coal business.

During the taxable year petitioner held stock, as investments, in other corporations, as follows:

West Virginia Coal & Coke Co.

Huntington-Ohio Bridge Co.

American Laundry Co.

Mead Corporation

General Motors Corporation

Aluminum Industries

National Cash Register Co.

Chesapeake and Ohio Railroad Co.

American Rolling Mills Co.

Textiles, Inc.

Louisville & Nashville Railroad Co.

Marietta Realty Co.