Hi
Missed out one important update....please ignore the last post. The Check Instruction for the Component was not configured for PAL.
But when I had enabled that, during SO creation system is giving below error...
*******************************************************************************************************
Error details:
Characteristics combination for item /000000 was not found
Message no. /SAPAPO/ATP201
Diagnosis
The system could not determine the following data:
The characteristics combination for the item /000000/ that is used to choose product allocation quantities in the characteristics combinations directory of product allocation group XCMP
Suitable entries for collective product allocations of the characteristics combination from the sales order
System Response
The system does not execute the check against product allocations.
Procedure
Expand the characteristics combinations directory (for example, using the planning hierarchy) to include the missing characteristics combination or the collective product allocations that correspond to the characteristics combination from the sales order.
*********************************************************************************************************
I guess I have understood the reason for the error (I am assuming 
). During order creation system is exploding BOM and going into the PAL of Component and in the XCMP MPOS for component it is not getting combination corresponding to the header material and giving error.
I tried to fix it by creating CVC for header in the component PAL. That resolved the issue. But then I have observed below things:
Checking Instruction @ header MATP section....
a. creating remaining reqmt at header : System is not checking component stock at all--hence no question of Allocation for component. In fact it is stating missing parts for component of 300 qty although it has stock of 300 qty.
b. creating remaining reqmt at component (reduc confirm): Below is the screen shot
Two things I have question for: 1. Component Allocation not getting considered
2. Why 1300 is getting considered when component requirement is showing as 'unchecked' ?
C. creating remaining reqmt at component (retain confirm): Result is same as that of a.
Please help in getting the answer for the puzzle.
Regards,
Jayc