- (1.) IT Appeal Nos. 74 to 76 (Ctk.) of 1984 have been filed by the department and relate to the assessment years 1974-75 to 1976-77. IT Appeal Nos. 102 to 105 (Ctk.) of 1984 are by the assessee and relate to the assessment years 1977-78 to 1980-81.
(2.) the house property to which the dispute relates originally belonged to the assessees father-in-law Shivaji Nathubhai and devolved on the assessee under a will. Shivaji Nathubhai carried on business in tendu leaves. For the purpose of carrying on this business he created an equitable mortgage in respect of the house property in favour of the United Commercial Bank, Sambalpur on 4-8-1955 for taking a loan of Rs. 2,82,500 for payment of bills and hundis. Shivaji Nathubhai expired on 2-3-1964 and the will executed by him was duly probated. For the assessment years 1974-75 to 1976-77, the assessing ITO allowed deduction of the interest payable under this mortgage against the house rent receivable from the house property with the following observation : Properties received on will already pledged security to United Commercial Bank by the late Shivaji Nathubhai against loan taken by him in his lifetime. The interest payable to the bank also charged against property pledge to bank. Interest claimed as annual charge allowed in the circumstances as per section 24(1) (iv) /27(iv). During the assessment proceedings for the assessment years 1977-78 to 1980-81, the assessing ITO, however, disallowed the said interest under the mortgage for the following reason : The assessee has claimed a sum of Rs. 83,441 (the amount varies in each year) as annual charge being interest on money borrowed from bank for the purpose of carrying on of business by keeping the properties as security. Since the property subject to annual charge created voluntarily by the assessee, late Shivaji Nathubhai, passed on to the hands of the executrix Smt. Devamani Atha, the claim is disallowed on the ground that annual charge was created on the property voluntarily. He also initiated proceedings under section 154 of the income-tax Act, 1961 (the Act) for rectification of the assessment for the assessment years 1974-75 to 1976-77 in respect of interest due under the mortgage. After hearing the assessee he came to the finding that annual charge was created on the property voluntarily and as such, no deduction was available under section 24(1) (iv) of the Act. Accordingly, he rectified the assessments for the assessment years 1974-75 to 1976-77 and disallowed the interest.
(3.) On appeal, the AAC accepted the contention of the assessee that the mistake, if any, was not a mistake apparent from record and as such could not be rectified under section 154 and she set aside the orders of the ITO for the assessment years 1974-75 to 1976-77. However, in respect of the assessments for the other assessment years she agreed with the ITO that the interest claimed by the assessee as annual charge is not allowable under section 24(1) (iv) and dismissed the assessees appeals.;