Agricultural Business Loss

If an assessee has Agriculture Business loss can it be set off against normal business income?

These are the potential options I beleive please opine.

1. Treating agriculture income as exempt income - so no question of set off
2. Treating agriculture income as taxable income as per rule (7/7A/7B/8)  and there fore treated at par with business income and there fore set off allowed.

Which of these is correct option?