In Application Manager, following configuration is made.
DOM => Document Specific => Sales Order => Fulfillment => Transaction Specific Rules
'Action to take on parent line when chained line is canceled' is set to Cancel.
Even with above configuration, parent sales order's orderline is not going to cancelled status when corresponding procurement purchase/transfer orderline is cancelled.
This behavior is Working as Expected. Product will always unschedule sales order's orderline when corresponding procurement purchase/transfer orderline is cancelled.
If one procurement order is cancelled , there may be other nodes from where system can procure the supply. So sales order is not cancelled irrespective of the configured rule. These procurements are internal supplies and there can be multiple nodes from where procurements can happen. So if one procurement order is cancelled there is still a chance that it can be fulfilled from another node.
'Action to take on parent line when chained line is canceled' configuration is applicable for non procurement parent child orders.
In this case if supply itself is not present at the vendor then it will never be fulfilled. So system cancels/unschedules based on the rule.