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Incident Tracker / India

KMG Wires Pvt Ltd v. National Faceless Assessment Centre, WP(L) 24366/2025 (2025:BHC-OS:19789-DB)

·High Court of Judicature at Bombay·INOther

In India, the Bombay High Court (6 October 2025) quashed a faceless income-tax assessment raising demand on about Rs 27.91 crore because the assessing officer relied on non-existent, AI-generated precedents and ignored the taxpayer's evidence. The court warned quasi-judicial authorities not to blindly trust AI output and remanded the matter for fresh assessment.

Court
High Court of Judicature at Bombay
Date
2025-10-06
Who used the AI
Not recorded
AI tool
generative AI (unspecified)
Conduct
A faceless income-tax assessment order raising demand on about Rs 27.91 crore relied on non-existent, AI-generated case law and ignored the taxpayer's replies, breaching natural justice. The High Court held that quasi-judicial authorities must cross-verify AI output rather than rely on it blindly.
Outcome
Other
Penalty
No monetary penalty recorded
Regulatory outcome
No separate regulatory disposition recorded
Status
Verified against listed sources
Last checked
2026-09-16

What was fabricated or misused

  • Three decisions relied upon for adding opening balances in respect of loans from directors — the court said the decisions were “completely non-existent” and did not list them

What the court said

“The said supplier had duly filed his reply on 8th March 2025 which is available at page 571 of the Petition.”
High Court of Judicature at Bombay, [8]
“The judicial decisions relied upon are completely non-existent. In other words, there are no such decisions at all which are sought to be relied upon by Respondent No. 1.”
High Court of Judicature at Bombay, [9]
“However, when one is exercising quasi judicial functions, it goes without saying that such results [which are thrown open by AI] are not to be blindly relied upon, but the same should be duly cross verified before using them.”
High Court of Judicature at Bombay, [9]
“If any decisions are relied upon, then the Petitioner will be put to adequate notice of not less than 7 days, to counter such judgments.”
High Court of Judicature at Bombay, [12]

Timeline

  1. Notice under Section 133(6) issued to the supplier, with details due by 5 March.
  2. Supplier filed a reply confirming transactions and providing documents.
  3. Assessment order, demand notice and penalty show-cause notice issued.
  4. Affidavit admitted supplier reply was not considered; rectification order addressed case-law error.
  5. High Court quashed the assessment order and remanded for fresh assessment.

Why this case matters

KMG Wires differs from lawyer-sanctions records such as Mata v Avianca and Park v Kim because the AI-tainted material entered through a tax authority exercising quasi-judicial power. The fabricated authorities were one part of a wider natural-justice failure: the assessment also ignored a supplier’s reply and added peak balances without showing the working. The record therefore widens the tracker beyond party filings to administrative adjudication, where an AI-generated citation can support a demand for crores of rupees unless the taxpayer and court test it.

Practice note

A tax officer or tribunal member using AI for research should treat the output as a lead only. Before relying on a decision, locate the judgment in an official court database or trusted reporter, give the taxpayer at least seven days’ notice of the authorities, and address the taxpayer’s evidence and objections in a speaking order.

Primary sources for this incident

Related regulation records for this incident

No related regulation record has been linked to this incident yet.

Similar incidents on the record

Cite this record

SafeLegalAI Global Legal AI Incident Tracker, “KMG Wires Pvt Ltd v. National Faceless Assessment Centre, WP(L) 24366/2025 (2025:BHC-OS:19789-DB)”, safelegalai.com/tracker/kmg-wires-v-nfac (accessed 2026-09-16). Data: CC BY 4.0.

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