Today was the GPIO issue day I suppose.
THE ONE BIG MISTAKE.
That was I forgot about the A and B pins of the Rotatory encoder. One smart girl I am :|
I figure i need more then 14 pins of the XIAO RP2040. I straight up asked chatGPT and as per its suggestions I have now added the MCP23017-E_SP GPIO extender. It has given me total of 16 extra GPIO pins and now. I found and added the Symbol and footprint from a github repo. And thankfully it seems to be working.

I am now learning how to adjust my placements, work with Via and properly manage the wiring in PCB design. I hope I can make it proper soon.

Thats all for today