Taxpayer Directed to Revision Amid AI Order Concerns.


[ Court Doc ]   Income Tax >> Tax Laws  

The Bombay High Court recently in the matter of TPL - HGIEPL Joint Venture, Unincorporated joint venture between HG Infra Engineering Pvt Ltd. & Tata Projects Limited, Maharashtra v/s Union of India (through the Secretary), Government of India, New Delhi & Others., addressed a petition challenging an income tax order generated by an automated system, highlighting the tension between technological efficiency and the principles of natural justice. The court declined to intervene directly, instead directing the petitioner to pursue an alternate remedy under Section 264 of the Income Tax Act, 1961.

The petitioner had challenged an order declaring their income tax return invalid under Section 139(9) of the IT Act, due to the alleged non-filing of a mandatory audit report under Section 44AB. The petitioner argued that their gross receipts fell below the threshold requiring an audit, a point they had raised in response to a defects notice. However, the subsequent order, generated by the Central Processing Centre (CPC) portal, provided no reasons for rejecting their explanation.


 

 

The High Court acknowledged the inherent flaw in the order, noting its lack of reasoning and the violation of natural justice principles. As Justice [Judge's Name, if available] stated, "The impugned order indeed resembles the ‘inscrutable face of a sphinx.’” The court recognized the necessity of reasoned orders, especially those affecting parties' rights, citing precedents that emphasize the importance of articulating the rationale behind decisions.

However, despite acknowledging the deficiency of the AI-generated order, the court refrained from setting it aside. Instead, it emphasized the availability of an alternate and efficacious remedy under Section 264 of the IT Act, which allows for revisions of orders. The court reasoned that this remedy would allow for a more thorough examination of the petitioner’s financial documents and the interpretation of relevant accounting guidelines.

The court also expressed concern about the potential strain on its resources if it were to directly scrutinize every AI-generated order that lacked sufficient reasoning. It highlighted the need for the Income Tax Department to refine its automated systems to incorporate essential elements of reasoned decision-making.

"Resorting to Artificial Intelligence (AI) is certainly welcome," the court stated, "However, when the application of thoughtful consideration through actual intelligence is required, it cannot be cast aside simply because AI and automation represent the expedient future."

The court directed the revisional authority to dispose of the petitioner’s revision petition expeditiously, ensuring a fair hearing and a reasoned order. This decision underscores the judiciary's cautious approach to technological advancements in administrative processes, emphasizing the continued importance of procedural fairness and reasoned decision-making.

Ultimately, the ruling advocates for a balanced approach, where technological efficiency is not achieved at the expense of fundamental legal principles. It also highlights the importance of the alternate remedy available within the Income Tax Act, and the need for the tax department to improve its AI based processes.


Section 44AB, Income Tax Act - 1961  

Section 139, Income Tax Act - 1961

Section 264, Income Tax Act - 1961  

Income Tax Act, 1961