The ministry has begun looking into the deal that saw Kraft buy the historic British chocolate maker, including its Indian unit Cadbury India, for US$19.6 billion in February last year.
The ministry was asked to begin an investigation last month by the Delhi High Court in response to a case filed by a social activist who campaigns against corporate tax fraud, the Press Trust of India reported.
"I am directed to inform you that taking cognisance of the petition filed by you, action has been initiated in the matter under income tax laws," senior ministry official Salil Mishra said in a letter addressed to the activist.
The investigation echoes a similar Indian probe into a 2007 deal between Britain's telecom giant Vodafone and Hong Kong-based Hutchison Whampoa that saw Vodafone hit with a $2.53-billion tax bill.
Vodafone had spent $11.1 billion buying a 67% stake in Hutchison Whampoa's Indian mobile unit.
The British group, which says the tax bill is against all international norms, maintains it has nothing to pay in India because the transaction took place in the Cayman Islands and both buyer and seller were foreign.
It has appealed to the Supreme Court, but the case is being closely watched by international investors because of its implications for other big-ticket purchases of Indian firms by foreign companies.
Source: AFP
