The function of the Finance Commission of India is to distribute revenues between the Union and the States. This is covered in statement 2, which states the commission`s role to allocate between the States the shares of proceeds of taxes.

Furthermore, the Finance Commission also looks at applications for grants-in-aid from States, as per statement 3. Grants-in-aid are a form of financial assistance provided by the Centre to the States to supplement their resources.

Statement 1, which mentions the withdrawal of money from the Consolidated Fund of India, isn`t accurate as the Finance Commission does not have this power.

Statement 4, which suggests supervision and reporting on the Union and State governments` tax activities, isn`t exactly correct either. While the Finance Commission does review the country`s financial position, it is not tasked with budgetary or tax compliance supervision.

Therefore, only statements 2 and 3 are correct, making option 2 the correct answer.