Income Tax Alert: AI Detects Rs. 68 Lakh Tax Fraud Through Font Forensics
A new case has recently arisen from Hyderabad that explains how the Income Tax Department used digital forensics and artificial intelligence (AI) tools to resolve the case of capital gains tax fraud.
In this case, an individual living in Hyderabad sold an immovable property worth Rs. 14 crore. According to income tax rules, if someone sells a property, they have to pay tax on the profit earned on it, known as “capital gains tax”. To reduce this tax amount, taxpayers can subtract the cost of acquisition and cost of improvement (Money spent on buying the property and money spent on improving its condition over the years).
In this case, the individual reported that he had spent Rs. 73 lakh to buy the property (acquisition cost) and an extra Rs. 68.7 lakh on improving its condition (improvement cost) between 2002 and 2008. By claiming these exemptions, he declared his total taxable profit to be just Rs. 24,774. Which is extremely less in comparison to the actual profit earned, i.e., Rs. 14 crore.
To show proof of his claims, he submitted photocopies of old bills and receipts dated from 2002 to 2008. However, one of these bills, dated July 6, 2002, indicated a large expense worth Rs. 7.68 lakh that concentrated the attention of the tax department. Hence, they concluded to examine the case using forensic analysis and generative AI tools.
During the investigation, officials discovered something strange in that bill. They found that the font used in writing the documents was Calibri (Body). This was a huge red flag, as Calibri is a font that was not publicly available in 2002. It came into effect between 2002 and 2004, officially only in 2006, and became the default font for Microsoft Office in 2007. Therefore, if the bill was genuinely written in 2002, then it should not have been using the Calibri font in any circumstances. This clearly indicated that the bill was bogus and was created later, not in 2002.
When asked by the individual, he admitted that he did not have the original bills and said that the photocopies were found in an old folder that belonged to his deceased father.
However, as the fake document was now exposed, the individual will now have to take his claim back. Then he submitted an updated ITR, in which he removed the subtraction of Rs. 68.7 lakh “cost of improvement” and paid the legitimate tax based on actual capital gains.