Apple Pencil & touchbar of ipad pro are not working with sidecar

I am trying to mirror my mac book pro (16-inch, 2019, running with latest version) to iPad 8th Gen (running with latest version) using sidecar.

I want to use apple pencil on extended screen. I am able make use of sidecar and screen got extended but pencil and iPad touch multi gestures are not working. I have to use Macbook keyboard and trackpad to function iPad pro.

I have connected the ipad and macbook with a wired connection and have tried the following -

• Restarting both macbook and ipad and connecting again
• Making sure HandOff is enabled on both devices
• Making sure Apple pencil is connected.
• Tried creating a new admin user but still no luck

Please help me set this up else spending all these hundreds of dollars do not make any sense for me!