According to the IT Department it is mandatory to quote the PAN on IT returns - in fact on all correspondence with any income tax authority. From 1st January 2005 it has also become mandatory to quote the PAN on challans for any payments due to Income Tax Department. 

It is also compulsory to quote the PAN in all documents pertaining to financial transactions that are notified from time-to-time by the Central Board of Direct Taxes. Examples of such transactions include (but are not restricted to) the sale and purchase of immovable property or motor vehicle or payments in cash, of amounts exceeding Rs. 25,000/-to hotels and restaurants or in connection with travel to any foreign country. It is also mandatory to mention the PAN when obtaining a telephone or cell phone connection. Likewise, the PAN has to be mentioned for making a deposit exceeding Rs. 50,000/- with a Bank or Post Office or depositing cash of Rs. 50,000/- or more in a Bank.

For more information see this information provided by the IT Department.