PetPuja POS Controversy: How AI-Driven Tax Enforcement Is Reshaping Compliance for Restaurant Businesses in India

Introduction: The Digital Shift in Tax Administration

The rapid digitisation of commercial transactions has fundamentally transformed how tax authorities across the globe monitor and enforce compliance. In India, the widespread adoption of cloud-based Point-of-Sale (POS) systems by restaurants and retail establishments has generated an enormous volume of digital transactional data — data that income tax authorities are now actively leveraging to scrutinise reporting accuracy.

In the latter half of 2025, tax authorities initiated focused investigations into multiple restaurant chains after identifying significant gaps between the turnover declared in income tax returns and the actual operational activity reflected in digital records. What made this investigation particularly notable was the revelation that the observed discrepancies appeared to be connected — at least in part — to POS software platforms that enjoy wide adoption across the food service industry. The platform at the centre of this controversy is PetPuja, a cloud-based POS solution used extensively by restaurants.

This article examines the key dimensions of the controversy, the legal framework within which enforcement action is being pursued, the industry's perspective on the data mismatches, and the practical steps available to affected businesses.

Detection of Alleged Turnover Suppression

The investigation originated during routine data verification exercises, when tax officials noticed a pattern: restaurants recording substantial customer footfall were simultaneously declaring disproportionately low turnover figures in their income tax returns.

A cross-referential analysis of digital transaction data revealed inconsistencies across three key data streams:

  • POS transaction logs maintained within the cloud-based system
  • Turnover figures declared in income tax returns filed with the department
  • GST outward supply details reported through GSTR-1 and related statements

Under the Income Tax Act, 1961, suppression of sales directly impacts the computation of income chargeable under the head "Profits and Gains of Business or Profession." Concealment of sales receipts reduces taxable income, and where intentional suppression is established, it triggers not merely demand of differential tax but also exposure to penalty provisions under the Act.

Alleged Mechanisms of Revenue Suppression

Based on preliminary findings reported from the investigations, authorities identified several operational practices that may have facilitated underreporting of business income.

Deletion or Alteration of Cash Transaction Records

Authorities alleged that certain establishments exploited back-end administrative features within the POS system to delete or modify billing records after the transactions were completed. In some instances, it was reported that entire batches of transactions spanning multiple days were deleted in bulk — potentially in the period preceding the filing of GST returns and income tax returns.

Maintenance of Parallel Accounting Records

A further allegation involves the creation and maintenance of dual datasets within the POS environment:

  1. One dataset reflecting actual sales figures generated through day-to-day operations
  2. A second dataset containing revised or reduced figures, used as the basis for formal accounting entries and tax filings

Such a structure, if established, would facilitate systematic underreporting of revenue over extended periods.

Access to Cloud-Stored Transactional Data

From a technical standpoint, one of the most significant developments in this investigation has been the manner in which tax authorities accessed the relevant data. Officials reportedly obtained access to transaction records stored on the cloud servers of the POS service provider, enabling them to:

  • Link GST Registration Numbers of restaurant operators with their PAN details
  • Cross-reference actual billing data stored on the POS cloud servers against the figures declared in GST returns and income tax returns