Atwal and three others were in 1987 convicted of attempted murder of Akali Dal leader Malkiat Singh Sidhu.
Atwal was also photographed with Canadian Minister of Infrastructure and Communities Amarjeet Soni during the same event in Mumbai.
The Canadian High Commission said, "We have rescinded Jaspal Atwal's invitation (for dinner reception with Canadian PM Justin Trudeau in Delhi)".
Wearing an off-white kurta-pyjama and head covered with a "kesari" (saffron) pattka, Justin Trudeau entered the Darbar Sahib complex with his wife Sophie, who was wearing a turquoise kurta, and their children, who were also wearing traditional Punjabi outfits.
"I can confirm that the High Commission is in the process of rescinding Mr. Atwal's invitation", PMO spokeswoman Eleanore Catenaro said, as per the report. "We do not comment on matters related to the PM's security", Canadian Consulate in Mumbai told ANI.
During the meet, Trudeau reportedly assured the Punjab CM that Canada does not support any separatist movements.
Teens stage 'lie-in' outside White House for gun reform
During the White House meeting, Andrew Pollack , father of slain student Meadow Pollack , told Mr Trump to "fix it". The White House is considering taking action to change the country's gun laws.
This controversy could not possibly have emerged in a worse possible time.
Khalistan was the primary concern raised by Punjab Chief Minister Amarinder Singh during his meeting with Canadian Prime Minister Justin Trudeau on February 21. Only yesterday, the PM met Punjab CM Amarinder Singh, who had been vocal about his displeasure with Trudeau's stand on the Khalistan movement. "We support one united India".
Singh has in the past called four Sikh ministers in Trudeau's cabinet "Khalistani sympathizers" and previous year refused to meet with one of them, Defence Minister Harjit Sajjan.
Nevertheless Trudeau had said in an event, "We of course reject violence and hate speech".
Amritsar: Punjab Chief Minister Amarinder Singh today announced a grant of Rs 100 crore for several development works here and said paucity of funds would not be allowed to scuttle implementation of these projects.