Assessee granted exemption u/s.54F for house construction, emphasizing compliance with deposit and construction rules.

The Tribunal affirmed the assessee's entitlement to exemption u/s.54F for the relevant year, subject to verification of house construction within the specified period. The Tribunal emphasized the importance of depositing the capital gain amount in the designated account and highlighted the consequences of non-compliance with construction requirements. The Revenue's appeal was dismissed, and the Miscellaneous Application seeking modification was allowed, with the order issued on 18th January 2021.

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Issues Involved:
1. Modification of direction given by the Tribunal regarding exemption u/s.54F of the Income-tax Act, 1961.
2. Eligibility of exemption u/s.54F based on construction of a residential house within a specified period.
3. Interpretation of Section 54F(4) regarding exemption and consequences of non-compliance.

Issue 1: Modification of Tribunal's Direction
The assessee filed a Miscellaneous Application seeking modification of the Tribunal's direction concerning the eligibility of exemption u/s.54F of the Income-tax Act, 1961. The Tribunal had ordered a re-examination of the exemption eligibility in relation to the construction of a residential house.

Issue 2: Eligibility of Exemption u/s.54F
The Tribunal deliberated on the availability of exemption u/s.54F, focusing on whether the assessee had constructed a residential house within three years of the sale of the original capital asset. It was noted that the assessee had sold a property and deposited the balance capital gain in a specified capital gain account scheme, claiming exemption u/s.54F. The Tribunal directed the assessee to provide documentary evidence of house construction within the stipulated timeframe to qualify for the exemption.

Issue 3: Interpretation of Section 54F(4)
Section 54F(4) was analyzed to understand the conditions for exemption. It was highlighted that the assessee becomes eligible for exemption by depositing the amount in the designated capital gain account scheme within the prescribed period. The provision stated that if the deposited amount is not utilized for asset purchase or construction within the specified timeframe, the earlier exemption granted would be charged as income u/s.45 after three years from the original asset transfer date.

The Tribunal emphasized that the assessee's entitlement to exemption u/s.54F was based on depositing the capital gain amount in the specified account. However, the AO was tasked with verifying if the residential house was constructed within three years. Failure to meet construction requirements would allow the AO to charge the previously granted exemption as income u/s.45 after the third year. The Tribunal modified the directions, affirming the assessee's entitlement to exemption for the year in question due to the capital gain deposit, subject to construction verification within the specified period.

In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the assessee's entitlement to exemption for the relevant year. The Miscellaneous Application seeking modification was allowed, with the order pronounced on 18th January 2021.

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