Thank you Vincent and Speedcup. I have submitted new binary with IAP linked together. This time IAP option was visible. I think required fields in App Store Connect’s IAP Section are more for approval than for TestFlight testing. Also selected manual distribution for safety. Thanks again.

Thanks Vincent for your input. I was not aware that IAP approval is separate than App's approval. I entered all the details in App Store Connect's In-App Purchase section. I think I will have to submit new binary and will have to somehow connect IAP with it. Will take it from here. Thanks.