Hello Hari
Technically speaking, the standard transactions should not allow you to create a recursive product group. The following error message is triggered, in order to avoid such kind of inconsistency:
Message no. MA231 - Product group TST_PP_CA_PG02 in plant 1000 causes recursion
So the question here is how are you creating such product groups? If you are running a custom program or a direct input on table PGMI, then you must correct the entry direclty on the table.
Best regards
Caetano Almeida