Principal-to-principal distribution sales count toward turnover, making audit mandatory and penalty sustainable for non-compliance.

Where a distributor sells gas cylinders on a principal-to-principal basis, the sale receipts form part of turnover for audit purposes, not mere commission income. On that footing, the turnover exceeded the statutory limit and audit under Section 44AB became mandatory. Failure to obtain the required audit made penalty proceedings under Section 271B sustainable, because no legally acceptable reasonable cause for non-compliance was shown. The stated commission-agent characterisation was rejected as inconsistent with the contractual terms and the actual nature of the business, and the audit obligation and consequential penalty were both upheld.

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Issues: (i) Whether the sale of gas cylinders by the assessee was required to be included in turnover for the purpose of audit under Section 44AB. (ii) Whether penalty under Section 271B was justified for failure to obtain audit.

Issue (i): Whether the sale of gas cylinders by the assessee was required to be included in turnover for the purpose of audit under Section 44AB.

Analysis: The agreement showed that the assessee was appointed as a distributor on a principal-to-principal basis for sale of gas cylinders to consumers. The arrangement was not merely one of commission agency. The business carried on by the assessee was, therefore, sale of gas cylinders and the receipts from such sales formed part of the turnover. As the turnover exceeded the statutory limit, audit under Section 44AB became obligatory.

Conclusion: The sale of gas cylinders was rightly included in the assessee's turnover, and the audit requirement under Section 44AB applied.

Issue (ii): Whether penalty under Section 271B was justified for failure to obtain audit.

Analysis: Once the assessee was under a statutory obligation to get the accounts audited and failed to do so, penalty proceedings were competent. The plea that the assessee was only a commission agent and that the commission amount was below the threshold was rejected as inconsistent with the contractual terms and the nature of business. No acceptable reasonable cause for non-compliance was established on the record.

Conclusion: The penalty under Section 271B was justified and rightly sustained.

Final Conclusion: The assessee failed to establish any legal or factual basis to avoid the audit obligation or the consequential penalty, and the impugned orders were upheld.

Ratio Decidendi: Where a distributor operates on a principal-to-principal basis and carries on sale of goods, the value of such sales forms part of turnover for audit purposes, and failure to obtain the mandated audit attracts penalty unless a legally sustainable reasonable cause is shown.

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