As mentioned in my now edited response, the instructions do seem to contradict the provisions but as stated in the excerpt, there is a possibility that the return may be considered defective, if the conditions mentioned therein, are not complied with.
And in such situations, it is up to the individual to decide upon the appropriate course of action - whether or not to get their books audited, since the instructions do not take precedence over the provisions of the Act.
I’m the one who posted this question. So, just wanted to share update what I did:
I went ahead without audit and carry forwarded losses. There were no issues & ITR was approved.
No disrespect to anyone. Thing is rules do change every year which results into confusion. We can mitigate this only by discussing over the platform like qna.
Respect to @Jason_Castelino because even Nitin kamath(owner of zerodha) was quoting the same thing what you were saying that audit will be required. Indeed the rules were creating confusions.