A. KALYANASUNDARAM, A.M. This is assessee 's appeal and grounds taken in appeal are as under: That ITO erred in estimating sales at Rs. 8 lacs as against declared sale of Rs. 5,55,610 and also adopting GP rate of 15 per cent on estimated sales of Rs. 8 lacs as against declared GP of 13.3 per cent on declared sales and making addition to trading account of Rs. 46,265. That ld. ITO erred in confirming addition of Rs. 5,507 representing alleged unreconciled investment made by partner in his individual property. That ld. AAC was wrong in confirming disallowance out of car expenses and car depreciation for personal use to tune of 1/4th. facts as observed by ITO in his order are that trading account d o not account for Tal rejection or cuts produced during manufacturing process. details in respect of total weight of rough stones put to manufacturing and that received after manufacturing was not made available. closing stocks were valued on estimate. In partner's account, on account o f low personal withdrawal for household expenses addition of Rs. 19,044 had been made which could have been made from out of undisclosed sources of income of firm. Consequent to search which was done in assessee's premises certain entries in books of accounts were not verifiable. ITO there upon invoked provisions, of s.145(2) and estimated total sales in respect of panna account at Rs. 8 lacs and applied gross profit at 15 per cent and arrived at gross profit of Rs. 1,20,000. difference between estimated gross profit of Rs. 1,20,000 and as declared by assessee Rs. 73,735 i.e. Rs.46,265 was added to trading account, without making any addition separately in respect of Tal rejections and defects noticed in closing stock as well as on account of household and personal expenses of partners. assessee aggrieved in respect of addition made by ITO preferred appeals to AAC. Before AAC assessee had tried to explain that there was tremendous competition and assessee's main source of business is on account of export trade which being very competitive, assessee had to sell goods at very nominal profit. This had resulted in reduction in gross profit as compared to that of last year when gross profit rate was 16.7 per cent. ld. AAC went through order of ITO in detail and observes that defect pointed out by ITO was in respect of Panna ready account which represents manufacturing portion. AAC observes that reason given by ITO for rejecting trading result must be looked into in totality. He also observes that assessee never contended before either ITO or before himself that value of Tal and Cuts have been properly accounted for by assessee and no satisfactory explanation was provided in respect of absence of proper manufacturing account. In not being able to provide reconciliation between weights of rough cut stones and as manufactured as finished product, ld. AAC went further and observed that ITO though did not call for any explanation for fall in gross profit in Panna ready account, he finally agrees with ITO that it cannot be over looked that partners' withdrawals were very low, specially when partners' only source being from firm. He finally goes on to observe that though ITO had not pointed out any serious defect in respect of Panna account, in view of various defects pointed out by him, he upheld addition made by WTO. Before us ld. Authorised representative Shri Ranka said that stock tally in respect of more than 50 per cent of sales on Panna account had been filed before ITO and statement showing valuation of purchases and sale price giving final profitability was also filed before ITO copy of which was filed before us. In this statement total value of purchases was Rs.2,13,074 and sales were Rs. 2,39,438 resulting profit of Rs. 26,384 i.e. about 12 per cent. Shri Ranka has drawn our attention to fact that in Panna Account it is merely trading activity and no manufacturing activity is included. Shri Ranka further observed that nowhere in order of ITO, he had pointed out that sales had not been vouched in full. He further said that entire sale is on export and all receipts are through channalised agencies and report of same had been filed with various authorities including Reserve Bank of India which have all accepted statement of assessee's export earnings. It is only on this basis various subsides such as cash subsidy duty drawback, import entitlement etc. have been provided. Shri Ranka further went on to point out that AAC has tried to mix up Panna account and Panna ready account when latter represents manufacturing activity. Shri Ranka said that if any addition could have been made it could have been only in manufacturing activity. But when sales have been fully vouched, estimating sales at Rs. 8 lacs was totally unwarranted. ld. Departmental representative relied on orders of lowers authorities. After hearing both parties, we find considerable force in argument forwarded by Shri Ranka that nowhere in order of ITO he had mentioned that sales have not been vouched at all. In view of this, we hold that estimating sales at Rs. 8 lacs is unjustified specially when assessee's trade being export sales which are channalised and there being no finding to contrary that some of sales have not been booked by assessee. We therefore, hold that estimating sales at Rs. 8 lacs is unwarranted. As regards gross profit rate to be applied we find that what AAC had tried to state in his order was that ITO though had pointed out defects in manufacturing activity and knowing full well that there is reduction in gross profit in manufacturing activity by over 1.4 per cent from that of manufacturing activity also. But in view of fact that withdrawals of partners being low, he felt that additions made to gross profit by ITO would cover even additions that would have been otherwise made on account of fall in gross profit in manufacturing activity and defects in manufacturing account. In earlier years similar point in issue came up before Tribunal wherein Tribunal in ITA No.917/Jp/82 for asst. yr. 1978-79 had sustained addition of Rs. 10,000 to gross profit and had held this should have been sufficient to cover up even in respect of low withdrawals by partners. In view of fact and as already observed in earlier paras that estimation of sales is totally wrong, we hold that gross profit rate as taken by ITO at 15 per cent is reasonable and would also cover defects in manufacturing account as well as low withdrawals of partners. This 15 per cent Gross Profit shall be applied on declared sales on Panna account i.e. Rs. 5,55,610 and thereby gross profit arrived at Rs. 83,342. Since declared gross profit being Rs. 73,345 addition to gross profit would be declared gross profit being Rs. 73,345 addition to gross profit would be Rs.9,606. Regarding ground No. 2, ITO observes in his order that Rs. 5,597 was found by him to have invested by partner Shri Nirmal Kumar Dugar in his property. ITO says that since partner bad only share income from firm amount of Rs. 5,597 must be out of undisclosed sources of firm. He accordingly added this amount as undisclosed sources of firm. assessee had argument before AAC that this amount if at all, could be added only in hands of partner and not firm. AAC following reasoning of ITO, upheld inclusion of Rs. 5,597 in firm's hands. Shri Ranka again put up argument that amount would have been and should be included in partner's hands and not in firm's hands, specially when ITO himself has observed that this amount apparently invested by partner in his individual property. DR relied on orders of authorities below. After hearing both parties, we hold that inclusion of Rs. 5,597 as undisclosed income of firm is totally unjustified, specially in view of provisions contained in s.69 of IT Act. We accordingly delete inclusion of Rs. 5,597 from income of assessee. Regarding disallowance out of car expenses and car depreciation for personal use to tune of 1/4th by authorities, Shri Ranka argued that it is excessive and should have been limited to 1/5th only. departmental representative supported orders of authorities below. After hearing both parties, we are of view that disallowance if restricted to1/5th would be reasonable. In result, assessee's appeal is allowed in part. *** NIRMAL KUMAR DUGAR v. INCOME TAX OFFICER