Summary of this article
Bombay High Court overturned AI-generated income tax notice on Rs 22 crore.
Notice cited non-existent rulings; taxpayer provided invoices, GST returns, and records.
Court ruled financial decisions must involve human scrutiny, not just machine logic.
Tax department asked to reissue notice with proper procedure and personal hearing.
The Bombay High Court has overturned an income tax notice issued with the help of Artificial Intelligence, according to a recent report by The Economic Times. The notice accused a taxpayer of underreporting income worth Rs 22 crore. When the court took a closer look, it found that several of the rulings cited in the document didn’t exist. What followed was a strong message from the bench: machines may assist, but they cannot judge.
The case goes back to the financial year 2023–24. The tax department had revised the taxpayer’s declared income from Rs 3.09 crore to Rs 27.91 crore. Officials said that some suppliers hadn’t responded and that unsecured loans from company directors raised questions. The taxpayer, on the other hand, came prepared—with invoices, goods and services tax (GST) returns, transport bills, and email records from suppliers. All of it pointed to genuine transactions. But the assessing officer chose to rely on an AI-generated draft filled with imaginary case references.
That was where the court drew the line. It said decisions affecting a citizen’s financial rights can’t be based on automated conclusions. The process, the judges observed, must reflect human thought, not machine logic. The department has now been asked to start afresh, issue a proper notice, and give the taxpayer enough time and a personal hearing.
1 November 2025
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The ruling has triggered conversation across legal and administrative circles. Many departments are exploring AI to flag irregularities or speed up assessments. But this case shows what can happen when efficiency overtakes scrutiny. Technology can sort data, not sense fairness. It can detect numbers, not nuance.
For taxpayers, the judgment is reassuring. It shows that a notice built on shaky evidence can be contested and overturned. For the authorities, it’s a wake-up call. The court didn’t reject technology; it rejected complacency.
As more arms of government lean on AI, this verdict stands as a quiet boundary marker. Machines can make the work faster, cleaner, even easier, but justice, the court reminded everyone, still needs a thinking mind behind it.
