Digital Forensics and AI Revolutionize Tax Enforcement in Hyderabad
HYDERABAD: A recent case has highlighted the transformative impact of digital forensics and generative AI tools on tax enforcement. The income tax (I-T) department has uncovered a significant instance of tax evasion involving forged improvement bills that were submitted in an attempt to reduce capital gains liability.
The case centers around a taxpayer in Hyderabad who sold a piece of immovable property for Rs 1.4 crore. In his income tax returns, the taxpayer attempted to drastically lower his capital gains liability by claiming deductions amounting to Rs 68.7 lakh under the category of ‘cost of improvement with indexation,’ alongside an indexed acquisition cost of Rs 73 lakh. This led to the declaration of long-term capital gains (LTCG) of just Rs 24,774.
The fraudulent activity came to light when AI tools conducted a thorough analysis of the documents submitted. They flagged a particular issue with the font utilized in one of the documents, revealing that it did not exist in the year it was supposedly issued.
AI Flags Fake Document Through Calibri Font
The claimed cost of improvement covered the years from 2002-03 to 2007-08, and the original value of Rs 24 lakh was indexed to Rs 68.7 lakh. To support his claim, the taxpayer had submitted photocopies of expenditure bills dated between 2002 and 2008. One such bill, dated July 6, 2002, which indicated an expense of Rs 7.68 lakh, raised suspicions within the I-T department.
A forensic examination by investigators employing generative AI tools revealed that the document’s text was formatted in ‘Calibri (body)’ font. Notably, the font was designed between 2002 and 2004 but was not made available to the public until 2006, eventually becoming the default font for Microsoft Office in 2007. Since Calibri was not in existence at the purported time of the bill issuance, officials concluded that the document was indeed fabricated.
In his defense, the taxpayer claimed that the copies of these bills were discovered in an old folder belonging to his late father but admitted that he could not verify their authenticity. Consequently, he withdrew his claim, filed a revised return excluding the cost of improvement, and paid taxes based on the corrected capital gains.
This case serves as a stark reminder of the critical role that digital tools and forensic analysis play in identifying and addressing tax evasion, reinforcing the integrity of tax systems.