Attorney General (AG) Mukul Rohatgi told a bench comprising Justices A K Sikri and Ashok Bhushan that the programme of PAN had become suspect as it could be faked while Aadhaar is a "secure and robust" system by which the identity of an individual cannot be faked.
The AG said that due to Aadhaar, government has saved over Rs 50,000 crore on the schemes to benefit the poor as well as the pension schemes.
He also said that Aadhaar was an effective tool to check the menace of terror funding and circulation of black money.
"The idea behind Aadhaar is to make a secure and robust system by which the identity of a person cannot be faked," the Attorney General told the court, which would continue hearing the arguments on Wednesday.
The apex court is hearing three petitions challenging the constitutional validity of Section 139 AA of the Income Tax (I-T) Act which was introduced through the latest budget and the Finance Act 2017.
Section 139AA provides for mandatory quoting of Aadhaar or enrolment ID of Aadhaar application form for filing of income tax returns and making an application for allotment of PAN number with effect from July 1 this year.
Senior counsel Shyam Divan, representing the petitioners, had earlier argued that section 139AA was unconstitutional and was in "direct collision" with the Aadhaar Act.
He had also contended that there was no question of forcing a person to give his consent for Aadhaar and this was an issue which "alters the relationship of Republic of India with its citizens".
The petitioner had also argued that a law-abiding tax payer cannot be forced to give his Aadhaar number while filing income tax returns and this was like an "electronic leash" as government would be able to keep a tab on its citizens.
"Nowhere in the world there is such a biometric system which can track a person 24X7. They (government) are doing it even before the age of consent," he had said during the arguments.
Rohatgi had also clarified that nowhere in section 139AA of I-T Act, was it mentioned that it would be effective with retrospective effect.
The government had earlier told the apex court that fake PAN cards were being used to "divert funds" to shell companies.