Amol Shridhar Chougule Vs ITO (ITAT Pune)
Recharge Value Is Not Distributor’s Turnover: Penalty of ₹1.50 Lakh u/s 271B Deleted
Background
The assessee was an individual carrying on business under the name Bharat Communications. He operated as a super distributor of Vodafone-Idea Cellular Limited & facilitated the distribution of mobile recharge vouchers to customers.
For AY 2017-18, the assessee filed his return of income on 31.03.2018, declaring total income of ₹2,69,420. The return was selected for scrutiny, & the AO completed assessment u/s 143(3) on 13.11.2019 by accepting the returned income.
Although no addition was made in the assessment, the AO noticed that substantial transactions had passed through the assessee’s bank account. Treating the aggregate value of those transactions as the assessee’s business turnover, the AO concluded that it exceeded the threshold prescribed u/s 44AB.
Since the assessee had not obtained a tax audit report, the AO initiated penalty proceedings u/s 271B & imposed the maximum penalty of ₹1,50,000.
The CIT(A) confirmed the penalty. The assessee therefore approached the Pune Tribunal.
Bank Credits Treated as Turnover
The Department’s case was based upon the volume of transactions reflected in the bank statements. The bank account showed payments made for procuring recharge vouchers from Vodafone, followed by their distribution to retailers or customers.
According to the AO, these inflows & outflows represented purchase & sale transactions. Their aggregate value crossed the audit threshold. Consequently, the assessee ought to have maintained audited books as required u/s 44AB.
The failure to obtain & furnish the audit report was treated as a default attracting penalty u/s 271B.
Under that provision, penalty may be levied at 0.5% of the total sales, turnover or gross receipts, subject to the prescribed maximum, which for the relevant year was ₹1.50 lakh. The AO accordingly levied the maximum amount.
Assessee Claims to Be Only a Commission Agent
The assessee contended that the nature of his business had been misunderstood. He did not purchase recharge vouchers from Vodafone as an independent trader & resell them as their owner. He merely operated as a distributor on a commission basis.
The amounts passing through the bank account represented the face value of recharge vouchers handled on behalf of Vodafone. They did not constitute the assessee’s own sales or turnover.
Only the commission earned for facilitating the transactions represented the assessee’s real business receipts. That amount was recorded in the books & was substantially below the threshold prescribed u/s 44AB.
The assessee further submitted that he had acted under a bona fide belief, supported by advice from his tax consultant, that only the commission income constituted his turnover. Therefore, he had not obtained a tax audit report.
Form 26AS Reveals the True Relationship
The ITAT examined the record & found that the assessee was operating as a distributor for Vodafone on a commission basis.
A decisive piece of evidence was the assessee’s Form 26AS. Vodafone had deducted tax u/s 194H, which applies to payments by way of commission or brokerage. This tax treatment supported the assessee’s contention that his income arose from commission rather than from independent purchase & resale of recharge vouchers.
The Tribunal acknowledged that the bank account contained transactions involving payments for obtaining recharge vouchers from Vodafone & transferring them to customers. However, these amounts were not recorded in the assessee’s books as purchases & sales. Only the commission arising from those transactions was accounted for as income.
On the facts, the assessee was merely facilitating the transactions. The full recharge value did not belong to him in the commercial sense & could not be treated as his turnover solely because the amounts moved through his bank account.
Commission Alone Constituted Turnover
The ITAT held that the assessee had earned only commission income from Vodafone. Therefore, for determining the applicability of s.44AB, the relevant turnover or gross receipts consisted of the commission earned—not the aggregate face value of the recharge vouchers handled.
Since the commission income did not exceed the statutory audit threshold, the assessee was not required to have his books audited u/s 44AB.
Once there was no obligation to obtain a tax audit report, the essential foundation for penalty u/s 271B disappeared. The fact that the bank transactions were numerically large could not create an audit requirement when those transactions did not represent the assessee’s own turnover.
The Tribunal accordingly held that the AO had grossly erred in imposing the penalty. The order of the CIT(A) was set aside & the entire penalty of ₹1,50,000 was deleted.
