Automation and AI Cannot Disregard Natural Justice: Bombay HC on CPC Rejecting ITR Without Reasoning [Read Order]
The Bombay High Court ruled that AI-generated tax orders must provide reasons and cannot bypass the principles of natural justice.
![Automation and AI Cannot Disregard Natural Justice: Bombay HC on CPC Rejecting ITR Without Reasoning [Read Order]](https://www.taxscan.in/wp-content/uploads/2025/03/Automation-AI-Disregard-Natural-Justice-Bombay-HC-CPC-Rejecting-ITR-Reasoning-taxscan.jpg "Automation and AI Cannot Disregard Natural Justice: Bombay HC on CPC Rejecting ITR Without Reasoning [Read Order]")
In a recent decision, the Bombay High Court held that automated systems, including AI-driven tax portals, must adhere to the principles of natural justice and cannot reject tax returns without providing proper reasoning. TPL–HGIEPL Joint Venture, an unincorporated entity formed by Tata Projects Limited and HG Infra Engineering Pvt. Ltd., had filed its return for the assessment...
In a recent decision, the Bombay High Court held that automated systems, including AI-driven tax portals, must adhere to the principles of natural justice and cannot reject tax returns without providing proper reasoning.
TPL–HGIEPL Joint Venture, an unincorporated entity formed by Tata Projects Limited and HG Infra Engineering Pvt. Ltd., had filed its return for the assessment year 2022–23. The CPC flagged the return under Section 139(9) of the Income Tax Act, claiming that the petitioner had not submitted a mandatory tax audit report under Section 44AB, which is required when business receipts exceed Rs. 10 crore.
The petitioner clarified that its turnover was only Rs. 6.15 crore, and that the remaining declared income came from liabilities written back, a non-operational income that should not be counted as “gross receipts” for audit purposes.
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Despite responding to the defect notice and explaining the classification of income in line with ICAI’s Guidance Note on Tax Audit, the CPC issued an AI-generated order rejecting the return without any reasoning. The petitioner argued that such an order violated the principles of natural justice and fair play, as it did not explain why their reply was considered unacceptable.
The revenue argued that the petitioner had an alternative remedy available under Section 264 of the Income Tax Act to challenge the order. They further argued that the liabilities written back should be treated as gross receipts, which made tax audit mandatory.
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The bench comprising Justices M. S. Sonak and Jitendra Jain observed that the impugned order was a “non-speaking order” and lacked any application of mind. The court pointed out that even AI-generated decisions must provide at least minimal reasoning when taking adverse action, observing that “the principles of natural justice and fairness are too valuable to be sacrificed at the altar of AI and automation expediency.”
The court observed that automation should not come at the cost of reasoned decision-making, especially in matters affecting legal rights. The court declined to directly intervene in the case, holding that the petitioner should pursue the statutory remedy under Section 264 of the Income Tax Act by filing a revision application before the Commissioner of Income Tax.
The court directed that if such an application is filed within four weeks, the Commissioner must dispose of it within three months, after giving the petitioner a proper hearing and passing a reasoned order. The writ petition was dismissed
To Read the full text of the Order CLICK HERE
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