The final straw was the Delhi High Court verdict in CIT vs Ram Commercial Enterprises Ltd (246 ITR 568) to the effect that recording of such satisfaction under this section is a sine qua non, implying thereby that in its absence the entire penal proceedings would be vitiated.

Parliament has chosen to put the issue beyond the pale of doubt by inserting Section 271 (1B) vide the Finance Bill, 2008, which in effect says that if the assessing officer (AO) directs initiation of penal proceedings in his assessment order that itself is sufficient and no specific recording of satisfaction under Section 271(1) is necessary. Thus the above Delhi High Court verdict is proposed to be overruled.

What Parliament has effectively said is a direction to initiate penal proceedings virtually amounts to his being satisfied that the assessee has evaded tax and, therefore, there is no need to repeat himself again. This is fine as far as it goes.

But there is a more fundamental issue that curiously has not aroused any legislative or judicial interest. Should the issue of launching penal proceedings be left to the discretion of the assessing officer? Because if his order does not contain a direction to initiate penal proceedings then obviously no penalty can be imposed unless the Commissioner (Appeals) or the Commissioner in the course of any proceedings under the I-T Act chooses to make good the omission of the AO and directs initiation of penal proceedings.

The saga of discretionary power does not end here and runs right through the chapter on penal proceedings. Despite being thus satisfied, it is not incumbent on these officers to impose penalty. Apparently, whether to impose penalty or not is left to be decided by the officer on the touchstone of the severity or enormity of the crime or may be even on the touchstone of mens rea (criminal intent).

But once the officer makes up his mind to impose penalty then such penalty must range from 100 per cent to 300 per cent of the tax sought to be evaded. This again gives a discretionary power that is fraught with dangerous consequences encouraging out-of-court settlement, so to speak, involving haggling and mutual back-scratching.

To be sure, an officer of the rank of AO and an officer of the rank of assistant or deputy commissioner cannot impose penalty in excess of Rs 10,000 and Rs 20,000, respectively, without the prior sanction of the Joint Commissioner but still the possibility of collusive frauds lurks.

Power corrupts and absolute power corrupts absolutely goes the saying. One might add that discretionary power is the worst form of absolute power. Indeed discretionary power has been the fountainhead of corruption in this country as elsewhere. Parliament should, therefore, eliminate discretion that marks the penalty regime at every step.

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