Android Studio doesn't show suggestion for lambda expression

Question

I have added Java 8 compileOptions in app module

compileOptions {
        sourceCompatibility JavaVersion.VERSION_1_8
        targetCompatibility JavaVersion.VERSION_1_8
}

I also have checked "Anonymous type can be replaced with lambda" in Inspections/Java8 in Preferences

However the suggestion is never shown in Android Studio.

I am using Android Studio Arctic Fox | 2021.3.1 Patch 1

Any help would be appreciated.