this will happen, when in DC *.sbk are open. Close all Schematic pages (not the project!) and Back Annotation will be available.
try to unset the instance and check back.
Still you can make it, Open .prj in with note pad and search for back annotate. If it says "KEY CADBackAnno "0" change it to 1 or "KEY CADBackAnno "1" change it 0
Thank you Michi and Arunraj for your help with this problem.
Michi, your solution did work as I could set the flag to allow back annotation within Design Capture - however it still failed.
Arunraj, I have marked your solution as correct answer as I did this and the back annotation flag, within ExpeditionPCB was now green.
I have since been able to update the schematic, package the design and sucessfully forward annotation to pcb.