Business expenditure disallowance must be computed on pre-investment-allowance profits before applying section 32A relief.

Section 37(2A) was to be applied by computing the prescribed limits on profits and gains of business or profession before giving effect to investment allowance under section 32A. The provision was read as requiring the disallowance base to be determined on pre-section 32A business profits, and the commentary treated that construction as clear and consistent with the statutory text. The resulting effect was that the deduction under section 37(2A) had to be recomputed on that basis.

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Issues: Whether the deduction under section 37(2A) of the Income-tax Act, 1961 had to be computed with reference to the profits and gains of business or profession before allowing investment allowance under section 32A.

Analysis: The statutory language of section 37(2A) required the prescribed limits to be worked out on the profits and gains of the business computed before making any allowance under section 32A. The provision was treated as clear, and the supporting commentary was found consistent with that reading.

Conclusion: The deduction under section 37(2A) had to be recomputed on profits and gains of business or profession before allowing deduction under section 32A, in favour of the assessee.

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