How to deal with AI & ML generated tax notices: A human perspective

livemint.com:

₹50 lakhs, foreign travel, high-value credit card spends. Taxpayers should respond via the IT department’s compliance portal by selecting an appropriate response out of the four available options -- information is correct, information is duplicate/included in other PAN, information is incorrect and the residual category response in ‘others’.

The main objective of this e-campaign is to encourage voluntary compliance by the taxpayers and provide them with an opportunity to rectify defects, if any, in their returns by filing a revised/belated return, before the deadline of 31 December, for the returns filed for assessment year 2023-24. However, the over-dependence on AI and ML tools by the IT department leads to automated red flags, without involving any human vetting.

There are several instances, where the same financial transaction gets repeated in the AIS, and as such multiplying manifolds in value, and thereby making the corresponding disclosure in the return, non-commensurate with such notionally overly stated figure in AIS. Taxpayers are advised to choose the option of ‘information is duplicate’ in such cases.

Similarly, all foreign remittances in LRS are somehow seemingly being perceived as suspicious, and not acknowledging the fact that such remittances may have been made out of fully accounted-for sources. The problem lies with the fact that AI and ML tools simply compare the value of such remittances or the purchase of immovable property with the returned income and do not recognize that it is not the amount of income but the gross sources of funds, out of which such foreign remittances or purchase of immovable property are being made.