The ITAT Order That Was Withdrawn: When the Tribunal Itself May Have Used AI

Buckeye Trust v. PCIT-2 — ITAT Bangalore, December 2024 (Order Later Withdrawn)

Hallucinations — Judicial / Tribunal Order | India — ITAT Bangalore | Income Tax

⚠ NOTE: This order was reportedly retracted and the case re-heard. The analysis below is based on the original order as published.

① CASE AT A GLANCE

Full Citation	Buckeye Trust v. PCIT-2 Bangalore, ITA No. 1051/Bang/2024 (AY 2018-19)
Tribunal	Income Tax Appellate Tribunal (ITAT), Bangalore — ‘A’ Bench
Members	Shri Prashant Maharishi (Vice President) and Shri Prakash Chand Yadav (Judicial Member)
Date of Original Order	30 December 2024
Category	AI Hallucination — Suspected use of AI by Tribunal Members
AI Tool	Not disclosed / Implied (hallucination patterns consistent with LLM output)
Who Used AI	Tribunal (implied — the hallucinations are in the tribunal’s authored order)
Hallucinations Identified	1) Wrong HC: ‘Bombay HC’ cited for a Madras HC judgment (221 ITR 649 ‘Mad’); 2) Wrong party name: ‘Every stone’ instead of ‘Emery Stone’ (Rajasthan HC, 213 ITR 843); 3) Repealed provision: Section 164A cited as current law (omitted by Finance Act 2020); 4) Incomplete statute coverage: Section 56(2)(x) definition of ‘property’ narrowed to only ‘shares and securities’
Outcome of Original Order	Appeal of assessee DISMISSED — Rs. 669.27 Crores trust settlement upheld as taxable
Post-Order Status	RETRACTED — Order reportedly withdrawn and case re-heard
Subject Matter	Private discretionary trust — taxability of Rs. 669.27 Crore asset transfer under Section 56(2)(x), IT Act
	https://www.damiencharlotin.com/documents/477/

② BACKGROUND

Buckeye Trust is a private discretionary trust settled in January 2018 by Anand Nadathur, a Bangalore-based businessman, with assets valued at approximately Rs. 669.27 Crores. The trust was created through the transfer of Nadathur’s partnership interests in five firms (including Vriddhi Partners, Unnati Partners, and Tatva Partners) and shares in SilverNeedle Hospitality (India) Pvt. Ltd. to Vervain Management Pvt. Ltd. as trustee.

The trust filed its return showing nil income for AY 2018-19, relying on the exemption available under the proviso to Section 56(2)(x) of the Income Tax Act for transfers ‘for the benefit of relatives.’ The Assessing Officer accepted the return. However, the Principal Commissioner of Income Tax (PCIT-2, Bangalore) exercised revisionary jurisdiction under Section 263, holding that the AO’s order was erroneous and prejudicial to the interest of revenue — because the trust deed allowed non-relatives to be beneficiaries, potentially making the Rs. 669.27 Crore transfer taxable.

The trust appealed to the ITAT. The ITAT ‘A’ Bench Bangalore dismissed the appeal on 30 December 2024 in a 31-page order. However, an independent analysis of the order revealed multiple indicators of AI-generated content: citation errors, a repealed provision cited as current, and a definition of statutory terms that appeared truncated in a manner consistent with AI output.

③ THE AI ISSUE

The legal question that emerged from analysis of the original ITAT order was not the tax law issue at the heart of the dispute — it was something more fundamental: Was the reasoning in the order generated (wholly or in part) using an AI tool? And if so, what are the consequences for the validity of an appellate tribunal order that contains AI hallucinations?

Unlike the KMG Wires and Jeetmal Choraria cases — where an administrative authority used AI — or the Gummadi cases — where a trial court judicial officer used AI — the Buckeye Trust case presented the most alarming scenario: potential AI use by the appellate tribunal that is supposed to be the final fact-finding authority in income tax disputes.

