I am of opinion that this matter must go to ITO for fresh consideration. ITO mentioned in assessment order that assessee was manufacturer and seller of hosiery cloth. It was conceded before him by counsel for assessee that defects as pointed in assessment order for asst. yr. 1977-78 existed even in year under appeal inasmuch as consumption of raw materials with reference to finished products was not verifiable. ITO that expenditure on raw materials had gone up tremendously which was disproportionate to increase in volume of sales. He further found that even expenses had increased. He also found that gross profit had declined to 4.2 per cent as compared to 8.4 per cent in asst. yr. 1977-78, 8.2 per cent in asst. yr. 1976-77 and 8.5 per cent in asst. yr. 1975-76. It was represented before him that fall in rate of profit was due to increase in cost of yarn which was raw material used in manufacture of hosiery cloth. ITO did not accept this explanation. He further found that withdrawals made by partners were also low. He finally made addition of Rs. 25,000 to trading account. It was confirmed by AAC. assessee is now in appeal before me. ld. counsel for assessee submitted before me copy of assessee's letter dt. 9th Oct. 1984 addressed to AAC. In this letter it was pointed out that while in asst. yr. 1977-78 margin of profit to assessee on cloth was Rs. 3.05 per kg., it came down to Rs. 2.19 per kg. in year under appeal. latter states that if this fact was taken into consideration, than gross profit declared by assessee was in order. ld. counsel for assessee further submitted before me that assessee was only dealing in purchase and sale of yarn, in which alone there was dispute about fall in rate of profit. He submitted that there was not dispute of fall in rate of profit in manufacturing side of hosiery cloth. In grounds of appeal, it is also mentioned that there was some friction between partners which was also responsible of loss suffered by assessee firm. perusal of facts as mentioned by ITO and those represented before me, goes to show that there is wide variation. While ITO refers to fall in rate of profit in manufacture of hosiery cloth, before me it was submitted that fall was only in pure dealing in yarn. This fact requires enquiry. Further, ITO has not dealt with assessee's claim that in terms of sales of yarn there was reduction in profit. This point was no doubt brought to notice of AAC by assessee's letter dt. 9th Oct. 1984 referred to above but then he also did not deal with it and merely confirmed addition of Rs. 25,000 on ground that there was unexplained fall in rate of profit. I direct ITO to go into this aspect and then find out whether fall in rate of profit was in sale of yarn or in manufacture of cloth and what were reasons of such fall and whether they could be accepted. After taking into consideration these matters, ITO will re-decide question of accepting trading account or making addition if so required. next contention related to disallowance of Rs. 4,500 being half of car expenses on ground that it was also used for personal purposes by partners of assessee firm. In my opinion, disallowance is in order. Firstly, it is conformity with past practice and secondly it could not be shown to me how car was mainly required for purpose of assessee's business. I, therefore, confirm disallowance of Rs. 4,500. assessee has contended disallowance of Rs. 500 out of telephone expenses in grounds of appeal. This ground was, however, not argued before me and is, therefore, rejected. In result, appeal is partly allowed. *** MANOHAR TEXTILES v. INCOME TAX OFFICER