Source of acquisition and natural justice govern jewellery additions; corroborated survey stock explanations cannot be rejected without contrary evidence.

Gold jewellery found in an assessee's premises may be treated as owned by the assessee where supporting records do not establish third-party ownership, but a deemed-income addition under section 69A cannot be made without first giving a proper opportunity to explain the nature and source of acquisition. The matter on gold jewellery was therefore remitted for fresh examination after such opportunity. By contrast, diamond jewellery found during survey was accepted as explained stock because the assessee's approval-based acquisition was corroborated by supplier confirmation, purchase records and cheque payments, and no contrary material displaced that explanation. The deletion of that addition was upheld.

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Issues: (i) Whether the addition on account of gold jewellery found at the assessee's premises could be sustained under section 69A and whether the matter required remand for an opportunity to explain the source of acquisition. (ii) Whether the addition made in respect of diamond jewellery found during survey was justified.

Issue (i): Whether the addition on account of gold jewellery found at the assessee's premises could be sustained under section 69A and whether the matter required remand for an opportunity to explain the source of acquisition.

Analysis: The evidence on record did not support the assessee's claim that the gold jewellery belonged to customers. The GS-13 registers did not contain complete customer addresses as required by the Gold Control regime, and the supporting material relied upon by the assessee did not establish ownership in third parties. The assessee was therefore treated as the owner of the jewellery. However, section 69A requires not only ownership but also an opportunity to explain the nature and source of acquisition before the value can be deemed income. Since the assessee was not specifically called upon to explain the source after ownership was held against him, principles of natural justice required a further opportunity.

Conclusion: The finding that the assessee was the owner of the gold jewellery was upheld, but the issue of addition under section 69A was remitted to the Assessing Officer for fresh examination after giving an opportunity to explain the source of acquisition.

Issue (ii): Whether the addition made in respect of diamond jewellery found during survey was justified.

Analysis: The assessee's explanation that the diamond jewellery had been received on approval from a dealer was supported by contemporaneous disclosure, confirmation from the supplier, subsequent purchase records, and payment through crossed cheques. The explanation was consistent with the opening of the new showroom and the surrounding circumstances. On these facts, the Revenue did not discharge the burden of disproving the assessee's explanation.

Conclusion: The deletion of the addition relating to diamond jewellery was upheld.

Final Conclusion: The Revenue succeeded only to the extent that the gold jewellery issue was sent back for fresh adjudication after confirming the assessee's ownership, while the deletion of the diamond jewellery addition remained undisturbed.

Ratio Decidendi: Where jewellery is found in the assessee's possession, ownership may be inferred from the surrounding evidence, but a deemed-income addition under section 69A cannot be sustained without first giving the assessee a proper opportunity to explain the source of acquisition; corroborated explanations for survey-found stock cannot be rejected without contrary evidence.

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