retryWhen operator never retries

I'm implementing a DB update approach with retrials.. Following the common pattern for retryWhen() operator as explained here: Using Rx Java retryWhen() ..

..But my retry logic never executes. I'm debugging it and can see the breakpoint hitting at place 3 shown below but it never goes back to retry logic at place 2. After place 3, its always going to place 4 which is the onComplete handler.

(Code is using Java 8 lambdas)

I've applied a workaround by removing the retryWhen() block altogether and now invoking the updateWithRetrials() recursively from subscribe's > onError() block. That is working but I don't like that approach.

Please can anyone suggest what is incorrect when I use retryWhen() operator ?

private void updateWithRetrials(some input x)

{

   AtomicBoolean retryingUpdate = new AtomicBoolean(false);

   ...  

   // 1- Start from here
   Observable.<JsonDocument> just(x).map(x1 -> {

       if (retryingUpdate.get())
       {
          //2. retry logic
       }

       //doing sth with x1 here
       ...
       return <some observable>;

   })
   .retryWhen(attempts -> attempts.flatMap(n -> {

       Throwable cause = n.getThrowable();

       if (cause instanceof <errors of interest>)
       {
          // 3 - break-point hits here

          // retry update in 1 sec again
          retryingUpdate.set(true);
          return Observable.timer(1, TimeUnit.SECONDS);
       }

       // fail in all other cases...
       return Observable.error(n.getThrowable());
   }))
   .subscribe(
          doc -> {
                    //.. update was successful   
                 },

          onError -> {
                    //for unhandled errors in retryWhen() block
                  },

              {
                // 4. onComplete block

                 Sysout("Update() call completed.");
              }

     ); //subscribe ends here

}