[Opinion] AI & ML Based 143(1) Intimations Do Require Human Touch & Vetting!!

Mayank Mohanka – [2023] 154 taxmann.com 273 (Article)

The Apex Body of the Income Tax department viz. the CBDT in its very recent Press Release dated 5.9.2023, has highlighted the commitment of the Income Tax Department to process the Income Tax Returns (ITRs) in a speedy and efficient manner and has informed that as of now more than 6 crore ITRs of AY 2023-24 have been processed resulting in processing of over 88% of the verified ITRs. The Press Release has also remarked that more than 2.45 crore refunds for AY 2023-24 have already been issued. The Press Release further stated that in line with the Department’s efforts to provide seamless and expeditious taxpayer services, average processing time of ITRs (after verification) has been reduced to 10 days for returns filed for AY 2023-24 compared to 82 days for AY 2019-20 and 16 days for AY 2022- 23. All these sincere endeavours of the CBDT and the Income tax department definitely deserve a whole-hearted applause and recognition.

Yet there are real-life testimonies of cases where the phenomenon of issuance of mechanical summary assessment/intimation orders u/s 143(1), raising exorbitant income tax demands, has also been witnessed by many taxpayers and tax practitioners. Infact the CBDT’s Press Release itself acknowledged that in cases of around 12 lakhs verified returns, further information has been sought by the department from the respective return filers, in respect of some red flags being raised by the much talked about Artificial Intelligence (AI) and Machine Learning (ML) based tools being deployed by the CPC Bengaluru, in the automated processing of the ITRs.

The most glaring and recent, real-life instance of such mechanical Intimation Order u/s 143(1)(a), being churned out by the CPC, by automated processing, using AI/ML tools is the very recent case of ‘Indus Towers Ltd v. DCIT, New Delhi & ANR. in W.P.(C) 11037/2023, dated 21.08.2023. In this case, the Intimation Order u/s 143(1)(a) was passed by CPC on July 26, 2023, making the addition of not in some lakhs or crores but the huge and exorbitant addition of Rs.12,284 crores and raising an income tax demand of Rs. 3,573 crores.

In this case the assessee has filed its return for AY 2022-23 declaring income of Rs.8,166 Crores. In computing the income, the petitioner took into consideration the relevant Income Computation and Disclosure Standards [ICDS] issued under Section 145(2) of the Income Tax Act, 1961.

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