Before GOODRICH and MCLAUGHLIN, Circuit Judges, and MURPHY, District Judge.
The Commissioner asks reversal of the decision of the Tax Court*fn1 and remand with directions to allow an amendment to his answer to claim an increased deficiency as to penalties.
The Commissioner determined a deficiency in excess profits liability for the fiscal years 1935 to 1940 inclusive on Navy contracts and sub-contracts under Section 3 of the Vinson Act,*fn2 and additions for delinquency in filing returns, and sent notice thereof to the taxpayer by registered mail.
The taxpayer petitioned the Board of Tax Appeals, now the Tax Court, for a redetermination of the deficiency. December 29, 1945, the Tax Court made findings of fact and entered an opinion and, two days later, a decision sustaining in toto the determination of the Commissioner.
Taking of testimony was concluded March 30, 1945; July 19, 1945, the taxpayer's brief filed and a copy served on the Commissioner. September 19, 1945, the day before filing his brief, the Commissioner's counsel presented a motion stating that prior to the issuance of the notice of deficiency he had assessed, and not included in the deficiency notice, penalties for the six income tax years here involved, that the amended petition asserted and the answer denied those penalties were in controversy. However, "on further consideration", the Commissioner sought to admit such controversy and asked leave under Section 272(e)*fn3 to amend his answer to include the additional penalties, stating the proposed amendment would conform to the proof already presented, and that there was no need of submission of further proof. The motion was denied.*fn3
The Tax Court confined its decision to the issues raised by the pleadings and refused to consider and decide the issue in regard to additional penalties because in its opinion the issue had not been properly raised as required by the statute and the rules of the Tax Court, and because the facts upon which to base a decision of such an issue were not properly presented.
January 25, 1946, the Commissioner, for the same reason previously given, presented motions to vacate the decision and for a rehearing. The motions were denied.
The facts disclosed by the record will not be here considered except insofar as they are pertinent to a complete understanding of the procedural questions here presented for decision.
The findings of fact show that the Erie Forge Company, a Pennsylvania Corporation, did not file its annual reports of profits on its Vinson Act contracts and subcontracts within the time prescribed by law or prescribed by the Commissioner in pursuance of law, but on the contrary filed for the first time for the six fiscal years ending April 30, 1935 to April 30, 1940 inclusive, on April 30, 1941, with the Collector of Internal Revenue at Pittsburgh, Pennsylvania.
The returns as filed reported excess profits liability of $307,321.19, which was later assessed and paid. Thereafter the Commissioner computed an additional liability for excess profits of $68,613.60 and $17,245.22 additions for delinquency in filing the returns. Notice of the deficiency, the ninety-day letter, was mailed to the taxpayer March 31, 1943.
The taxpayer's amended petition challenged the deficiency penalty in the ninety-day letter and asserted that penalties previously assessed and notice thereof sent on September 9, 1941 by the Collector of Internal Revenue to the taxpayer ($68,517.63 penalties for delinquency in filing the returns April 30, 1941) had not been paid and were also in controversy in the redetermination proceeding, and that such original penalties were erroneously asserted.*fn4 The answer admitted the original penalties were erroneously asserted and denied that they were in controversy.
In his opening statement to the Tax Court, taxpayer's counsel reiterated his position. The Court advised Commissioner's counsel as to the taxpayer's position as to the original penalties and inquired if counsel admitted controversy. The Commissioner's counsel's position was that whether the delinquency penalties were properly asserted was a question of fact upon which the Commissioner called for proof. Taxpayer's counsel suggested the question could be best handled in the briefs.
The taxpayer proved that upon receipt of the notice and demand of September 9, 1941, he was advised upon inquiry, by the Collector that it had been sent in error; that conferences were held with the Revenue Agent and explanation offered to explain the delay in filing the returns; receipt of a letter from the Revenue Agent July 14, 1942, and a report which included the penalties of September 9, 1941, and those of the deficiency notice. Further that with the exception of the deficiency notice of March 31, 1941, no other communication was received from the Commissioner. The Commissioner has not made the proposed amended answer a part of the record before us, advising that it was not available. He contends the matter can, however, be reviewed because the record "clearly shows" what the amendment proposed and the ...