Mr Asthana is the CBI's number 2 officer after director Alok Verma. The centre told the court that he has an "outstanding career" and is investigating over 40 high profile cases including the VVIP chopper deal, the coal scam case and money laundering.
The NGO Common Cause had challenged the Gujarat cadre Indian Police Service (IPS) officer's appointment as "illegal and arbitrary", arguing that his name had been found in a diary seized during tax raids on a company being investigated by the CBI.
Senior lawyer Prashant Bhushan, representing the NGO, said the officer's name was in the list of officials bribed by the company, Sterling Biotech, and his son worked for it.
A person working in the CBI must have institutional integrity, Mr Bhushan said. He added that the CBI Director had also raised concerns about Mr Asthana's appointment at a meeting of the selection committee, which includes the Chief Vigilance Commissioner.
The selection committee had overruled the CBI's objection, noting that "there is no finding in these papers that the person mentioned is the same person being considered for appointment..."
Rubbishing the allegations, the centre said in court that Mr Asthana's appointment was unanimously decided by the selection panel. It also argued that action "cannot be taken against any officer on the basis of unverified and unsubstantiated reports" as it would ruin his career.
Mr Asthana headed a Special Investigation Team that inquired into the 2002 Godhra train burning that triggered communal violence across the state.
He served as interim CBI chief for some time last year.
The petition challenging Mr Asthana's appointment had referenced a news report on Vijay Mallya, the tycoon wanted in India for defaulting on crores in loans.
In a hearing in the UK, where Mr Mallya has been staying since last year, Mr Asthana's appointment was cited as an example of the CBI's "lack of integrity" by London University professor Lawrence Saez, working as an expert on the liquor baron's defence team.