FAKE LEGAL CITATIONS FORCE ORDER RECALL DUE TO AI HALLUCINATION: ITAT BANGALORE
In an interesting incident, a tax order issued by the Bengaluru bench of the Income Tax Appellate Tribunal (ITAT) was reportedly withdrawn after it was found that the order was based on ChatGPT research on cases that did not exist.
The order in question, issued on December 30, 2024, in the case of Buckeye Trust V/S PCIT-2 Bangalore (ITA No. 1051/Bang/2024), relied on Supreme Court and Madras High Court judgments that do not exist.
However, it was discovered later that the order relied on three Supreme Court and one Madras High Court judgements that did not exist. The order was reportedly revoked a week later through a notice citing inadvertent errors.
The case was reportedly about the taxability of a transaction in which a person created a trust worth Rs 669 crore, mainly by transferring interest in a partnership to the trust. Generally, transfers of more than Rs 50,000 without consideration, if made to non-relatives, are taxable in the hands of the recipient. However the lawyers for the assessee, inter alia, contended that interest in a partnership firm is not a property within the meaning of the tax law.
The ITAT ruled in favour of the tax department holding that an interest in a partnership is a type of share and hence taxable.
The matter came to light when legal experts cross-verified the case laws cited in the order and found that they were entirely fictitious.
Following the revelation, ITAT Bangalore, invoking Section 254(2) of the Income Tax Act, recalled its order in its entirety and scheduled a fresh hearing for February 19, 2025. A notice was issued to both parties, citing inadvertent errors in the previous ruling. New date after adjournment is 03.04.2025.
The following fake judgments are cited in support of the tax department’s stance:
S. Gurunarayana v. S. Narasinhulu (2004) 7 SCC 472 (Supreme Court of India)
Sudhir Gopi v. Usha Gopi (2018) 14 SCC 452
K. Rukmani Ammal v. K. Balakrishnan (1973) 91 ITR 631 (Madras High Court)
CIT v. Raman Chettiar (57 ITR 232, SC)
All four case laws are falsely cited. Upon verification, legal researchers found that the two cases do not exist in any court records, the one case citation was incorrect and referred to an unrelated matter, and the one case pertained to a Hindu Undivided Family (HUF) tax matter with no relevance to partnership firms or the issue at hand.
Reports suggest that certain tax department officials used ChatGPT to generate case laws supporting their argument. The AI-generated references were then incorporated into the ITAT's judgment without verification. The tribunal failed to conduct due diligence and simply copied the case laws provided by the department’s representatives.
With the order now recalled, the case will be heard again on 03.04.2025. Both parties are expected to present fresh arguments, and the tribunal will reconsider the taxability of the transaction without reliance on erroneous case laws.
