I have an x3 diesel latest model bought it at an auction. Now it had a heavy diesel knock sound. So I decided to open the top. When I did, I saw neither visual damage on my injectors nor the cylinder head. But one piston is not reaching the highest level of tdc. What could have caused this? Secondly do I have to remove the diff in order to take out the sump
Agreeing with @Zaid on con rod deformation. The only way you are going to be able to tell is by taking it apart. I don't think I worry too much about pulling the diff to get the sump out, but just pulling the entire engine. If you are seeing that the piston is not reaching it's potential inside of the bore, you have something going on in the bottom end which will need attention (possibly a complete rebuild). You can take the sump off, but ultimately the engine will have to come out to get it fixed correctly. By pulling the engine, you'll be able to see more directly what the issue is and get it fixed. Pulling the sump is just extra work for something you know will have to be done anyway.