How to create exchange mail user if that user already exsisit in entra id

Good day Naveen, 

Just to gently clarify before we go any further, this is a user‑to‑user support forum. I don’t have the ability to access or investigate individual accounts because this is a user‑to‑user support forum.

The proxy address already in use error occurs because the email address is already assigned to an existing Microsoft Entra ID account. In Exchange Online, the same email address can be associated with only one recipient object. 

Here are some options you may consider: 

Option 1: Assign an Exchange Online license (Recommended) 

Use this option if the user is an internal employee who needs a mailbox. 

Open Microsoft 365 admin center > Go to Users > Active users > Select the user. 

Open Licenses and apps. 

Assign a license that includes Exchange Online and ensure the Exchange Online service is enabled. 

Save the changes and allow time for the mailbox to be created. 

Once provisioning is complete, the user will appear under Exchange admin center > Recipients > Mailboxes and you can add the user to the distribution list. 

Option 2: Use a mail user for external email delivery 

If the user needs a Microsoft 365 sign in account but email should be delivered to an external address: 

1/ For synchronized accounts, you can mail enable the user from the on premises Exchange environment, allow directory synchronization to complete, and then manage the recipient in Exchange Online. 

2/ For cloud only accounts, Exchange Online doesn't support converting an existing Entra ID user directly into a mail user. In this situation, you can: 

Assign an Exchange Online license and use a mailbox. 

• Create a separate mail contact using another external email address that isn't already in use. 
• As a last resort, you may recreate the account as a mail user if deleting the existing cloud-only account is acceptable. Before proceeding, ensure that any required data, group memberships, permissions, application assignments and other dependencies are reviewed and preserved. If the original account continues to reserve the UPN or proxy address after deletion, it might need to be permanently deleted before the same address can be reused. Please note that permanent deletion cannot be undone. 

I completely understand how inconvenient this Exchange Online limitation can be. As a forum user, I hope you understand that I don’t have the ability to modify or escalate product issues directly. However, I strongly recommend submitting your feedback through the Exchange Online · Community. This is the most effective way to ensure your voice reaches the product team and can be considered for future improvements.  

Once you've submitted your feedback, feel free to share the link here in the comments. I’ll be happy to upvote it to help bring more visibility.  

Additionally, as other users have raised similar concerns and may not be aware of where to share their feedback, I hope this response helps clarify the situation and suggests a potential next step. Highlighting this information can make it more visible to others in the community who may be facing the same issue, making it easier for them to find guidance and contribute their feedback as well. 

Thank you again for your time and for raising this important usability concern. 

 If you have any extra questions about this answer, please click "Comment".