Found the answer to the issue.
"pip install sentence_transformers" is installing the package to "/anaconda/envs/azureml_py38/lib/python3.9/site-packages"
Open a terminal on your VM and go to "/anaconda/envs/azureml_py38/lib$" Try to find what are the different python packages present under the library by using cd python3.1 and press tab.
(azureml_py38) azureuser@<>-compute:/anaconda/envs/azureml_py38/lib$ cd python3.1 python3.1/ python3.1.c~/ python3.10/
azureml_py38 already has python 3.10 & everything is getting installed to the python3.10 under azureml_py38 kernel instead of azureml_py310_sdkv2 kernel.
Temporary solution till Microsoft fixes it:
cp /anaconda/envs/azureml_py310_sdkv2/lib/python3.10/site-packages
Recursively copy the package from azureml_py38 using following command : cp -R /anaconda/envs/azureml_py38/lib/python3.9/site-packages site-packages
Perform the same for other xgboost & bs4.
Directly import the packages in your SDK V2 3.10 kernel ipynb file.