The Income Tax Appellate Tribunal (ITAT), Pune Bench, has deleted a penalty of ₹1.5 lakh imposed under Section 271B of the Income Tax Act, 1961, holding that the bank transactions of a Vodafone recharge distributor could not be treated as its turnover when the assessee was operating on a commission basis.
The Bench of Pavan Kumar Gadale (Judicial Member) and Dr. Manish Borad (Accountant Member) observed that only the commission earned by the assessee constituted his turnover for determining the applicability of the tax audit requirement under Section 44AB.
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The appeal concerned Assessment Year 2017-18 and arose from an order dated November 13, 2025, passed by the National Faceless Appeal Centre under Section 250 of the Income Tax Act. The appellate authority had upheld the penalty imposed by the Assessing Officer for the alleged failure to get the books of account audited.
The assessee was an individual engaged as a super distributor of Vodafone-Idea Cellular Limited and handled recharge vouchers.
For Assessment Year 2017-18, he filed his income tax return on March 31, 2018, declaring a total income of ₹2,69,420. The return was subsequently selected for scrutiny, and the assessment was completed under Section 143(3) on November 13, 2019.
Significantly, the Assessing Officer accepted the income declared by the assessee without making any addition.
However, while examining the bank statements, the Assessing Officer noticed transactions that, according to the department, indicated turnover exceeding the monetary threshold prescribed under Section 44AB.
On that basis, the Assessing Officer concluded that the assessee was required to obtain a tax audit report. Penalty proceedings were consequently initiated under Section 271B, culminating in the imposition of the maximum penalty of ₹1.5 lakh.
The Commissioner of Income Tax (Appeals) declined to grant relief, following which the assessee approached the ITAT.
The assessee argued that he was operating as a distributor for Vodafone on a commission basis. The payments reflected in the bank account represented transactions undertaken for obtaining recharge vouchers from the telecom company and distributing them to customers.
These amounts were not recorded in the books as purchases and sales. Instead, only the commission earned on the transactions was accounted for as income.
The assessee further submitted that Vodafone had deducted tax at source under Section 194H, which specifically applies to commission or brokerage payments. This, according to the assessee, supported the position that the relationship with Vodafone was that of a commission agent rather than an independent purchaser and reseller of recharge vouchers.
It was also contended that the assessee had acted under a bona fide belief, based on the advice of his tax consultant, that only the commission income constituted his turnover. Since the commission remained below the prescribed threshold, he did not obtain a tax audit report.
The ITAT found merit in the assessee’s submissions. It noted that Form 26AS clearly showed that Vodafone had deducted TDS under Section 194H on the commission paid to the assessee.
Although the assessee’s bank account contained transactions involving payments for recharge vouchers and their onward distribution to customers, the Tribunal observed that these transactions had not been entered in the books as purchases and sales.
Only the commission received by the assessee was accounted for.
The Bench consequently held that the entire value of the recharge voucher transactions passing through the bank account could not automatically be considered the assessee’s turnover.
According to the Tribunal, the assessee had earned only commission income from Vodafone, and it was this amount that represented his turnover for the relevant financial year.
After treating the commission income as the relevant turnover, the Tribunal found that it did not exceed the threshold prescribed under Section 44AB.
The assessee was, therefore, not legally required to get his books of account audited for Assessment Year 2017-18.
The ITAT held that the Assessing Officer had “grossly erred” in imposing the penalty under Section 271B merely by relying on the aggregate transactions appearing in the assessee’s bank account.
It accordingly set aside the findings of the Commissioner of Income Tax (Appeals) and deleted the entire penalty of ₹1.5 lakh.
The assessee’s appeal was allowed.
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