Telangana restaurants among top evaders in Rs 70,000 crore tax scam

Hyderabad: An investigation into Hyderabad’s biryani chains revealed that there is a greater tax evasion scam worth at least Rs 70,000 crore in the restaurant industry, with Karnataka recording the highest evasion and Telangana not far behind.

The Income Tax Department reportedly used data analysis and artificial intelligence (AI) tools to inspect 60 terabytes of data on the pan-India billing software used by over 1 lakh restaurants. The investigators found that although customers paid, the bills were being systematically deleted or altered.

These places reportedly suppressed sales turnover worth approximately Rs 70,000 crore since the 2019-20 financial year, the Times of India reported.

The evasion was discovered when an income tax investigation team searched a biryani restaurant chain in Hyderabad. The officials acted under Section 133A of the Income Tax Act and conducted survey operations to compare the restaurant’s computer records with actual sales. Following the discovery, several instances of tax evasion were found in tiffin centres as well.

Officials have yet to estimate the tax and penalties on the unreported income.

To filter through the cache of samples, the officials used generative AI tools, which found that the billing software handles at least 10 per cent of the total restaurant billing market in India. The data collected tracked 1.77 lakh restaurant IDs using the software, while post-billing deletions worth Rs 13,000 crore were recorded by the software provider.

The suppressed bills in Andhra Pradesh and Telangana alone reached Rs 5,100 crore, TOI reported.

How the restaurants suppressed incomes

Generally, restaurants enter sales from Unified Payments Interface (UPI), card and cash into the software to prevent servers, cashiers and managers from committing malpractice.

However, there was one repeated anomaly in the documents accessed by TOI. The cash invoices were selectively deleted, meaning the restaurants allegedly kept only a portion of their cash entries and deleted the rest to lower the tax payment on their sales.

The second pattern detected was the deletion of bills in bulk. These restaurants reportedly erased bills from a specific date range, with some even going up to 30 days of billing. After deleting them in bulk, they would file income tax returns that reflected only a little of the actual sales incurred during the period.

Highest evasion found in Karnataka, followed by Telangana

The evasion was recorded across India, with Maharashtra, Gujarat, Karnataka, Telangana and Tamil Nadu emerging as the top five states involved.

Karnataka recorded the highest number of incidents of bill deletion, with approximately Rs 2,000 crore. There were deletions worth Rs 1,500 crore reported in Telangana and Rs 1,200 crore in Tamil Nadu.

As many as 416 cases in Hyderabad showed suppression of sales amounting to more than Rs 1 crore. Some restaurants did not even go as far as to delete bills, as they simply told the tax department they earned less than the actual amount.

The report stated that the Central Board of Direct Taxes decided to expand the probe across the country after initial probes conducted in Hyderabad, Visakhapatnam, and other towns in Telangana and Andhra Pradesh showed the software used in deleting bills.

Using the data procured at the billing software provider company headquartered in Ahmedabad, officials examined the transactions at the income tax department’s digital forensic and analytics lab in Hyderabad.

Officials concluded that 27 per cent of the total sales were being suppressed based on the sample estimate, but were apprehensive that their current findings may be just the tip of the iceberg.