Ok I've tried everything you suggested but nothing seems to help. However when I switch the creation flag to AUDITION_MODE it seems to initialise the SoundBank, but the program still won't play sounds using soundBank interface. Both of the cases the return value of pXACT3Engine->Initialize(&XACT3Parameters); was S_OK.
Maybe it is the library problem as pXACT3Engine->CreateSoundBank function is declared in xact3.lib and I dont have it in my directX SDK library folders. And also when installing my directX SDK at the end I get the error that says something like S 1024 or 1028