Artificial Intelligence and Tax Administration

In a significant judicial signal regarding the use of AI in tax administration, the Bombay High Court has passed a judgement in the case of KMG Wires Pvt. Ltd. v. NFAC (2025), highlighting a concerning issue, the reliance on non-existent case laws, likely generated by AI tools, by the Revenue side during faceless assessments. After taking the various parts of the world by storm, use of AI with its non existent case laws has hit the Indian regulatory space as well. The Bench emphasized that as tax systems become more automated, AI outputs should not replace human judgment or compromise the principles of natural justice. Tax officers are required to verify, cross-check, and independently assess any system-generated material before relying on it. This ruling serves as a crucial reminder that as India’s tax ecosystem adopts AI-driven workflows—such as NFAC, automated scrutiny engines, and analytics-led selections—the constitutional principles of fairness, reasoned orders, and due process must remain intact and non-negotiable. J the App by JustIDT provides further insights on this matter.