Hooking cassette player to amplifier confirmed all works good, so the problem lays in sound card or software side. Quick searching around brought a post from Ubuntu forums – it turns out line-in is muted by default.
This can be solved quickly by installing graphical Alsa Mixer:
sudo apt-get install gnome-alsamixer
Launch it from start menu: Sound & Video > GNOME ALSA Mixer and uncheck Mute next to Line section:
After doing that Audacity successfully captured signal comming in.