The Bombay High Court has admonished the tax department for using AI generated order to reject the contentions of the assessee without giving any reasons.
“The principles of natural justice and fairness are too valuable to be sacrificed at the altar of AI and automation expediency,” the court remarked, underscoring that the duty to provide reasons for an adverse order is an established facet of natural justice. The HC advised the revenue department to create a system in which the Centralised Processing Center (CPC) or demonstrates ‘thoughtful consideration’ and that the essence of orders is not like the “inscrutable face of sphinx.”
A taxpayer had filed a petition against a non-speaking order (an order without explanation) issued by the Tax Department, which had declared return filed as invalid due to the non-filing of a tax audit report. The rejection of the taxpayer’s contentions came without explanation, leaving them with little recourse except to challenge the decision in court.
Hearing the matter, a Division Bench of Justice MS Sonak and Justice Jitendra Jain took note of a critical flaw in the system: the AI-generated order exhibited no sign of human thought. Instead of engaging with the taxpayer’s arguments, the system had mechanically dismissed them—an approach the court found deeply troubling.
The judges warned the Revenue Department that the implementation of AI should not lead to the erosion of fair decision-making. They emphasized that a well-functioning tax system required more than just efficiency— it needed accountability and transparency.
The court ultimately relegated the petitioner to an alternate remedy, directing them to seek revisional jurisdiction under Section 264 of the Income Tax Act. The court reasoned that matters involving compliance with Section 44AB and interpretation of ICAI Guidance Notes were best dealt with by the Commissioner of Income Tax (CIT). However, it made it clear that the revisional authority must consider the case fairly and provide the petitioner with an opportunity to be heard.
