Chartered accountants may soon have to file tax returns for robots: Experts

The industry has raised doubts on whether CAs would be excused in case an artificial intelligence tool is used to file tax returns.

More work for chartered accountants as they soon may have to file more tax returns as robots are likely to be taxed in the future. Pinakin Desai, a practising chartered accountant, mentioned at the Reimagine Summit organized by the Bombay Chartered Accountants' Society that within two years, there could be a law requiring robots to file tax returns.

During the summit, Advocate Nishith Desai, founder of Nishith Desai & Co., discussed whether robots should be considered a separate entity just like humans, and even citizenship is being offered to robots in some countries.

He further added that robots in India will also be taxed, which would result in more work for chartered accountants. However, the industry is uncertain about whether CAs would be excused if an artificial intelligence tool is used to file tax returns and errors are introduced in the tax return. Currently, due diligence must be thorough when submitting tax returns, as there is no escape from tax litigation in case technological tools introduce errors.

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"The provisions of Section 273B of the Income Tax Act, 1961, state that penalty should not be imposed in certain cases, but this only applies if sufficient due diligence has been done," explains Nishit Desai. However, tax professionals are facing the dilemma of whether AI-based evidence will be presented during tax litigations and whether legal courts will only rely on past cases to make their decisions.

This is especially challenging since the Income Tax Department now uses data collected from various sources, including banks, mutual funds, customs, property registrars, social media, and satellite imagery. For instance, during a tax dispute over agricultural income, the Income Tax Department used satellite images of the taxpayer's barren land from the last five years to question how agricultural income was earned from that land, as Pinakin Desai pointed out.

Apart from satellite imagery, the Income Tax Department also uses technological tools for its pre-filled returns. However, if errors are made while using government-based software, taxpayers can still be protected, according to Shariq Contractor, a partner at CNK & Associates. Nevertheless, it is essential to be cautious and double-check the returns, whether the software is government-based or private software used by a chartered accountant.

Another aspect of AI and technology-led development is the need to safeguard against legal disputes. Auditors should carefully analyze insurance contracts to protect themselves from legal battles that may arise due to the use of AI or unintended technological mistakes.

For example, a US lawyer lost his bar license for quoting a non-existent judgment. The lawyer had used AI-based tools during research, which provided results of cases that were never filed in court. "Professional indemnity insurance cover for Chartered Accountancy firms should provide extensive protection against litigations related to AI and different jurisdictions," suggests Nishit Desai.