After much debugging I found that it is happening because commerce_shipping a...

After much debugging I found that it is happening because commerce_shipping adds a line item, and then deletes it. There are commerce_shipping rules which does that. I tried altering the weights of those rules and the discount rule, but it is not working.

Since, the order update causes causes commerce_discount_commerce_cart_order_pre_refresh() to invoke, therefore, altering the priority of the rules is not going to work.

This is the patch that should fix the issue.