If assessee had fulfilled condition of making investment of entire capital gain in purchase of residential house, she would be entitled to exemption under section 54F even if part of investment was made out of borrowed money.
a) The assessee had invested entire capital gains to purchase residential house. She had utilised housing loan to make part of the investment in house property. She claimed exemption under section 54F in respect of total investment.
b) The Assessing Officer completed assessment accepting assessee's claim.
c) The CIT, in revisional proceedings under section 263, directed the Assessing Officer to re-compute deduction under section 54F by disallowing investment made out of housing loan.
1) The Hyderabad Tribunal [in case of J.V. Krishna Rao v. Dy. CIT  24 taxmann.com 104/54 SOT 44] held that the capital gains earned by the assessee could be utilised for other purposes, and assessee would be eligible for exemption as long as he fulfils the condition of making investment either by utilising capital gains or by utilising borrowings or his other income.
2) In case of Muneer Khan v. ITO  41 SOT 504 (Hyd.), Hyderabad Bench of the Tribunal made following observations:
i) For claiming exemption under Section 54F it was not necessary that the same fund must be used for the purchase of new residential house.
ii) Neither law nor any circular requires that direct nexus should be established between the sales consideration and utilization of funds for making investment in house for the purpose of section 54F exemption.
iii) Since money has no colour all that is required to claim exemption under Section 54F is compliance with the condition of making investment within stipulated time.
3) Therefore, exemption under Section 54F could not be denied just because assessee had utilised housing loan to make investment in the purchase of the residential house. Accordingly, the order of the CIT was to be set aside.-. SUMATHIGEDUPUDI V. AD. CIT 
64 taxmann.com 382 (Hyderabad - Trib.)