Hi Muzamil
Please refer below
In the extended classic scenario, you cannot assign a contract to a limit item. In the classic scenario, you can, as long as the confirmation and invoice flag is checked (it is not possible if only the invoice flag is checked). However, this is possible in the local scenario,that is you can assign a contract to a limit item in the local case (not extended), if the invoice only flag is checked.
1723485 - The item number of the contract not available in limits,
Note 1358679 - Contract Limit fields enabled in extended classic scenario
http://scn.sap.com/thread/3195601
Let me know if this helps
Regards
Vinita