I have nearly solved my issue so I hope this helps me to solve your issue.
Today I did exactly as I said in the previous post. (moved receiver next to TV so I could try a shorter cable). When I connected the Onkyo using a name brand 3' hdmi cable that was still in packaging advertizing ARC, Ethernet, 4K and every other bell and whistle an HDMI can have the setup worked flawlessly.
The new cable allowed the tv to instantly recognize the receiver and the return audio worked with zero issues.
Now in my case I think the problem is that I got a cable that did not specifically advertize ARC, I just assumed that ARC and CEC were present for all HDMI 1.4 compatible cables.
My only concern is that the length of the cable is the problem. I have a 30' cable
To the OP, devarajj, How long is your cable??
Also exactly which cable did you order from Amazon (I don't want to order the same one). If it's against forum rules to link to sales from other sites then PM me.
mine is from Buy.com, 30' M/M hdmi from eForcity. http://www.buy.com/pr/product.aspx?sku=226216861
Moderators, I apologize in advance if this violates any policies about posting prices.