"Please do help me how do I read the encoder correctly. "

The link below will help you do just that. Just take some time to glance through the dance and music that the chip designer has gone through to avoid the spurious counts in such encoder ICs and you will realize how futile is it to try and "simply" do that with a few lines of uC code...


http://we.home.agilent.com/USeng/nav...98/pd.html

The link gives you good application notes - just read through them.

Raghu