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2. The Id. Commissioner of Income-tax (Appeals) grossly erred in holding that in view of the decision in the case of Echjay Industries Ltd. Vs. DCIT, 88 TTJ 108(Mum), the premia of Rs.2,73,68,189/- and Rs.5,43,00,000/- paid by the assessee to Mac Charles(l) Ltd and the Gupta group respectively on account of buy- back of shares are in the nature of Revenue Expenditure.
3. The Id. Commissioner of Income-tax(Appeals) grossly erred in deciding the issue in favour of the assessee without appreciating that the ratio of the decision of the Hon'ble Supreme Court in the case of Brook Bond India Ltd. Vs. CIT, 225 ITR 798, is clearly applicable to the issue in appeal.

4.8. The learned AR has placed reliance on the decision of the Mumbai Bench of ITAT in Echjay Industries Ltd. vs DCIT reported in 88 TTJ 1089 which subsequently was affirmed by the Hon'ble Bombay High Court by dismissing the appeal filed by Revenue by its order dated 30.7.2008 in ITA No. 237 of 2004. He has also relied upon the ITAT Mumbai Bench C decision in Chemosyn Ltd. vs ACIT reported in 25 Taxmann.com 325 wherein it was held that purchase of shares of recalcitrant group of share holders was an expenditure out of business expediency where the assessee did not obtain any right or advantage which would affect its capital structure. The purchase of shares of the recalcitrant shareholders at a premium in accordance with the agreement before High Court was an expenditure to ensure smooth running of the business of the company and therefore, on revenue account. I have perused the two decisions of the Mumbai ITAT and the Hon'ble Bombay High Court cited by the learned AR. In the Echjay Industries case, a dispute between two warring group of shareholders was terminated consequent to a consent term drawn up by the shareholders and approved by the Bombay High Court with the directions that the company would purchase the shares of some of the shareholders at a premium. It was held that the payment made to the shareholders was to secure smooth running of the company and avoid possible winding up of the company under the provisions of sec. 397 and 398 r.w.s. 402 of the Companies Act. The ITAT relied on certain case laws to hold that while accepting a compromise settlement between two groups, the court will keep in mind the prime interest of the company and also public interest even though it may not be in the interest of majority share holders. The case laws relied upon by the Assessing Officer are held to be inapplicable to the facts of the instant case as they pertain to expenses incurred to increase the capital base of the assessee. The detailed justification for holding so can be seen from the appellant's submissions reproduced in para 4.5. So far as the payments of Rs.2,73,68,190 to Mac Charles (I) Ltd. is concerned, since the same was made in pursuance to compromise order and duly ratified by the Company Law Board, the ratio of the decision in Echjay Industries Ltd. would apply and the amount in question is held to be revenue expenditure. Similarly, the payment of Rs.5,43,00,000 paid to the Gupta Group made in pursuance to compromise order and duly ratified by the Company Law Board is also held to be revenue expenditure in accordance with the ratio of the jurisdictional High Court and Mumbai ITAT decision quoted supra. Consequently, Ground No.6 for A.Y. 2007-08 is allowed, and additional ground sought to be raised for A.Y. 2007-08 (as per para 3 is treated as dismissed)."

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"4. We have heard the rival submissions of the parties and perused the record. The Ld Counsel relied on the decision in the case of Echjay Industries Limited Vs. DCIT, 88 TTJ 1089 (Mum) as well as Chemosyn Limited Vs. ACIT, Mumbai, ITA Nos. 6382/Mum/2011, order dated 7.9.2012. The Ld Counsel also relied on the decision of Hon'ble Supreme Court in the case of Malabar Industrial Company Limited, 243 ITR 83 to support his argument that both the conditions of Sec. 263 of the Act must be satisfied i.e. (1) the order must be erroneous and (2) it should be prejudicial to the interest of revenue. He submits that the decision of the Tribunal in the case of Echjay Industries Limited (Supra) has been approved by the Hon'ble High Court of Bombay by dismissing the appeal filed by the Revenue against the said decision i.e. Income Tax Appeal No. 337 of 2004, order dated 30th July 2008. The sum and substance of the argument of the Ld Counsel is that the issue which is a subject matter of revision u/s. 263 cannot be treated as a capital expenditure as the same is a revenue expenditure as held in the case of Echjay Industries Limited M/s. Brahma Bazaz Hotels Ltd.

6. In the case of Echjay Industries Ltd.,(Supra) there were similar facts and in the said case also, there were two warring groups of the shareholders. The legal battle between the two warring groups of the shareholders reached before the Bombay High Court and after a period of over six years, good sense prevailed between those two groups and a consent terms were drawn by the shareholders and Hon'ble High Court of Bombay approved the consent terms giving direction to the company to purchase the shares of family members of Doshi group and to pay extra amount of Rs. 900/- per share as a premium over & above face value of Rs. 100/- per share. The amount paid as a premium was claimed as a revenue expenditure, but the same was disallowed by the A.O and the disallowance was confirmed by the CIT(A). The issue reached before the Tribunal. The operative part of the said decision is as under :