Cadbury’s ₹320 Crore Tax Dispute: When Marketing Meets Transfer Pricing

When we think of Cadbury, the first thing that comes to mind is the purple wrapper and the tagline “Kuch Meetha Ho Jaaye.” But for the Income Tax Department, Cadbury (Mondelez India Foods Pvt Ltd) became the subject of a ₹320 Crore tax adjustment, sparking a major legal battle before the Income Tax Appellate Tribunal (ITAT), Mumbai.

The Background

Mondelez India, formerly known as Cadbury India, has been the undisputed leader in the Indian chocolate market. In the assessment year 2015–16, the company incurred significant Advertisement, Marketing & Promotion (AMP) expenses to maintain its market dominance and expand its consumer base. However, the Transfer Pricing Officer (TPO) viewed these expenses differently.

The TPO argued that Cadbury’s AMP expenditure indirectly promoted the global Cadbury brand owned by its overseas Associated Enterprise (AE). Using the controversial Bright Line Test (BLT), the TPO treated the excess AMP spend as an international transaction and made a massive adjustment of approximately ₹287 Crores, along with other related additions, bringing the total tax adjustment to nearly ₹320 Crores.

The Issues Before ITAT

The dispute raised two key questions:

1. Can AMP expenses incurred in India be treated as an “international transaction” with the foreign parent company?
2. Is the Bright Line Test a legally valid method for benchmarking AMP expenditure under Indian transfer pricing law?

Tribunal’s Findings

The ITAT examined the matter in detail and leaned heavily on precedents from earlier years in Cadbury’s own cases, as well as rulings from higher courts:

• No Agreement, No Transaction: There was no agreement obligating Mondelez India to incur AMP expenses on behalf of its parent company. Therefore, these cannot be classified as international transactions under Section 92B of the Income-tax Act.
• BLT is Invalid: The Tribunal reiterated that the Bright Line Test has already been rejected by the Delhi High Court in landmark cases like Sony Ericsson and Maruti Suzuki.
• Local Campaigns for Local Growth: The AMP expenses, including popular campaigns like “Kuch Meetha Ho Jaaye”, were clearly targeted at Indian consumers, and payments were made to third-party vendors in India.

On this basis, the ITAT deleted the entire AMP adjustment, along with related transfer pricing additions, giving full relief to Mondelez India.

Key Takeaways for Professionals

Substance over Assumptions: AMP expenses, when incurred for local market growth, do not automatically qualify as international transactions.

Judicial Consistency: The rejection of BLT by higher courts is binding, and professionals must challenge any attempt by tax authorities to revive it.

Documentation Matters: Businesses must maintain clear records showing that marketing strategies are India-focused and independent of any AE obligations.

Broader Implication: This case is a reminder that transfer pricing adjustments cannot be based on notional benefits; they must be grounded in law and evidence.

Conclusion

The Cadbury-ITAT case reinforces a critical principle: advertising to grow your own market is not the same as promoting your parent’s brand overseas. For businesses and professionals, it is a strong precedent ensuring that tax law respects commercial realities rather than assumptions.

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