Panjikar, a Mechanised Infantry officer, had completed two years of his three-year tenure in Berlin and has returned home, ministry sources said.
An army official said the officer has been recalled "on the directions" of the ministry.
"There is a likelihood that the officer may have exceeded his brief in the execution of his duties," they said.
Panjikar's recall comes just days before Defence Minister Pranab Mukherjee is embarking on a high-level visit to Germany to interact with German leadership and defence industry.
Though the ministry officials were tight-lipped, highly placed sources said the intelligence agencies had tapped his phone conversations with armaments companies.
Though German defence companies have yet to secure major contracts with India, some of the leading companies are exporting counter electronic warfare equipment to India.
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