The assessee’s appeal was allowed.
Author’s Comments
The decision reiterates that bank turnover is not necessarily business turnover. The character of a transaction depends upon the underlying commercial relationship, not merely upon the amount passing through a bank account.
In the case of commission agents, distributors or intermediaries, the crucial enquiry is whether they buy & sell goods on their own account or merely facilitate transactions for a principal. If the arrangement is genuinely on a principal-to-agent basis, only the commission may constitute gross receipts for determining the s.44AB threshold.
The deduction of TDS u/s 194H strongly supported the assessee, but that factor should not be viewed in isolation. The distributorship agreement, accounting treatment, ownership of recharge inventory, pricing freedom, risk of loss & manner of settlement with the telecom company may also become relevant in other cases.
The ruling should therefore not be understood as laying down that every mobile recharge distributor can automatically exclude recharge value from turnover. The result depends upon establishing the agency character of the arrangement.
Another notable feature is that the scrutiny assessment accepted the returned income. Yet penalty was separately levied by adopting a different understanding of turnover. The Tribunal correctly examined the substance of the receipts before deciding whether any audit obligation existed.
Section 271B penalises failure to obtain an audit when an audit is legally required; it cannot be used to manufacture an audit requirement by counting somebody else’s money as the assessee’s turnover.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, PUNE BENCH
The captioned appeal at the instance of assessee pertaining to A.Y.2017-18 is against the order dated 13.11.2025 framed by National Faceless Appeal Centre, Delhi passed u/s.250 of the Income Tax Act, 1961 (in short ‘the Act) arising out of Penalty order dated 25.01.2022 passed u/s.271B of the Act.
2. The only grievance of the assessee is that ld.CIT(A) erred in confirming the penalty levied by the Assessing Officer u/s.271B of the Act at Rs.1.50 lakh for not getting the books of account audited.
3. We have heard the rival submissions and perused the record placed before us. We observe that the assessee is an individual and engaged in the business as Super Distributor of Vodafone-Idea Cellular Limited (in short ‘Vodafone’) and carried out business of purchase and sale of recharge vouchers. Total income of Rs.2,69,420/- declared in the income tax return for A.Y. 2017-18 on 31.03.2018 and the said return was selected for scrutiny assessment u/s.143(3) of the Act completed on 13.11.2019 accepting the returned income. However, ld. Assessing Officer on observing that the transactions appearing in the bank statements indicate that the turnover of the assessee exceeds the limit prescribed u/s.44AB of the Act, therefore the assessee is required to get the books of account audited u/s.44AB of the Act and in absence thereof initiated penalty proceedings u/s.271B of the Act and levied the penalty at Rs.1.50 lakh. Assessee subsequently failed to get any relief in the appeal before the ld.CIT(A).
4. We have gone through the record and observe that the assessee is operating as Distributor for Vodafone on commission basis and further Form 26AS of the assessee clearly indicates that Vodafone Ltd. has deducted TDS u/s.194H of the Act, i.e. tax deducted at source on commission paid to the assessee. Admittedly, bank account of the assessee contains the transactions of making payment for getting recharge vouchers from the company and then giving it to the customers. However, they are not entered in the books of accounts as purchases and sales and only the commission received on transaction are accounted for. Assessee under a Bonafide belief and on the advice of the Tax Consultant treated the commission income as its turnover and did not get the books of account audited. We find that the assessee has only earned commission income from Vodafone Ltd. and therefore in our considered view the total turnover of the assessee is the commission income for the year under appeal which is not exceeding threshold limit prescribed u/s.44AB of the Act. Therefore, the assessee is not required to get the books of account audited. Under these given facts and circumstances, ld. Assessing Officer grossly erred in levying penalty u/s.271B of the Act at Rs.1.50 lakh. Finding of ld.CIT(A) is set aside and the impugned penalty of Rs.1.50 lakh is deleted. Grounds of appeal raised by the assessee are allowed.
5. In the result, the appeal of the assessee is allowed.
Order pronounced on this 02nd day of September, 2026.
