Unfortunately I was using old version of lite-c, now I updated to the latest version and got the same problem with pointers and handles.

I set "warn_level" to 1 and in "functions.c" in "handle_weapon_collision()" deleted "you=animate_ent" line and IGNORE_YOU in c_trace.
Then changed "if(you!=NULL)" to "if(you!=NULL && you!=animate_ent)".

EDIT: Works better with only IGNORE_YOU deleted in c_trace without other changes.
It looks like everything is working now but the weapon collision is a bit jerky, as the combatants sometimes hit something in mid air.

Hopefully, someone with more knowledge would look at the code and see what we are missing.