Mongolia was formed as a buffer state between China and the USSR. It was not recognised as an independent state by the Chinese until the 1940s, as they regarded it as an integral part of their country (the status changed due to negotiations between China and the Soviets due to the Second World War). As such it had value to the Soviets, who effectively ruled it as a protectorate, as a separate state from them, and not incorporated within the USSR itself. To do so would have only served to weaken ties with the Chinese (both the Nationalists and Communists, as Stalin dealt with both throughout the 1920s through 1940s), at a time when the Soviets were trying to consolidate their position and were not ready for a major conflict in Asia.

Follow up question: did any other countries request to join the USSR but were rejected?