Recovery of out of pocket costs incurred by society from ultimate beneficiaries of grant not taxable in the hands of society

Brief of the case:

The ITAT Chandigarh in the case of Haryana Renewable Energy held that recovery of a part of cost from ultimate customers by the society working for funding the projects from government grant being in nature of reimbursements cannot be taxed in the hands of society.
Facts of the case:

• The assessee Haryana Renewable Energy Development Agency was incorporated in 1997 and was registered as a society. The objects of the assessee are to popularize, promote and implement the application of various types of new and renewable sources of energy in the State.
• Its income comprises grants, interest and miscellaneous receipts. For the year under consideration, the assessee filed return declaring nil income as on 31.7.2007 claiming its income to be exempt.
• The Assessing Officer during the course of assessment proceedings observed that the assessee is an AOP as per sect ion 2(31) (v) of the Income Tax Act, 1961.
• During the course of assessment proceedings, the Assessing Officer noticed that the grants received by the assessee amounting to Rs.2,10,03,884/- includes receipt on account of user share of which the nature and utility of the same towards the aims and objects of the assessee society have not been explained. As such, the addition of Rs.2,10,03,884/- was made by the Assessing Officer.
• The CIT(A) held that the user share is nothing but a part of the cost of the renewable energy devices recovered from the consumers, the rest being met by way of subsidy from the Governments. Since it is only recovery of part of the cost already incurred by the assessee, it cannot be termed as taxable income by any stretch of imagination. This way, the learned CIT (Appeals) deleted the addition on account of user share made by the Assessing Officer. Aggrieved revenue is in appeal before ITAT.

Contention of the Assessee: