Intro:
The Income Tax department has used AI to detect fake capital gains deduction in a Hyderabad case. The taxpayer had claimed ₹68.7 lakh under “cost of improvement” using suspicious old bills, which were exposed as forged through font-based forensic analysis.
AI exposes fake capital gains claim: What happened?
A Hyderabad taxpayer sold a property for ₹1.4 crore and filed an ITR claiming over ₹68.7 lakh as indexed cost of improvement — sharply reducing his capital gains tax liability.
But here’s the twist:
The claimed expenditure bills dated from 2002 to 2008 were found to be bogus.
How did the Income Tax department detect the fraud?
Using generative AI and forensic tools, the department analysed the submitted bills. One critical red flag was a bill dated 6 July 2002, which claimed ₹7.68 lakh in improvements.
But the AI tool picked up something unusual:
- The font used was Calibri
- Calibri was designed between 2002–2004, but only released for public use in 2007
- So, a bill supposedly from 2002 couldn’t possibly be in Calibri
This clear mismatch proved that the bills were created after the claimed period, making them inadmissible.
Legal angle: What are the consequences?
Under Section 54 to Section 55 of the Income-tax Act, cost of improvement is allowed to reduce capital gains. However, it must be:
- Genuine and properly documented
- Backed by original bills or verifiable evidence
In this case:
- The assessee submitted only photocopies
- Failed to produce original bills
- Gave vague explanations like “found in father’s folder”
Given the strong AI-based evidence, the taxpayer:
- Withdrew the false deduction
- Filed a revised ITR
- Paid capital gains tax correctly
No prosecution was reported, but under Section 270A, such misreporting could attract 50% penalty, and in some cases, even Section 276C (wilful tax evasion) proceedings.
What this means for taxpayers
Here’s what all taxpayers should take away from this case:
- Don’t fake deductions – AI will catch up
- Preserve original bills – Photocopies won’t help in scrutiny
- Check your claims before filing – Once flagged, you’re on the radar
- Capital gains scrutiny is tightening – Especially post-property sales
Expert Tip: Don’t trust your “builder uncle” with inflated bills
Many small builders or agents offer to “manage” capital gains by giving fake improvement bills. This case is a warning: AI + I-T scrutiny = no escape.
If you genuinely improved the property:
- Pay via bank transfers or cheques
- Keep GST invoices, bank statements, and photographs
- Don’t rely on forged or backdated documents
Capital Gains vs AI: Who wins?
| Particulars | Old Process | Now (AI-driven) |
|---|---|---|
| Claim validation | Manual scrutiny | AI tools, font forensics, patterns |
| Evidence check | Random sampling | Digital metadata analysis |
| Risk of detection | Low if bills looked genuine | Very high with AI tools |
| Time to flag a mismatch | Weeks/months | Real-time or within hours |
| Outcome for false claims | May escape | High penalty + prosecution risk |
Related compliance reads on Efiletax:
FAQs
Q1. Can I claim indexed cost of improvement without bills?
You need some documentary proof — like invoices, contractor agreements, or bank payments. In absence of bills, claims are risky.
Q2. What if my genuine bills are old and faded?
Scan and save digital copies early. During scrutiny, even indirect evidence like TDS on contractor, bank payments can help.
Q3. Will Income Tax send AI report to me during notice?
No. You’ll get a notice under Section 143(1)(a) or 143(2). But the AI flags trigger deeper scrutiny silently.
Summary
Income Tax used AI font forensics to bust a fake ₹68.7 lakh deduction under ‘cost of improvement’. The bill used Calibri font, which didn’t exist in 2002. Taxpayer withdrew claim and paid correct capital gains.
Conclusion
AI isn’t just hype — it’s already changing how the Income Tax Department detects fraud. Don’t play smart with backdated bills. If you’re unsure about your capital gains reporting, talk to trusted professionals.