The Delhi High Court in J M Jain Prop. Sh Jeetmal Choraria v. Union of India clarified the limits on using income-tax search material in GST proceedings, holding that statutory presumptions under Sections 132(4A) and 292C of the Income Tax Act are confined to income-tax proceedings and cannot be directly imported into GST cases. While GST authorities may independently scrutinize documents seized during income-tax searches and rely on them to issue show cause notices, such material does not enjoy automatic evidentiary value under the CGST Act and must be evaluated on its own merits. The Court emphasized that GST show cause notices must be clear, evidence-based, and comply with procedural safeguards. Significantly, it cautioned government departments against relying on AI-generated or fake judgments, observing that unverified or non-existent precedents cannot be cited in quasi-judicial proceedings and that authorities bear responsibility for verifying citations. The challenge to Section 75(2) of the CGST Act was dismissed as premature, with directions to adjudicate the show cause notice strictly in accordance with law, without prejudging the merits.
Facts:
J M Jain Prop. Sh Jeetmal Choraria (“the Petitioner”) faced investigation based on an Income Tax Department search which uncovered unaccounted transactions recorded on a secret JSK server and parallel books of accounts.
The GST Department (“the Respondent”) issued a Show Cause Notice (SCN) based on the IT search material and special audit reports to claim GST evasion by the Petitioner.
The Petitioner contended that the IT Act presumptions and statements recorded during the IT search cannot be used to support proceedings under the CGST Act. Further, some judgments cited by the GST Department in the SCN were alleged to be AI-generated and fake.
The Respondent contended that the GST Department independently scrutinized the IT search material and that such material could form a prima facie basis for GST proceedings.
The Petitioner’s grievance was against the SCN’s validity and the use of IT search-based documents as evidence in GST proceedings, and the challenge to Section 75(2) of the CGST Act.
Issue:
Whether the material seized during an Income Tax search and presumptions under Sections 132(4A) and 292C of the Income Tax Act can be applied in GST proceedings?
Held:
The Hon’ble Delhi High Court in W.P.(C) 16754/2025 held as under:
- Observed that, the presumption under Sections 132(4A) and 292C of the Income Tax Act is limited to proceedings under the IT Act and cannot be directly applied in CGST proceedings. These presumptions are rebuttable and only apply to provisional assessments under Income Tax law.
- Noted that, material seized under IT searches can be independently scrutinized and relied upon by GST authorities for issuing SCNs, but this does not confer automatic evidentiary value under GST law.
- Noted that, SCNs must be clear, based on tangible evidence, and comply with legal safeguards as set out in the Armour Security India Ltd case.
- Observed that, some judgments cited by the GST Department were found to be non-existent or inaccurately cited, likely generated by AI tools, and underscored the need for verification before relying on such precedents.
- Held that, AI-generated fake judgments cannot substitute verified judicial precedents and departments must take responsibility for citations used in official proceedings.
- Dismissed the challenge to Section 75(2) of the CGST Act as premature, since the SCN was issued under Section 74 and not converted to Section 73 proceedings.
- Directed that, the Petitioner should reply to the SCN and participate in proceedings, and that the SCN should be decided according to law, without prejudging merits.
Our Comments:
The judgment carefully distinguishes the scope and applicability of presumptions under the Income Tax Act and the GST Act, aligning with Supreme Court precedent in PR Metrani v. CIT [(2007) 1 SCC 789] and rulings like Commissioner of Income Tax v. Ashok Kumar Poddar [2023 SCC OnLine Cal 6527] that these presumptions are confined to IT proceedings and rebuttable.
The caution against reliance on AI-generated or fake judgments is noteworthy, consistent with the Bombay HC decision in KMG Wires Private Limited v. The National Faceless Assessment Centre, Delhi and Ors. [2025:BHC-OS:19789-DB] which held that in this era of Artificial Intelligence (‘AI’), one tends to place much reliance on the results thrown open by the system. 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,
Relevant Provisions:
Section 132(4) of the Income Tax Act, 1961
“132. Search and Seizure
(4) The authorised officer may, during the course of the search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Indian Income-tax Act, 1922 (11 of 1922) or under this Act.
(4A) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed—
i. that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person;
ii. that the contents of such books of account and other documents are true; and
iii. that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person’s handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested.”
Section 292C of the Income Tax Act, 1961
“292C. Presumption as to assets, books of account, etc.—
“(1) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search under section 132 or survey under section 133A, it may, in any proceeding under this Act, be presumed—
i. that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person;
ii. that the contents of such books of account and other documents are true; and
iii. that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person’s handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested.
(2) Where any books of account, other documents or assets have been delivered to the requisitioning officer in accordance with the provisions of section 132A, then, the provisions of sub-section (1) shall apply as if such books of account, other documents or assets which had been taken into custody from the person referred to in clause (a) or clause (b) or clause (c), as the case may be, of sub-section (1) of section 132A, had been found in the possession or control of that person in the course of a search under section 132.”
*****
(Author can be reached at info@a2ztaxcorp.com)
Author Bio
