Section 32AB deduction must precede set off of carried-forward losses, preserving the assessee's entitlement under the statute.

Section 32AB deduction was required to be allowed before set off of brought forward losses and unabsorbed investment allowance under Section 72. Sections 28 and 29 govern computation of business income, while set off and carry forward operate separately under Chapter VI; the amended Section 32AB expressly fixed that sequence and was intended to remove hardship. The deduction could not be denied merely because, after other adjustments, no positive business income remained. The assessee was therefore entitled to the deduction, and the statutory priority of Section 32AB prevailed over contrary sequencing arguments.

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Issues: Whether deduction under Section 32AB of the Income-tax Act, 1961 had to be allowed before set off of brought forward losses and unabsorbed investment allowance under Section 72 of the Income-tax Act, 1961, and whether the absence of positive business income after such set off could justify denial of the deduction.

Analysis: Sections 28 and 29 of the Income-tax Act, 1961 govern computation of income under the head "Profits and gains of business or profession", while matters of set off and carry forward are dealt with separately in Chapter VI. Section 32AB, as amended by the Finance Act, 1987, expressly provided that the deduction was to be allowed before the loss brought forward from earlier years was set off under Section 72. The amendment was intended to remove hardship and makes the statutory sequence clear. The deduction could not be denied merely because, after giving effect to other adjustments, no positive income remained. The reasoning based on priority of earlier allowances and investment allowance did not override the plain language of Section 32AB.

Conclusion: The deduction under Section 32AB had to be granted before set off under Section 72, and the assessee was entitled to the deduction; the questions were answered in favour of the assessee.

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