Interest Income From NRE account Invested in Mutual Fund

One of my Friend has received intimation from Income tax department for Non filing of returns

The assessed has invested Rs.1200000 in mutual funds and now department is asking for the source of income.

Income source is from Interest on fixed deposits in NRE account which is received till last 6 years and than transferred to Indian Bank account and than invested in mutual fund

please guide me regarding taxability of above income and steps to to be taken further