[Luke M]

I only have 5.1 speakers, so I can't fully confirm if 7.1 is working or not.

But when I play the 7.1 audio test file from Fraunhofer, I can confirm that both Back and Side audios are coming out of my back/surround speakers.
Doesn't it mean that my setup is capable of handling 7.1 audio?

No. Even if Kodi is set to 7.1 (is it?), the channels could be reversed. That was the original problem with 7.1. More recently, it doesn't work at all.

In Kodi --> Systems --> Audio, I set it to Best Match, 5.1.

As I've mentioned above, I can hear all 7 audio channels "correctly" (Side Left and Back Left from my Surround Left, Side Right and Back Right from my Surround Right) using Fraunhofer test file.

Obviously Kodi can decode 7.1 and downmix to 5.1. That is completely independent of Android. To test the sound output you have to set Kodi to 7.1. (But if your AVR downmixes the 7.1 to 5.1, then you won't know about reversed channels).