Share-brokers can claim deduction in respect of sum irrecoverable from clients as bad-debts:

Assessee, a share broker, purchased shares on behalf of his clients and paid money in respect of the same from his own pockets. Brokerage receivable by him was shown as income in his books of accounts. Since the sum paid by him couldn’t be received from the clients, he wrote off the same as “bad-debts”. AO denied the said claim since he was of the view that condition prescribed u/s 36(2) was not satisfied. On appeal, the Hon’ble ITAT, Ahmedabad held that the money receivable from clients had to be treated as “debt” and since it became bad, it was rightly claimed as “bad-debts”. Since the brokerage payable by the clients was a part of the debt and that debt had been taken into account in computation of income, conditions prescribed u/s 36(2) r.w.s. 36(1)(vii) stood satisfied. Hence, the assessee was entitled to the deduction of the said bad-debts. Hon’ble ITAT followed the ratio laid down in the case of Bonanza Portfolio Ltd. – 320 ITR 178 (Delhi).

[ACIT vs. Cannon Capital and Finance Ltd. – ITA No.1578/Ahd/2012]