④ HALLUCINATIONS IDENTIFIED IN THE ORDER

• WRONG COURT ATTRIBUTION: The order at page 16 cites ‘CIT Vs Veenu Suresh Trust 221 ITR 649(Mad)’ but attributes it to ‘Hon’ble Bombay High Court.’ The citation ‘(Mad)’ means Madras High Court. This is the kind of error an AI tool makes when hallucinating a citation — generating plausible-sounding court names that don’t match the actual case.
• WRONG PARTY NAME: The order at page 30 cites ‘CIT Vs Every stone reported in 213 ITR 843 (Raj).’ The actual case — a well-known Rajasthan HC ruling — is ‘CIT Vs Emery Stone.’ The error ‘Every stone’ for ‘Emery Stone’ is characteristic of AI output where similar-sounding words are substituted.
• REPEALED PROVISION: The order cites Section 164A of the Income Tax Act as providing ‘charge of tax in case of oral trust.’ Section 164A was omitted by the Finance Act 2020 and no longer exists as a charging provision. Citing a repealed provision as current law is a hallucination of legal norm.
• TRUNCATED STATUTORY DEFINITION: The order’s analysis of ‘property’ under Section 56(2)(x) focuses only on ‘shares and securities,’ ignoring the other categories expressly listed in Explanation (d): immovable property, jewellery, archaeological collections, drawings, paintings, sculptures, and any work of art. The truncated analysis is consistent with AI output that misrepresents a partial statutory definition as complete.

⑤ KEY QUOTE — AND THE RETRACTION

“The expression ‘shares and securities’ as used in Explanation (d) of Section 56(2)(vii) denotes two different types of property… the term ‘and’ used between them carries the meaning of ‘or’.”

— ITAT Bangalore, ITA 1051/Bang/2024, 30 December 2024 [Order reportedly withdrawn]

The retraction of the order — reportedly shortly after it was published — is itself extraordinary. ITAT orders, once pronounced in open court, do not typically get withdrawn. The reported retraction is consistent with the tribunal recognising the hallucination errors and deciding that the order could not stand as published.

⑥ THE INDIA ANGLE

Indian Law Equivalent

The Buckeye Trust case raises profound questions about the reliability of appellate tribunal orders in India’s income tax system:

• Section 254 of the Income Tax Act — The ITAT has power to pass orders it considers fit. But an order based on wrong citations, repealed law, and truncated statutory interpretation may be challenged before the High Court under Section 260A (substantial question of law) or under Article 226/227 of the Constitution.
• Section 263 of the IT Act (Revisionary Jurisdiction) — While the PCIT used Section 263 in this case, the same provision could theoretically be used to revise a tribunal order that relies on non-existent or repealed law — though in practice, Section 260A appeals to the High Court are the correct remedy.
• Article 227 of the Constitution — The High Court exercises supervisory jurisdiction over all courts and tribunals in its territory. An ITAT order based on hallucinated authority would be a candidate for supervisory intervention.
• Limitation Act, 1963 — The retraction and re-hearing of the case raises interesting questions: From when does the limitation period run for a subsequent appeal if the original order was retracted? This is likely to be litigated if the re-heard order is also unfavourable.

The ITAT System: Scale and Risk

India has over 60 ITAT Benches across the country, handling thousands of appeals annually. The tribunal is the final fact-finding forum in income tax matters — High Court jurisdiction is limited to ‘substantial questions of law.’ If ITAT members are using AI tools to assist in drafting orders, and if AI hallucinations are appearing in tribunal orders, the integrity of the income tax appellate system is at risk.

The CBDT and the ITAT Coordination Committee would be well advised to issue immediate guidance prohibiting the unverified use of AI-generated content in tribunal orders — and establishing a citation verification protocol as a mandatory step before orders are pronounced.

Practical Advice for Indian Advocates

• After receiving any ITAT order — favourable or unfavourable — verify all citations in the order against official databases. If citations are wrong or non-existent, you may have additional grounds of challenge beyond the substantive legal issues.
• In Section 260A appeals before the High Court, the existence of AI hallucinations in the ITAT order may constitute a ‘substantial question of law’ in itself — the question being whether an order based on non-existent or repealed authority is a legal order at all.
• For representation before the ITAT, always provide the bench with copies of cited judgments — both to ensure accuracy and to create a record that prevents the bench from relying on AI-generated citations of its own.

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DEEP DIVE: The Withdrawn Tribunal Order — India’s Most Alarming AI Law Incident

The Trust, the Tax, and the Rs. 669 Crore Question

The underlying tax dispute in the Buckeye Trust case is both complex and consequential. A Bangalore businessman transferred assets worth Rs. 669.27 Crores to a private discretionary trust for his family. The structure appears designed to be tax-efficient: under the proviso to Section 56(2)(x) of the Income Tax Act, transfers to a trust created solely for the benefit of relatives of an individual are exempt from gift tax.

