Hi Ranjeet,
Thanks for the information.
It seems that the issue that you are experiencing is MDM coding error, the issue was fixed in SP12, and occurs when the XML source file has only 2 levels.
The possible workaround is to Import manually as was mentioned by you, or to use XML files with more than 2 levels.
Thanks & Best regards,
Alina Vainshtain,
MDM Development