Natural justice in section 80G approval matters requires prior notice and a real chance to rebut adverse findings before rejection.

Rejection of approval under section 80G and cancellation of provisional registration were held unsustainable where the assessee was not confronted with the adverse material, including the computation of religious expenditure, and was denied an effective chance to rebut the proposed action. Clause (ii)(b)(B) of the second proviso to section 80G(5) of the Income-tax Act, 1961 read with rule 11AA(5) required prior notice before such adverse action, and the denial of a real opportunity to respond violated natural justice. The matter was remanded to the Commissioner for fresh consideration after giving the assessee adequate opportunity to explain the basis of the proposed rejection.

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Issues: Whether the rejection of the application for approval under section 80G and cancellation of provisional registration were vitiated for want of prior notice and opportunity to rebut the adverse computation and findings.

Analysis: The application was rejected and the provisional registration was cancelled on the basis of adverse findings, including the computation of religious expenditure, without confronting the assessee with the material or granting an effective opportunity to meet the proposed action. The statutory scheme under clause (ii)(b)(B) of the second proviso to section 80G(5) of the Income-tax Act, 1961 read with rule 11AA(5) of the Income-tax Rules, 1962 required notice before such adverse action. Since the assessee was denied a real and reasonable opportunity to rebut the basis of rejection, the action offended the principles of natural justice.

Conclusion: The rejection and cancellation could not be sustained and the matter was remanded to the Commissioner for fresh consideration after giving the assessee adequate opportunity to respond.

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