The PCIT’s challenge — upheld by the ITAT in the original order — was that the trust deed allowed non-relatives to be added as beneficiaries under Clause 6.1. If that is correct, the exemption does not apply, and Rs. 669.27 Crores received by the trust should be taxed under Section 56(2)(x). The tax liability at maximum marginal rates would be enormous.

The ITAT’s original order dismissing the trust’s appeal thus had significant financial consequences. The trust would have been confronting a multi-hundred-crore tax demand. And then the order was withdrawn.

Reading the Original Order: The Hallucination Trail

The original ITA 1051/Bang/2024 order runs to 31 pages and contains detailed legal reasoning. On its face, it appears thorough and well-reasoned. But a close reading reveals multiple indicators that suggest AI assistance in drafting.

The most significant is the ‘Bombay High Court / (Mad)’ error at page 16. In Indian legal citation practice, ‘(Mad)’ is an established abbreviation for the Madras High Court. No Indian lawyer or judge would write ‘(Mad)’ if they meant Bombay HC — the two are different courts in different cities with different jurisdictions. The error is precisely the kind that AI makes: generating plausible-sounding content without understanding the significance of established legal abbreviations.

The ‘Every stone / Emery Stone’ error at page 30 is even more telling. ‘Emery Stone’ is the name of a company in a well-known Rajasthan High Court income tax ruling. ‘Every stone’ is not a company name in any reported case. The substitution of ‘Every stone’ for ‘Emery Stone’ is a phonetic approximation — the kind of error that occurs when AI generates text based on sound patterns rather than actual knowledge.

The citation of Section 164A — a provision omitted from the Income Tax Act by the Finance Act 2020 — as a current charging provision for oral trusts is the most legally consequential error. This is not a typographical mistake. Section 164A is simply gone from the statute. Citing it as operative law means the reasoning depends on a provision that does not exist. Again, this is consistent with AI hallucination: AI models are trained on data up to a cutoff date and may not know that a provision has since been repealed.

The Retraction: Unprecedented in Indian Tribunal Practice

ITAT orders, once pronounced in open court, have a formal legal status. They bind the parties, they can be appealed under Section 260A, and they enter the official record of the tribunal. The retraction of an ITAT order — reportedly shortly after its publication — is, to the best of current knowledge, unprecedented in Indian income tax tribunal practice.

The reasons for the retraction have not been officially published. However, the timing and the nature of the errors strongly suggest that the retraction followed the recognition of the hallucination problems — either by the tribunal members themselves, by parties’ counsel, or by someone reviewing the order after publication.

The retraction creates a legal vacuum. If the original order is withdrawn, what is the status of the proceedings? Does the matter revert to the stage before the original order? Can a fresh bench rehear it? Are the parties entitled to a fresh hearing as if no order had been passed? These procedural questions are likely to be litigated.

Global Context: Has Anything Like This Happened Elsewhere?

Globally, there are documented cases of AI hallucinations by lawyers in court proceedings — and one documented case in the US of a judge whose law clerk (not the judge) may have used AI (a clerking error in Mata v. Avianca’s procedural history). But no case has yet been documented globally where a formal appellate tribunal order has been retracted specifically because of AI hallucinations in the order itself.

The Buckeye Trust ITAT matter is, on that basis, potentially a world first — the first time an appellate tribunal in any jurisdiction has reportedly withdrawn a formal order on grounds connected to AI hallucinations. This makes it not just significant for Indian income tax law, but a landmark in the global development of AI law.

What to Watch For

The re-heard ITAT order in the Buckeye Trust matter, when it emerges, will be closely watched. Will the fresh bench address the AI issue explicitly? Will it contain different citations? And will the substantive outcome change?

More broadly, the Buckeye Trust case — taken together with Gummadi, KMG Wires, Jeetmal Choraria, and Deepak Bahry — establishes a pattern that India’s legal establishment can no longer ignore. The judiciary, the quasi-judicial authorities, and the bar all face the same AI risk. The question now is not whether the risk is real — it demonstrably is — but whether the institutional response will be proportionate and timely.