G.S. Kulkarni, J.

1. By this Income Tax Reference under Section 256(1) of the Income Tax Act,1961 (for short “the Act”), the Income Tax Appellate Tribunal (Tribunal) has referred the following questions of law for decision of this Court:-

“(I) Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in not granting depreciation on a part of issue of shares capitalised to Plant & Machinery and factory equipment Rs.29,668/-?

(II) Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in not granting depreciation of Rs.1,97,636/- on the cost of issue of shares capitalised to plant and machinery and factory equipment Rs.29,668/- and Rs.9,79,438/- towards capital work-in-progress?”

2. Facts in brief are :-

The Assessment Years in question are 1980-81 and 1981-82 respectively. In the Assessment Year 1980-81, the assessee had issued 6,25,000 equity shares of Rs.10/- each. Accordingly, a sum of Rs.62.50 lakhs was adjusted by issue of shares and the balance application money was refunded to the subscribers. The increase in the share capital was for setting up an unit for the manufacture of computer and OEM peri