Hate to be the bearer of bad news, but they got the call correct. It is s touchdown. This is one of the most misunderstood rules in football. Here is how the rule works.....
1) Once the ball is punted, the returner has 3 main options: a) catch the ball and return it. b) signal a fair catch and catch it which downs the ball. c) get out of the way and let it go.
2) If the returner TOUCHES the ball, whether it hits the ground or the returner first, the result is a live ball and is treated like a fumble.
3) The punting/kicking team can NOT advance the live ball (the touched ball fumble), however, they CAN 'recover'/receive possession of the ball at the spot that they either: a) fall on it b) grab the ball and run with it but the play is then whistled dead and the kicking team would receive possession at the spot they recovered the ball.
4) If the returning team muffs the kick, or fails to gain possession, the punting team may not advance the ball if they recover it, they can only gain possession at the spot of recovery. However, if the returner gains possession and then fumbles it the punting team may advance the ball.
5) A touchback only occurs if a kicked ball crosses the goal line WITHOUT TOUCHING either team. OR if the punt returner catches the ball in the end zone and then drops to one knee.
NOTE: the player signaling for a fair catch isn’t obligated to catch the ball. His only obligation is not to touch the ball because if he does so without catching it, the loose ball is treated like a fumble, and the other team can recover it. After he touches it or loses control and the ball hits the ground, either team is allowed to recover the ball. The kicking team can recover the touched ball without advancing it, if the recovery/possession change happens at the spot of recovery without advancement. Should this spot be in the end zone the result is a touchdown by the punting team which recovers the touched/fumbled/lose ball in the end zone.
If the returner muffs a kick, or fails to gain possession, the punting team may not advance the ball if they recover it. If the returner gains possession and then fumbles, however, the punting team may advance the ball.