I have a level 70 scoundrel and selected Surprise Comeback as my last utility passive. Supposedly Surprise Comeback reduces damage taken by 20% for the duration of Pugnacity as well as grant 5% of total health every three seconds. When I activate Pugnacity with the Surprise Comeback utility passive learned I see myself regenerating health. However, I cannot see the damage reduction in the character pane defense tab. Is this utility passive really working?

Yes it is working.

"Reduces damage taken" does not show up on the character sheet. It is calculated separately and it is working but you won't see it anywhere except combat logs or watching the incoming damage FlyText. There are a ton of those, 15% from Maul in Deception, 40% from Invincible on Immortal and so on. Typically, if it is worded "Increases Damage Reduction by X %", then it will be directly added to the DR on your character sheet. If it is worded "Reduces damage taken by X %" or "Target takes X % less damage", it will not go onto the character sheet and it will be calculated separately from your regular DR.