(a) the correctness of the claim of expenditure made by the assessee; orin relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2).
(b) the claim made by the assessee that no expenditure has been incurred,
(2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:—
(i) the amount of expenditure directly relating to income which does not form part of total income; andProvided that the amount referred to in clause (i) and clause (ii) shall not exceed the total expenditure claimed by the assessee.
(ii) an amount equal to one per cent of the annual average of the monthly average of the opening and closing balances of the value of investment, income from which does not or shall not form part of total income :
Reference/Source: Check at Income Tax site for latest version of the Rules - link