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and contends that respondent’s determination, based solely on Ng’s
application of average gross profit percentages from Dun &
Bradstreet to Manwah’s costs of goods sold, was reasonable.
We disagree. The Dun & Bradstreet data did not provide a reliable
basis to estimate Manwah’s gross profit percentages for the years
in issue because Manwah was clearly below average. Manwah was a
failing business in an economically depressed neighborhood.
Respondent contends that petitioner’s testimony regarding
Manwah’s difficulties was self-serving and not credible. We
disagree. We decide whether a witness is credible based on
objective facts, the reasonableness of the testimony, and the
demeanor and consistency of statements made by the witness. Quock
Ting v. United States, 140 U.S. 417, 420-421 (1891); Wood v.
Commissioner, 338 F.2d 602, 605 (9th Cir. 1964), affg. 41 T.C. 593
(1964); Pinder v. United States, 330 F.2d 119, 124-125 (5th Cir.
1964); Concord Consumers Hous. Coop. v. Commissioner, 89 T.C. 105,
124 n.21 (1987). We may discount testimony which we find to be
unworthy of belief, but we may not arbitrarily disregard testimony
that is competent, relevant, and uncontradicted. Conti v.
Commissioner, 39 F.3d 658, 664 (6th Cir. 1994), affg. and remanding
on another ground 99 T.C. 370 (1992) and T.C. Memo. 1992-616; Banks
v. Commissioner, 322 F.2d 530, 537 (8th Cir. 1963), affg. in part
and remanding in part on another ground T.C. Memo. 1961-237.
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